Managed Funds Navra fund outperformance of the S&P200 - #3

{Thread split from longer thread: http://www.invested.com.au/forums/showthread.php?t=563 - and this post references post made by Steve: http://www.invested.com.au/forums/showpost.php?p=4029&postcount=108 - Sim'}

Steve

Following on from your answer and concentrating on the 'preserving capital' component, you mentioned the market will turn around at some point. This will cause an erosion of capital (albeit lessened because of the way Navtrade works) which means a paper loss as well as an increased risk of a margin call (especially for those aggressive investors like me who margined in at 60% and who also bought the majority of their units at a higher price say 1.13 ).

You said the answer to preserving our capital in this sort of market would be to structure your share fund correctly, can you elaborate? For example I have thought of selling the units at my purchase price and then once the market has turned buying back in at a lower price or would you advocate buying more units to reduce the margin loan LVR to 50% and if that is the answer do you do it whenever or try and time it when the application price is lower?

Gazza

 

Hi Gazza.

One point I would make for some (not you as you are obviously aware of this ) is that the purchase price has to be seen in context with some other variables too.

For example, some may have 'bought in' a week before a distribution at $1.13 and received a 5.5% distribution a couple of weeks later. Post distribution the Unit Price might be $1.09. If the Unitholders had $1mil in the Fund, it's true that they are then 'on paper' looking at a 'loss' from the point of view of the current value of their held Units, BUT let's not forget that they may have received about $55K in Distributions for about a weeks investment!! So should they look at the value of their purchased Units at $1.13 or closer to $1.09?

I guess the point I'm making is that when people compare the 'profit or loss' of their Units they should also consider the value of the distributions and how long they have had to hold the Units to achieve these distributions.

In hindsight, I probably could have bought in at a few better points too, but hey, I guess I could have done a lot of things better.

Hmmm.........Rental Reality, NavTrade etc. all apparently seem to work partly on the presumption that there are distinct periods when it makes more sense to 'buy' than 'sell' and vice versa. It would be interesting to get their comment at some stage on how they feel this applies to purchasing Fund Units? No hurry on this.......just curious.

 

Damn good point Alan ;-) My last purchase I timed to aim for capital gain rather than income because I had a held-over loss to offset. Now I want the income

Everyone could do a lot with the benefit of hindsight - like surely almost anyone could have stopped Angelina Jolie marrying Billy Bob if they'd known that was on the cards ? Now THAT was a tragedy bigger than not beating the index

There was some discussion kind of along those lines at :
http://www.invested.com.au/forums/showthread.php?t=300 (re. the fund buy price). I am pretty sure Rental Reality assumes ANY time is the right time as long as the rental reality formula stacks up (see the Pedia and the "Living On Equity" series)

but like you Alan, I would be interested in the official version of whether timing is seen to be a measurable / substantive factor, esp. for the NI units. I might ask the question of Investor Services.

Cheers
Carl

 

Alan

Quite correct and I did buy in just before a distribution specifically with the knowldege I would be getting a nice income. Overall I am well ahead even taking into account interest and capital loss. To me, what it's about now is fine tuning my structure (if it's possible) to make it even more efficient and also to make it more robust in terms of how ir will handle any downtown.

Gazza

 

Steve

Now that you are back on deck, any thoughts?

Gazza