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Re: [sharechat] More on the marrket risk premium

From: "Fiona Phibbs" <>
Date: Tue, 25 May 2004 17:39:48 +1200

Hi Snoopy

> If you are arguing here for some sort of 'safety factor' to be introduced
> into investment decisions, to ensure that people invest less in markets
> when they are too high, then I think you have a valid point.
> But is building this 'safety factor', which some might suggest builds in
> an expectation that markets *must return* 13% pa on equities in
> perpetuity for investing in the sharemarket to be worthwhile into the
> 'risk premium' the way to do this?

 I'm am interested in the reducing the risk of buying when markets are high.
Do you have any ideas on this?

> So your inclination is to sell out, and what, put the money in the bank?

 Are you kidding?
 If you have identified what you think is a good company with good business
fundamentals then you should hold it as long as they continue, maybe even
buying more when the market crashes. My goal is to hold good businesses as
long as they continue to be just that. Like I said in earlier emails the
best returns take time, far too many people rent stock IMO.

> If your goal is to accumulate as much wealth as you can by retirement
> age, or alternatively accumulate a preset goal of wealth so that you
> can 'retire early', which is riskier?   Term deposits or shares?

The risk of holding fixed interest for long periods of time is higher than
holding shares, I believe, due to the erosion of your principal and the
returns are 'usually' lower.

> I try to look at shares as businesses.   If the business case stacks up I
> will buy the shares.   I am not 'happy with the current risk of the
> market'.   In fact I don't care about it because I don't buy 'the market'.
> Frankly what Mr Market does is his own affair.    However, I am aware
> that Mr Market might have a meltdown and that the share price for
> businesses that I have bought into might decline to below what I paid
> for them- for a while.   I am also aware that when such declines
> happen they are often sudden, brutal and unpredictable (as to their
> timing and full extent).    However, I also know that good businesses
> will still arguably be good businesses despite what Mr Market says
> about them on any one day.   So I'm not worried if the market crashes.
> I am worried only if I have to sell when it crashes.    And I make darn
> sure I don't have to do that!

Spoken like a true disciple of WB.

cheers Dean

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