Performance in 2012

[KopiKat]

I noticed that there are two major strategies been followed here, one strategy which keep cash reserve for opportunities arises (WB follower?). Another which does not keep cash reserve (Peter Lynch follower?)

For those fully invested will have better return during bull, but will expecte to suffer poorer return during bear. In longer term, performance should still be better than market average. As far as i aware, only KopiKat and me are belong to this group.

IMO, both strategies should work, and the performance will depend on individual execution.

Anyway, the reminder of hyom is valid. We should not become more "daring" after a good year. We should remains as "kiasi" if not more.

As for the cash inclusion. It is not an issue for me since i am always fully vested.

If comparing equity investment's return among us, we should include cash reserve of equity investment. Exclusion of other asset classes' investment and cash reserves should be reasonable.

Yes! I must admit I was greatly inspired by Peter Lynch after reading his book 'One Up on Wall Street'. I'd subsequently adopted modified versions of his approaches in identification, classifications, assets allocation... Do take note that most people whom I'd recommended to read this fantastic book had not found anything useful or inspirational...

After reading a few more investment books, I have also come to realise that what we called 'Peter Lynch' approach is actually what most successful fund managers are using. Go read 'Margin of Safety' by Seth Klarman (can find a PDF copy by googling as it's out-of-print) or 'A Thousand Miles from Wall Street' by Tony Gray (He's supposed to have broken Peter Lynch record in 1991 for Returns on a 10-Year investment).

Although the fundamental approach to stock selections and holding for long term is similar for Warren Buffett vs Fund Managers, one key difference is Berkshire Hathaway can afford to really hold their companies forever (especially the unlisted ones) as these are continuously generating FCF for Warren Buffett to invest at his own leisure ie. he can accumulate and hoard his cash and wait patiently to invest only when he finds something of good value at the price he's willing to pay.

In contrast, the Fund Managers are constrained by their FCF. If it's an open ended fund, then likely more cash inflow during bullish times and vice versa in bearish times. As such, even though their investment time frame is long term, they're still constantly reviewing their holdings to switch to stocks which they think will perform better. They also won't be holding too much cash in the interim as it'd pull down their fund performance and likely face mass redemptions... In the case of Seth Klarman, he'd even returned excess funds to investors when he couldn't find worthwhile investments...

So, yes, much as I'd like to practise Warren Buffett approach, I figured that the Fund Managers' approach is more suitable for me if I wish to survive on 'passive' income alone. If I were to follow WB and keep predominantly cash till market crashes, I'd have to eat into my Capital in the interim and may not have as much cash to invest when the crash finally does come along.... Perhaps when I reach the day when I'm able to generate passive income of a large multiple of my needs, I'll switch to Warren Buffett approach...

In the meantime, switch, switch, switch....


PS. Reading the books by / on successful Fund Managers has finally eradicated the guilt I'd always felt due to the high turnover of my holdings... ~3x for 2012... The term 'trade' is used often by these successful fund managers in their description of their switching strategies... It's no longer a 'dirty' term for a Value Investor, as far as I'm concerned...

[CityFarmer]

Hi CityFarmer,

I would think my methodology is rather similar to holding through market cycles as well, usually I am about 70% to 80% vested depending on my cash levels and the market value of my securities.

That said, I think a focus on value and margin of safety would not make me "kiasu" to deploy my capital, especially during times when valuations are rising and there is optimism present in the stock market (as there is right now - positive sentiment but not yet exuberant).

I do find it exceedingly more difficult to find bargains, which is why I have held back on purchasing anything since Jan 2012. The strategy therefore would be to continue to monitor the businesses of the companies I own shares in, while at the same time looking for attractive valuations. Not committing capital at this stage is also an investment choice.

Your methodology is not flaw, but there is alternative available.

The differences between WB and Peter Lynch are not restricted to only allocation of cash reserve, but many more.

One of differences is Peter Lynch has different strategy for different stocks. This open up more opportunities i.e. more stocks available to invest. There is no reason for allocation of cash reserve

Another key differences is switching. KopiKat's turnover was 3x, mine was less than 1x. Mine is worse (i.e. lower turnover) due to sluggish actions when opportunities arises.

My reasons to follow Peter Lynch approach are the same as KopiKat, since i am building up a portfolio for passive income.

[WolfT]

Hi CityFarmer,

I would think my methodology is rather similar to holding through market cycles as well, usually I am about 70% to 80% vested depending on my cash levels and the market value of my securities.

That said, I think a focus on value and margin of safety would not make me "kiasu" to deploy my capital, especially during times when valuations are rising and there is optimism present in the stock market (as there is right now - positive sentiment but not yet exuberant).

I do find it exceedingly more difficult to find bargains, which is why I have held back on purchasing anything since Jan 2012. The strategy therefore would be to continue to monitor the businesses of the companies I own shares in, while at the same time looking for attractive valuations. Not committing capital at this stage is also an investment choice.

