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Effective Research

Discussion in 'Managed Funds & Index Funds' started by pudsa, 12th Sep, 2006.

  1. pudsa

    pudsa Well-Known Member

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    Some time back the question was posed in Invested as to why there were no investment courses that were truly unbiased (i.e. the promoters/educators wern't trying to push a product) and were truly educational. Apart from a couple of comments that thread didn't get much of a run as far as I recall. However it got me thinking on the question of education and more specifically research.

    From time to time forumites say they are invested in this or that product (referring to managed funds) and I invariably ask myself why/how did they know to invest in that particular product. The answer of course is they did research or possibly received advice from somebody who did the research.

    Therein lies the rub. What is an effective research approach given there are thousands of investment products/vehicles out there. How do we efficiently sort the wheat from the chaff. Read the financial times, look at sites such as ComSec or other bank investment sites (some of which are quite informative) or whatever.

    In sum what is an effective research approach which enables a potential investor to identify good profit making opportunities? What are the research vehicles which enable an investor to accelerate the whole process.

    I for one would love to hear from investors who are able to effectively research potential investments without getting stuck in the quagmire of uncertainty via the myriad possibilities which exist out there some of which may be great, the majority mediocre and a few dogs.
    Cheers
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    First and foremost, you need a goal (or preferably, a series of goals).

    Second, you need a strategy and a plan for what you need to do to reach that goal.

    Third, you need a good understanding of how each of the different investment methods and vehicles work.

    Fourth, you simply apply your understanding to fit investments into your plan with each one being measured to see if it will help you meet your goals.

    Fifth, you need patience and perseverence.

    I find it also helps to have a set of personal investing rules which can also be used as a filter to narrow the choice to something manageable. The trick is to quickly weed out the millions of options out there so that you get no more than a couple of dozen choices at most, and from there the task is far less daunting.
     
  3. pudsa

    pudsa Well-Known Member

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    Thanks for the reply Sim. Here goes:

    1. Goal - financial independance within 5 years i.e by EOY 2011, very achievable given current position

    2. Strategy - Acquire IPs, establish equity, borrow against IPs and margin loan to further borrow.

    3. Investment vehicle/s - seek advice, run around like a stunned mullet, look at many many possibilities, get frustrated, which should I choose.....................ahhhhhhhhhhhhhhh????

    Hence the research thread. Probably like many other I have a goal and sub goals (interim targets), have a strategy but the vehicle for me as an investor (i.e. to do it myself via my research and homework) is a bit vague. Therein lies the problem. Given the possibilities out there one could spend an awful lot of time not to mention money searching, investigating, investing then realising the vehicle is not so great and going through the process again.

    Agree with the peserverance and patience but to do both one has to have faith in the product, effective research provides that faith.
    Cheers, but still :confused:, :)
     
  4. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    But where are you at now ? Have you bought as many IPs as you can afford to ? Are you leveraged as high as you can go with your IPs ? Are you up to the "borrow against IPs and margin loan" part yet ?

    As for the vehicles - you need to have an understanding about what it is you need, and what it is you are comfortable with. How will you know whether a vehicle is "not so great" ? Do you actually know what a good investment looks like ? What are your expectations in regards to returns on your investments ?

    If your chosen investment returns less than some other alternative you could have invested in - does that make your chosen vehicle "not so great" ?

    Do you have surplus income ? Can you afford to go for an aggressive growth strategy, or do you need income ? What's your debt servicability like ? Will the banks gladly lend you money, or will you need to use non-traditional financing ?

    Note that I'm not talking about products here ... I'm talking about strategies. Once you have the strategy right, the products are much more obvious.

    Now if you are getting all hung up over whether you should invest in CFS X fund versus Perpetual Y fund versus Platinum Z fund ... then I think you're overanalysing. Read a few investment magazines and the weekend FIN, or try some Google searches ... look for articles about the fund managers. Read about the managers (not their products). Find a fund manager or three that you like. Invest with them. That makes the decision easier.

    If you compare returns between the top fund managers for similar types of funds, they are relatively close. Sure, some might do 1-2% better over a year ... but you don't know which one that will be in advance ... and I can pretty much guarantee it won't be the same one next year !!

    For example, let's say right now my favourite fund managers are NavraInvest, Platinum, Colonial First State. That narrows the choice down considerably - but still provides a wide range of investment strategies.

    Something I remember quite clearly from a talk that Peter Spann did a while back - he was talking about unlisted property trusts. You wanna know how he researched the investments ? He invested in them ! He put something like $10K in each one that came along, so he could see for himself exactly how they performed - I think it helped him get a feel for how well the investment companies were choosing and managing their properties, so he knew which ones he would recommend to his own clients in the future.

    I might actually have that reasoning wrong, and I certainly don't intend to speak for Peter Spann ... but the key point is that you don't KNOW how well something is going to perform until after the event. The best way to get to know the characteristics of the investment is to actually invest in it. This applies to property, shares, funds, and most other types of investment.

    If you keep your investments flexible (ie don't fix rates, don't cross-collateralise, don't enter long term contracts, don't do things you can't change next year, don't invest for tax breaks alone, don't invest in "guarantees", etc) ... then it doesn't really matter about your "not so great" vehicle ... you can always change.

    At the end of the day ... I suggest you just do it. Don't get caught up in finding something perfect - because none of it is. Just stick to your plan and adjust your strategies as conditions and circumstances require.
     
