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Starting to Invest in current volatile market....

Discussion in 'Investing Strategies' started by Insan3, 31st Jan, 2008.

  1. Insan3

    Insan3 Active Member

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    I'm currently looking at jumping right into the middle of this current volatility and uncertainty by starting my portfolio. $10,000, Dollar Cost Averaged over 3-6 months then leverage once fully bought.

    I have a long-term view to my investments.... 10 years +, looking to constantly add to them, but purely a Buy/Hold/Never Sell strategy.

    I'm looking at some Index Funds and iShares, instead of trying to pick winners... Looking to passively sit by and watch the index grow.... should I sit on the sidelines for a little while longer?

    Suggestions please :)
     
  2. samaka

    samaka Well-Known Member

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    The timing part is tricky - however dollar cost averaging $10,000 in iShares is going to cost you a lot in brokerage.

    I'd pick an iShare you like, then put $5000 into that and $5000 into STW.
     
  3. Tropo

    Tropo Well-Known Member

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    ".... looking to constantly add to them, but purely a Buy/Hold/Never Sell strategy."


    If you do not sell (at the right time) you will not make any money.
    So, if you never intend to sell why bother to buy it in the first place.:eek:
     
  4. samaka

    samaka Well-Known Member

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    Well, by never sell - they probably mean not sell for 20 years or so.
     
  5. Tropo

    Tropo Well-Known Member

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    I like your sense of humour.:D
     
  6. Glebe

    Glebe Well-Known Member

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    Ongoing dividend stream...

    You don't just make money through capital gains... you keep on viewing things through the eyes of a trader, Tropo.
     
  7. Tropo

    Tropo Well-Known Member

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    Example:

    You buy XYZ (fully fr) at $ 20. After a while it fall to $12. You just lost 40% of your investment.
    But....you are protected by your dividend.
    At the dividend rate of 3.5% per annum, theoretically you will get your initial investment back in approx. 11 years.
    In reality, you will never recover because you run into concept such as real cost of money and opportunity cost.
    Personally, I would never hold a share because of its dividend.
    But again...it’s only MHO.;)
     
  8. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    Hi Glebe,

    It's a good idea to sell shares when they are way overpriced. Using a strategy similar to WB (buying with a Margin of Safety) then selling when the shares are overpriced makes a lot of sense to me.

    Example: you do your research on the business and find that XYZ represents good value at $10 and is fair value at $20. XYZ drops to $10, you buy. XYZ then goes to $40 over time. Since you're a sharp guy you've been watching the business and have determined that it's overpriced. So you sell. You then use the gains to go buy something else you've been researching that represents good value.

    Personally, that makes a lot more sense to me than holding onto a share for the sake of a dividend. Like Tropo said, this is just my personal opinion.

    Mark
     
  9. Glebe

    Glebe Well-Known Member

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    I don't disagree with that strategy Mark. I'm probably not smart enough to implement it :eek: but the theory sounds good to me.
     
  10. samaka

    samaka Well-Known Member

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    That's the point though - we're not talking about a single share. We're talking index tracking funds (which is a passive investment).

    Ideally you buy a ETF like STW. You get capital growth and utilise the DRP. As long as the ASX 200 trends upwards you're set. You don't need to research business performance - Standard and Poors does it for you.

    Additionally, the longer you hold - the less of an impact day to day volatility makes.
     
  11. Glebe

    Glebe Well-Known Member

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    Mark's point is still valid in that it's possible for the entire index to be under or overpriced..
     
  12. samaka

    samaka Well-Known Member

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    I agree completely - however my point is that you really don't care - because you should always be regularly contributing, and it should hopefully average out over the long term (talking 20 years or more).
     
  13. crc_error

    crc_error The Rule of 72

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    so that means Mark is buying up LPT's?
     
  14. Insan3

    Insan3 Active Member

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    Exactly.... my idea was underpriced/overpriced, doesn't matter - DCA by purchasing every 6-12 months. Ride it out for long enough that it will correct. And instead of realising capital gains, can leverage and purchase more, increasing dividend stream..... Therefore not losing a chunk of the gains to tax, but actually increasing potential dividend income. Therefore allowing for increased holdings to purchase IP's on their own, and have the entire portfolio + geared.....
     
    Last edited by a moderator: 2nd Feb, 2008
  15. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    It's attitudes like that, that achieve average (at best) returns and make the really successful guys wealthy. Look at it this way - you see an item you like at Myer or whatever. You know that eventually it's going to be on sale, so you say to yourself 'I'll just wait till it's on sale and get it for a good price. It's the same principal with buy and hold shares, especially if you intend to hold for 20+ years (assuming the company is even still around in 20 years). Why pay retail when you can get them on sale?

    But then again, if you don't care....

    Also, just wanted to ask you - why *should* we *always* be contributing? If you want to invest like that, just stick your money into super or most managed funds - this is exactly how they invest.

    Mark
     
  16. Insight

    Insight Brisbane Buyers Agent

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    Regarding Mark's last post.

    I would guess the opposite and say it's systems like this and not Samaka's that contribute to less than stellar long term performance for the 'average' investor.

