Is it time to diversify?

Discussion in 'Share Investing Strategies, Theories & Education' started by MichaelW, 20th Feb, 2006.

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  1. Glebe

    Glebe Well-Known Member

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    I can't imagine that being a problem.
     
  2. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    Another one that I'm looking at.

    Note: this is for myself ONLY - I personally wouldn't recommend it to clients - yet. But that's just my own personal view due to the relative infancy of the fund.

    The fund is called Pengana Emerging Companies Fund. It's only been open since November '04, but it has a 'performance based' fee structure - similar to, but not the same as Navra. Since inception it's done 33.5% (to Dec '05) and doesn't invest in resource stocks.

    Keen readers of the site will know that I don't usually look at things like this, so I'll tell you why it's on my radar. Steve Black, one of the managers used to run a similar fund for Goldman Sachs JB Were for seven years which achieved 15% over the time he was handling the fund. Not a return to be sneezed at.

    Of course, it had much larger FUM, but I like the investment style of Steve and Ed Prendergast (although Ed has less experience in this area than Steve), so I think it's worth watching and maybe putting something in via a platform (minimum direct investment is 50K) as a very long term buy and hold. Note that all my investment decisions (with one exception) are very long term buy and holds.

    As always, this is NOT advice. I do not recommend anyone put money into this, it's a personal decision I am currently in the process of making for myself. My risk and investing profiles are unique to me and I strongly urge anyone who looks at this to discuss this further with their f.p. should they have one.

    Mark

    P.S. Just as an aside, in a previous post I espoused the virutes of research. Now, the amount of research I've done on this (to date) isn't very thorough, but I've been able to get the information relating to the post above from doing roughly one and a half to two hours reading. It's really not that much. Google is going to be my best friend for the next few weeks or even months as I do more research on this.

    Taking one or two hours every few days to do a small bit of reading can really open a lot of opportunities to you if you're willing to look for them.
     
    Last edited by a moderator: 21st Feb, 2006
  3. MichaelW

    MichaelW Well-Known Member

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    dkmc,

    That Travis Morien stuff is excellent! Really excellent!! It is exactly the information I was looking for to the level of detail I wanted. If anyone who is following this thread with interest hasn't yet read the presentation on Travis Morien titled:

    "How to build a portfolio using simplified modern portfolio theory"

    then stop right now and go do so! :D Of course, you'll have to read "How to pick managed investments" first... :p

    That presentation consolidates a lot of my thinking and learning on the benefits of diversification.

    Slide 17 shows how negative correlation reduces risk without reducing returns.

    Slide 23 shows how a diversified portfolio across the three major categories of Australian Shares, International Shares and Property Securities would outperform investment in any of the three individually.

    I'll read it in detail again and fine tune my portfolio construction ideas that I posted earlier but I'm not too far off the mark. I want to now consider small cap and value versus large cap and growth.

    Thanks again,
    Michael.
     
    Last edited by a moderator: 21st Feb, 2006
  4. mikhaila

    mikhaila Member

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    Don’t want to sound pedantic or start the debate again, but the fund is more likely to outperform the index in highly volatile market and it looks like all other markets (i.e. falling, rising, stalling or simply speaking going in one direction) are unfavorable and present unlikely environment for index outperformance.

    M.
     
  5. dkmc

    dkmc Well-Known Member

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    sorry Im not sure how to attach a file
     
  6. Simon Hampel

    Simon Hampel Founder Staff Member

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    With the CFS Geared Share Fund - make sure you get some advice first if you uare thinking of borrowing to invest in that fund. They use internal gearing, and there may be some issues with borrowing money to invest in that fund. I'm not sure on this, since I haven't invested money there - I just remember their advice in the PDS to check on your own circumstances.
     
  7. MichaelW

    MichaelW Well-Known Member

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    dkmc,

    When you're in advanced editing mode there's a "manage attachments" button down the bottom. Click on this then browse and upload the file. Then click "close this window" to get back to the post, then post it.

    If you have troubles then PM or email me the file and I'll post it.

    Thanks,
    Michael.
     
  8. dkmc

    dkmc Well-Known Member

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    DFA
    look into it
     
  9. MichaelW

    MichaelW Well-Known Member

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    Sim,

    Agreed. Gearing into a geared fund is just a bit too high risk, even for someone like me! :eek:

    BTW, That fund is Peter Spann's fund of choice I think...

    Cheers,
    Michael.
     
  10. dkmc

    dkmc Well-Known Member

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    sorry looks like technically if i post a screenshot im breaching terms of use.
     
  11. MichaelW

    MichaelW Well-Known Member

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    Ah well, at least I got a quick look at it before you pulled it... :D

    You've got a lot of funds on that watch list with a lot of good performance results too. What was interesting was how Navra stacked up against them in the short medium and longer term. Very interesting...

    Thanks,
    Michael.
     