  5. Alan

    Alan Well-Known Member

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    Great post Sim.

    :)
     
  6. pudsa

    pudsa Well-Known Member

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    Thanks Sim. Thats a lot of information there, we are going to have to take a bit of time to digest it and go from there. We are at the multiple IP, loans and margin loans into managed funds stage however it is all (the managed fund side at least) based on advice from others. We are aiming to get away from this reliance on others (over reliance) and become more proficient at our own research and therefore have more faith in our investment decisions.
    Cheers :)
     
  7. johnnyb

    johnnyb Well-Known Member

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    If you've already got some money in MFs then, as Sim pointed out, you have got the perfect way to learn more about them. I enlisted the help of a financial advisor to put some of our money into a range of MFs. I trusted her advice based on recommendations from others, but I also did my own reading on her recommendations before acutally committing funds.

    But now that I have seen my quarterly statements for these funds for a year or two I have a much better feel for how each performs, and how the market conditions effect each type of fund. When I see a new fund product I can pretty quickly work out if it is similar to one of the funds I already have, or if not, what the differences are. I can then make a decision about whether it will suit me or not.

    There's always something to learn though. Just takes time.

    John.
     
  8. hiflo

    hiflo Well-Known Member

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    I agree with you.

    I read about managed funds as much as I could, ordering PDS through different fora, such as tradingroom, and tried to understand as much as I could. But at the end of the day, the figures were based on performances from the past, so as long as they managed 1987 and 2000 tech wreck OK, I couldn't understand much more than from the books and newpaper articles, so what the heck, I put the minimum amount of $1000 or $2000 and am observing.

    That is how I got into Navra. My first managed fund.

    Started with $2000. After first distribution put $10K. After second distribution another $10K. Now thinking of getting margin lend of 50%, depending on September distribution and unit price.

    And after putting the money in, I understood for the first time the significance of unit price and timing. My subsequent investments were made when the unit prices were high, thinking that the unit prices will continually go up like shares had been doing, I put it in. Stupid of me.

    Now I realise that for an income fund the unit prices are going to fluctuate within a certain range for a while, and that unit prices drop after distribution. So I know when to make further contribution.

    Maybe it's my stupidity only. But I tend to understand things better when I am in it than as an obsever, even though I do my best to get all the info I can....It's not my nature.

    Maybe someone out there learns better as an observer and who is hopeless at practice.
     
  9. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    It's not quite that bad - you don't lose any money from the unit price dropping as a result of a distribution ... there's no financial penalty (ignoring tax).

    But I do know exactly what you mean ... it's not nice seeing your fund units worth less than you paid for them ... which mine are at the moment too having tended to buy in later in the quarter/year (although my overall return including distributions is a much nicer figure to look at).

    Experience is still by far the best teacher for most people ... don't be so hard on yourself :D
     
  10. jenpalex

    jenpalex Active Member

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    Various Thoughts:-

    I got started investing in 1999 when the prospect of my wife getting a retirement lump sum pushed me to do something. But what? A quick search on the Internet revealed thousands of possibilities. Stop.

    I started going to marketing events put on round town- mostly for investment property and financial planners. I decided that at the time the share market was a bit overblown so we went the IP route. We got sucked in by a second tier marketer and bought an IP on the Gold Coast. Subsequently we reckon we paid about 10% too much. Bummer. But maybe not. Actually making an investment hugely accelerated my appetite for learning more.

    Then I went to one of Steve's seminars. Now I could compare what he had to offer with previous offers. It was clearly a lot more- but I only knew that because of previous comparison shopping.

    Subsequently bought a second IP through him which did very well very soon. Woohoo, I'm a genius!

    Then about a year later the Gold Coast 'Bummer' stared to perform and peaked out a couple of years later with about the same % capital gain as my investment with Steve.

    That takes us to about 2003/4. I refinanced the properties and invested in the startup of Navrainvest and later the Fund itself together with some other managed funds Mixed results- damn that Planner!

    What conclusions?

    Their will always be way too much choice.

    Actually doing something is scary but will greatly accelerate your motivation to learn.

    Whether your choices go well or badly you will react emotionally, blaming or praising yourself and/or your source of guidance for the outcome.

    If you wait long enough most investments will come right.

    If I can give a plug for just one investment it would be to put some money in the Vanguard Australian Shares Index Fund. There is a school of thought that most active/stocpicking Managed Funds don't, over the long run outperform, the average. So why pay extra for their 'expertise' when you can get the average for sure every year for a low fee. They pay low fees to financial planners so that's why you will never have them recommended to you by these 'experts'. Even if you only put in a token amount it will give you an excellent yardstick to compare the performance of other investments.

    jenpalex
     
  11. capitalist

    capitalist Member

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    Great post Sim. As usual. :)

    You gained my respect sometime in 2000/01 and you're still going strong.
    Probably because I've got the same approach to investing as yourself, though there is one thing, ie LICs, where we differ a bit (I'm a big fan of LICs and no, there is no problem with LICs Capital Gains).

    I appreciate your input.:D

    Cheers
     
  12. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I admit that I haven't spent enough time investigating LICs, although I am a little wary of anything that can be traded on an open market rather than by underlying asset value - which leads to a risk of sentiment influencing prices. That's not based on any form of thorough analysis though - only a general (potentially uninformed) comment.

    I did check up on the tax status of LICs, and it seems like that problem was addressed a while back - so no problems there, which is nice.