    Everything I have read and seen about the markets tells me that accurate timing systems are wickedly hard to find and even harder than that to implement. If you are aware of any of them that you would suggest an average investor could implement then I would be interested in learning, I don't presume to be anything but a learner myself.

    'Do you homework' is a cliche that completely doesn't cut it in the share market, I would suggest the knowledge of both how to do your homework and to correctly interpret the results is incredibly difficult, again much more challenging than most would think. Take Sim's excellent fund display software and ask yourself how you interpret these results to 'choose' your managed fund, the assumptions people take in are very interesting, and in my experience mostly fadeable (180 degrees wrong direction).

    So.. Buy a robust vehicle (won't go bust or have some punk kill your results with their stupid discretion), accumulate and eat good food (live long) = a terribly difficult strategy to beat for most ASX investors most of the time.
     
  17. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    Hi Insight,

    I agree with your 'average' statement. But I have no intention of being 'average'. Average results are for average people, I tend to think a little more highly of myself than that.

    At no point did I say it was possible to pick the bottom of the market (or the top for that matter). I've had discussions similar to this with clients before and said to them 'If we could pick the top/bottom of the market, we wouldn't be sitting here talking, we'd be on a beach in Jamaica'.

    Was thinking about this issue last night and came up with this scenario:

    - two people have $60,000 each to invest in the market. They have both targeted one share - XYZ (current price $10). Person A has decided they will DCA into the market in equal amounts over a six month period, regardless of the price. Person B does a bunch of research on the company, is confident that the company is in sound financial health, it's prospects are good and the management is excellent and has determined that $15 is fair value for this share and that $10 provides for a reasonable margin of safety.

    Month 1.
    Person A buys 1,000 shares at $10 per share
    Person B buys 6,000 shares at $10 per share

    Month 2.
    XYZ rises in value to $12. Person A buys 833 shares at $12 per share

    Month 3.
    XYZ rises in value to $15. Person A buys 667 shares at $15 per share

    Month 4.
    XYZ falls in value to $13 per share. Person A buys 769 shares at $13 per share

    Month 5.
    XYZ falls in value to $9 per share. Person A buys 1,111 shares at $9 per share

    Month 6.
    XYZ rises in value to $12 per share. Person A buys 833 shares at $12 per share

    At the end of six months, Person A has 5,213 shares at an average buy in price of $11.83. Person B has 6,000 shares at an average buy in price of $10. In five years time the shares are valued at $30. Person A has made a gain of $94,720. Person B has made a gain of $120,000.

    How many people here would 'not care about when to put money into the market' if I told them they'd lose $25,280 over five years. D.C.A. is exactly that - an Average strategy. It's DESIGNED to give you an average return. That's fine if people are conservative and need the SANF. Nothing wrong with it at all. But sod that nonsense, I like to aim for the sky but shoot for the stars.

    Mark
     
  18. samaka

    samaka Well-Known Member

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    I understand what your saying :D It comes down to whether people have both the ability and desire to do this research.

    I'm young - and my investing experience is nothing compared to people who have been doing this for years (or decades).

    Maybe in five or ten years time I'll have the confidence to accurately research and predict movements. However the safest option in the short term (for capital protection) is to DCA. Additionally, because of my age -the majority of my salary-earning life is still ahead of me - so I'll be DCA'ing on an overall level anyway.

    The other aspect, the desire to do the research, is something that I am interested in doing (which kind of explains why I'm on sites like this). However the average investor generally doesn't want to know about this side of things - which is fine, as long as they know they'll get average results.

    Finally, it depends on what people define as average. Some people would define average as what ever the banks are paying on a term deposit - some may consider it to be what ever a particular index is returning.
     
  19. Insight

    Insight Brisbane Buyers Agent

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    I was talking about the average investor in a way that would be well above 90% of the investing population, so it wasn't a good choice of words.

    What's the idea, 90% of drivers rate themselves as being above 'average'? It's potentially a play on logic as if you rate anyone causing an accident as zero and people not causing an accident as 100 then most can indeed be above the average, but the idea is that it's a known bias of our primate brains that we tend to overrate our abilities, that's just a proven fact over many studies.

    Same goes with investing, if you are above average then show me the money, risk adjusted returns please otherwise it's all bluster and proven to be costly as well, the stats are all there.. Being average by the strategy you seem to indicate Samaka will place you above a large chunk of the investing population.
     
    Last edited by a moderator: 3rd Feb, 2008
  20. samaka

    samaka Well-Known Member

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    Compared with an investing population I don't really know. Compared with other people I know who don't invest at all - yes my average returns will exceed them (because they do nothing).

    That said, comparing returns that different people earn is a moot point. Mark says he has no intention of being 'average'. I'd use the same wording for my own goals.

    I don't want to be 40 and half way through paying off a PPOR and have no other investments, except for super which I can't get at for 65. I know family and friends who are in this position - I consider that average.

    Maybe Mark considers average to be those who are 'financially free' by 50 - and he wants to do it by 40. I don't really know.

    To get back to the topic on hand - IMHO - if you've got a long pay off time, you're worried about volatility, your're planning to invest in an index then I think DCA'ing is the way to go.