  12. Simon

    Simon Well-Known Member

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    Do folks here use an advisor or a discount broker to get a PDS through?

    Cheers,
     
  13. Simon Hampel

    Simon Hampel Founder Staff Member

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    I've used Neville Ward Direct before for investing in retail funds.

    These days I tend to stick to wholesale funds with low MERs and no entry fees (but at the cost of much higher initial investments).
     
  14. Redwing

    Redwing Well-Known Member

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    Its 100% clear :D

    Thanks for this post Michael,I'm picking upsome info as I only have relatively small holdings in NAVRA ($50k via a LOC and about $640k in property debt)but would like to increase those Navra funds as well as look at other options in the Managed Funds Market

    How does your portfolio stand now Michael?
     
  15. MichaelW

    MichaelW Well-Known Member

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    G'Day Redwing,

    Ok, the 100% truth... My managed funds are still 100% Navra! :D

    At the time I was considering diversification I was looking at the foregone growth potential in other funds and wanting a bit of that action. But then after discussions with Navra, and Mark in particular, I went back to the basics of their proposed structure and decided property for growth was still the best bet. I had never stopped looking at property and shortly thereafter settled on my development site in Mona Vale. That put a huge dint in my cashflows so now I am very happy having all my managed fund dollars tied up in Navra generating me a regular distribution to help fund the shortfall. Although Navra may underperform growth funds in a rising market, I like the stability of the cash flows.

    So my portfolio now looks something very roughly like this:

    $600K Navra ($600K loan)
    $700K IP development site (700K loan)
    $800K PPOR ($100K loan)

    My next step is to turn that IP into 3 townhouses and then it will look like this:

    $2.1M IP 3xtownhouses ($1.6M loan) :D

    Cheers,
    Michael.
     
  16. Nigel Ward

    Nigel Ward Well-Known Member

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    Good work Michael. Just curious, how did you arrive at $700k per townhouse? Is that what comparable townhouses are selling for now?

    Will the 1.6M debt include your current 700k loan for the site?

    Cheers
    N
     
  17. MichaelW

    MichaelW Well-Known Member

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    Yep, and upwards of that. Some sell for $1.1M but are slightly larger sites and a better finish. My entry level ones will have a floor price of $650K but conservatively will fetch $700K. Here's the AV Jennings development that is immediately opposite my address in Pittwater Rd. They are a two-storey 140m2 townhouse on a similar size end block as I'm planning. That's pretty much what I aim to put in. They're asking $765K

    realestate.com.au advertisement for OnShore development

    Onshore website

    Yep. I've roughly factored costs as follows:

    $700K site
    $750K development ($250K per townhouse)
    $100K borrowing costs
    $50K professional services
    $1.6M TOTAL

    Might be a tad more, but that's the budget for now and I've tested those development costs with a few different quantity surveyors and my architect and they seem about right. I'll capitalise the $100K development loan costs and then refinance the whole thing at completion as interest only. If I lease the three then I should get $600 each on today's rental rates. So that's $1,800pw on a $1.6M loan. In reality those rents are likely to rise significantly through the next 2 years whilst I develop the site. At the end of the day I should be pretty much neutral or better and be holding over $2M in gross value at the beginning of the Sydney recovery. :D (Oh, plus my $800K PPOR in Sydney too... ;) )

    Cheers,
    Michael.
     
  18. Chris.R_WA

    Chris.R_WA Well-Known Member

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    Well done, keep it up

    I just love the optimism! :D

    Good on ya Mike,


    Chris
     
  19. Glebe

    Glebe Well-Known Member

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    Yeah so do I, good on ya Mike.

    I really respect the way you're putting it all out there in public view and opening yourself up to the world of compliments and criticisms. It shows good character and we're all learning alot from it.
     
  20. Andrew Allen

    Andrew Allen Well-Known Member Business Member

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    A few points from my limited knowledge.

    1) MW, what you might be looking for is low to zero correlation with the Nav fund, not negative correlation, just a definition thing. The Nav fund had +0.9 (higher I remember) correlation with the ASX200 (not the accumulation index) last time I checked about a year ago. Not surprisingly.

    2) Travis Morien has commented on the Nav fund specifically before if you are interested and like his writings. He was active in a certain online investing forum last time I checked it.

    3) I have mentioned Random Roger's blogspot before, I'm sure there are plenty of better portfolio guys out there but he is the best I know of (which isn't much) and gives me some ideas for when I will need them later on. He spends a lot of time looking at ETF's which seem to be excellent portfolio instruments potentially.

    4) I like Warren B's comment about diversification I heard recently from one of his talks. He advocated extreme diversification (ie: buying a piece of America through an index fund) or no diversification, he was saying 6 stocks at most, then invest more in your best stock instead of buying a 7th, as many people get rich from their best idea but very few from their 7th. This was in relation to stocks but might have some relevance to most areas.

    5) For your consideration please. ;)