Your methodology is not flaw, but there is alternative available.

The differences between WB and Peter Lynch are not restricted to only allocation of cash reserve, but many more.

One of differences is Peter Lynch has different strategy for different stocks. This open up more opportunities i.e. more stocks available to invest. There is no reason for allocation of cash reserve

Another key differences is switching. KopiKat's turnover was 3x, mine was less than 1x. Mine is worse (i.e. lower turnover) due to sluggish actions when opportunities arises.

My reasons to follow Peter Lynch approach are the same as KopiKat, since i am building up a portfolio for passive income.

but you be force to buy at high price during good times.

[felixleong]

how come u all turn over so much one, 1-3 times of portfolio

I didn't sell a single stock in 2012, only keep adding to my holdings, about once every 3 months like that make a purchase.

I thought the less transactions you make the less commission you pay, thus the higher returns you can generate, isn't it?

[CityFarmer]

Hi CityFarmer,

I would think my methodology is rather similar to holding through market cycles as well, usually I am about 70% to 80% vested depending on my cash levels and the market value of my securities.

That said, I think a focus on value and margin of safety would not make me "kiasu" to deploy my capital, especially during times when valuations are rising and there is optimism present in the stock market (as there is right now - positive sentiment but not yet exuberant).

I do find it exceedingly more difficult to find bargains, which is why I have held back on purchasing anything since Jan 2012. The strategy therefore would be to continue to monitor the businesses of the companies I own shares in, while at the same time looking for attractive valuations. Not committing capital at this stage is also an investment choice.

Your methodology is not flaw, but there is alternative available.

The differences between WB and Peter Lynch are not restricted to only allocation of cash reserve, but many more.

One of differences is Peter Lynch has different strategy for different stocks. This open up more opportunities i.e. more stocks available to invest. There is no reason for allocation of cash reserve

Another key differences is switching. KopiKat's turnover was 3x, mine was less than 1x. Mine is worse (i.e. lower turnover) due to sluggish actions when opportunities arises.

My reasons to follow Peter Lynch approach are the same as KopiKat, since i am building up a portfolio for passive income.

but you be force to buy at high price during good times.

If the pool is large enough, it is always bargain available

[Boon]

Equity markets stay strong despite economic uncertainty

http://www.bbc.co.uk/news/business-20918118

[CityFarmer]

how come u all turn over so much one, 1-3 times of portfolio

I didn't sell a single stock in 2012, only keep adding to my holdings, about once every 3 months like that make a purchase.

I thought the less transactions you make the less commission you pay, thus the higher returns you can generate, isn't it?

I don't want to confuse you. Your understandings are right.

What we did is just an alternative which needs separate set of skills and uses slightly different concepts.

[lanoitar]

KopiKat's turnover was 3x, mine was less than 1x.

Wouldn't there be tax consideration?

When is gains from sale of shares taxable?

To determine whether an individual is trading, factors such as the frequency and volume of transactions, the interval between the purchase and sale, and the manner of financing the purchase of shares, will be taken into consideration.

The three circumstances factors above alone do not determine whether the gains are taxable.

[CityFarmer]

KopiKat's turnover was 3x, mine was less than 1x.

Wouldn't there be tax consideration?

When is gains from sale of shares taxable?

To determine whether an individual is trading, factors such as the frequency and volume of transactions, the interval between the purchase and sale, and the manner of financing the purchase of shares, will be taken into consideration.

The three circumstances factors above alone do not determine whether the gains are taxable.

If we did it with US stocks, there are taxes to worry about

BTW, we are not traders, which trade high volume on daily basic. We do sale/buy more frequent than valuebuddies here and with probably slightly higher volume each occasion.

[KopiKat]

KopiKat's turnover was 3x, mine was less than 1x.

Wouldn't there be tax consideration?

When is gains from sale of shares taxable?

To determine whether an individual is trading, factors such as the frequency and volume of transactions, the interval between the purchase and sale, and the manner of financing the purchase of shares, will be taken into consideration.

The three circumstances factors above alone do not determine whether the gains are taxable.

That'd be great! I had a Nett Realised Loss last year (refer to my earlier post in this thread) as I'd been accumulating my garbage for the past 2 decades. I finally plucked up the courage in 2012 to sell almost all my junks. I also sold many of my REITs + Dividend Stocks as they'd run up a lot and the yield had dropped below my target minimum. All the above were in fact held for many years and *Ahem*.. especially the junks...

Well.. 2012 was an exceptional year. Even those new stocks I'd switched to for the better yield also ran up within a short time. So, what to do if the Yield drops below my target minimum? Sell... and switch.... For 2013, so far, not a single trade as I have yet to find any stock that's better than what I'm holding...

PS. Thx for the heads-up. I wonder if IRAS gives tax refund for realised losses...