Forum Archive Index - February 2004

["Woody" <solarmax@optusnet.com.au>]

Is that before or after yours was docked?
Snoopy

----- Original Message -----
From: <John.Loveridge@nz.logicalcsi.com>
To: <sharechat@sharechat.co.nz>
Sent: Thursday, February 26, 2004 8:29 AM
Subject: Re: [sharechat] a cautionary tale?


> excellent advice Snoopy,
>
> I was in the process of selling and realising a 20% loss in a week, I read
> ..I thought..I cancelled
>
> Cheers
> Snoopy
>
> Software Developer
> Logical Csi Ltd
> Level 4
> 195 Hereford St
> Christchurch
> ph (03) 3644 371
> mobile 027 221 9730
>
>
>
>                       "tennyson@caverock.n
>                       et.nz" <tennyson            To:
sharechat@sharechat.co.nz
>                       Sent by:                    cc:
>                       sharechat-owner@shar        Subject:  Re:
[sharechat] a cautionary tale?
>                       echat.co.nz
>
>
>                       25/02/2004 23:07
>                       Please respond to
>                       sharechat
>
>
>
>
>
>
> Hi Stephen,
>
> >>
> >>Did you invest knowing that you would *need* to sell out again
> >>within a few months?
> >
> >No. You're quite right - the driver was seeing my position eroded.
> >Must... Not... Follow... Portfolio... Daily...
> >
>
> Oh, you can follow your portfolio daily.    But you don't need to *act* on
> the information daily.
>
> >
> >On the other hand, didn't I see you telling someone a few days ago
> >that a loss was not just a paper loss but a real one?
> >
>
> Yes, but what you have to remember here is that it is Mr Market that is
> giving you that loss.   On any given day you can choose to sell or not
> sell to Mr Market.   Don't feel any pressure to sell, because the one
> thing I can guarantee is that whatever choice you make, Mr Market will
> be back tomorrow.   And while Mr Market is always accurate in the
> price he offers you, he does not guarantee that his offer price is fair!
>
> If you sell at a loss to Mr Market, then not only is the loss real, but
you
>
> have crystallized your loss.    I was trying to get across the idea that
it
>
> is OK to be carrying a loss, *provided* that loss does not affect the
> overall integrity of your investment plan.
>
> To repeat the main point,
>
> * You don't have to sell to 'Mr Market'! *
>
> If you have done your own homework and you *know* that the share is
> worth more than Mr Market is willing to give you, then why not keep it?
> Perhaps because you haven't *really* done your homework properly
> and you assume that Mr Market must be a better valuer than you are?
>
> Of course, the better at doing homework you are, the less likely you
> are to be tempted by Mr Market offering you a low price.
>
> >
> >>>On the menu for investigation: GPG, HQP, FRE, MFT, RNS, PVO,
> >>>buying more MHI should it dip, and learning more about ASX
> stocks.
> >>>
> >>Possibly some good shares in there, but on a value for money basis
> >>they are all inferior to the two you just sold.   I think you need
> >>to learn a bit more about valuing shares.
> >
> >On what basis do you value shares? That's not a rhetorical question.
> I
> >have a spreadsheet with a couple of formulas for just that, based on
> >present value of anticipated retained earnings + dividends over
> >several years. I can read financial statements, but my ability to
> >project is weak.
> >
>
> It sounds like you have the mathematical skills and tools to do any
> share valuation.   But you have hit on the main problem with this
> approach when you said
>
> "my ability to project is weak."
>
> Your ability *and everyone elses* ability to project is weak!    We can
> draw up scenarios:  "If this happens then that will happen".
> But it all depends on 'this' happening.
>
> There is an old computer programming expression abbreviated to
> 'GIGO'.  It means 'Garbage In, Garbage Out' and is applicable here.
> It doesn't matter how sophisticated or meticulous you mathematical
> forecasting technique is.    Put the wrong numbers in to start with, and
> all that will come out is rubbish.
>
> So, by my thinking, it is most important to get your input data right.
> In the various books by Mary Buffett, she goes into the kind of
> mathematical; technique that Warren Buffett might use when selecting
> an investment.  But IMO the exact mathematical method presented is
> not that important.   There are other methods that recognise the
> compounding effect of a high and repeated rate of return on retained
> earnings.   No, the most important thing in those Buffett books is that it
> allows you to pick out what is *good data* to work with.  If you only
> invest in companies that provide you with good data, then that can take
> away a lot of investment uncertainty.
>
> ...and now on a slightly different tangent
>
> In New Zealand, and to a large extent Australia as well, we are blessed
> with having a large number of high yielding investments to choose
> from.    With this kind of investment, forecasting growth in future years
> is less important than short term forecasting the sustainability of the
> current position.    Often with this kind of share, you can make good
> money just by forecasting several month's ahead.    That means you
> don't have to restrict yourself to the handful of very long term
> companies that a classical Warren Buffett would consider.
>
> Some of these shares are the kind of thing that Warren Buffett wouldn't
> touch, but so what?   Deeply discounted value investing (for that is
> what high yield companies often are) is another proven technique for
> providing superior investment returns.
>
> So Stephen, when you ask me on what basis do I value shares, I would
> say 'it depends on the company'.   But if the company is not amenable
> to a 'Growth at a Reasonable Price' analysis nor a 'Deeply Discounted
> Value' analysis, the two techniques I have outlined in this post, then I
> probably wouldn't bother valuing it at all!
>
> >
> >>Try this for a strategy.   Be greedy when others are fearful, and
> >>fearful when others are greedy.   Works for me, and another chap
> >>with the initials WB I think.
> >
> >That strikes me as being equally emotional as following the crowed,
> >just 180 degrees around.  Sometimes the crowd must be right, as
> >well as wrong.
> >
>
> Of course that is true, but in any investment you are buying a reality,
> filtered by a shareholder's emotional response that is all reflected as a
> share price.
>
> Reality does change over time, but the emotional response to reality
> can change much more rapidly.   'Following the crowd' can often mean
> 'following the emotional tide'.    The ebb of emotion is a capricious
> sword that has no respect for underlying quality.
>
> Nevertheless, by buying shares that are 'out of favour', the flow of the
> emotional tide can work in yours
>
> SNOOPY
>
>
>
>
> --
> Message sent by Snoopy
> on Pegasus Mail version 4.02
> ----------------------------------
> "Sometimes to see the wood from the trees,
> you have to cut down all the trees."
>
>
>
>
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