Value Investing: Philosophy, Process & Objective

[HSquare.Cap]

Hi Value buds,

I've decided to create this thread as a renewed "platform" to discuss/share this investment approach that we all adore, and why we are here in the first place - Value Investing.

To systemise the broad arena of value investing concept, let's strive to categorise our discussion on the following topics:

1. Objective
2. Philosophy
3. Process

To further elaborate, most discussions in this forum have leaned heavily towards philosophy (i.e. talk about buying companies at substantial discount to their intrinsic value etc), lesser so on process (Search strategy, FS analysis, quality & persistence of earnings, valuation and behavioral discipline etc) and almost non-existent on objective (market beating & empirical results etc).

In the next post, I'll kick start on the topic of Objective. Objective is important because it is the basis underpinning the attractiveness of a value investment approach. If an approach is not expected to outperform the market, there is no reason to diverge from the market portfolio. Likewise, if value investing strategy has been proven not to outperform market, there should be no reason to pursue such approach.

Don't let being an value investor a decision of individuals who are famous for being famous. Understand why and how it works - So that someday, you can show without the need to bring up names of Ben Graham, Warren Buffett or Peter Lynch.

Cheers
HSq.Cap

[CityFarmer]

A good initiative. Let's discuss with emphasis on logic over form. We shouldn't be bounded by mentors' "rules", without knowing why.

I have questioned all the "rules", and still looking for the logic behind. Hopefully I have a reasonable feel on the logic behind of the "rules" by now.

I will take your lead, before proceed further.

Thank

Regards
CF

[Porkbelly]

Sounds great to me!

There are indeed many ways to skin a cat.

[HSquare.Cap]

Hey Value buds!

Apologies for going missing when i'm the one who started this thread. Took the national day opportunity to go on a holiday with my family. I hope you guys had a good rest away from the market too!

Continuing on this thread, have we actually wonder how viable are the value investing strategy other than it being advocated by a handful of successful value investors? Could these successful value investors be random events? Can value investing strategy be easily adopted by retail investors? As astute value investors, these are the questions we should be able to answer.

In this post we look at a 1994 study by LSV which examines the value strategy approach. I have summarized the key findings in a blog archive (specifically for this thread) and for the purpose of this thread, made it even shorter. If you like, you can visit the blog archive which includes also my comments.


Speed Read:

• Value investors regularly challenge conventional wisdom but short of questioning their own. In particular the value investing approach. The value investing approach is attractive because it works, and not because it is advocated by certain famous investors.
  

• Our maiden post looks at a 1994 study by LSV which examines the performance of value stocks against glamour stocks. Their result showed that value stocks consistently outperform glamour stocks over the period 1963 to 1990.
  

• Numerous literature have suggested that the outperformance is due to value stocks being fundamentally riskier. LSV have found no conclusive evidence that value stocks are riskier. Instead, the study has shown that value stocks exhibit extremely high reward-to-risk ratio.
  

• Beyond the results, LSV’s study provided lessons as to why “value investing is simple but not easy”. For the astute value investors, these lessons should be be seen as windows of opportunity.
  

Any of you guys use the same methodology as LSV in constructing your portfolio? Is it working in the Singapore market as well?

Has anyone came across similar or contrary studies?

Would be great to hear from you guys!

Cheers
HSq.Cap
https://hsquarecapblog.wordpress.com

[Nebula]

Great thread!

Toby Carlisle has a book called "deep value: why activist investors and other contrarians battle for losing companies"

http://small-cap.ru/wp-content/uploads/2...tions-.pdf

the theme of the book revolves around how value has been extracted by activist investors, why the acquirer's multiple is a good valuation tool and studies that show that, not only that value investing is superior to glamour investing, but also that contrarian value investing is the most superior.

contrarian value is, generally speaking, buying truly depressed companies with low roe, no dividends and/ or losses. compared to buying gems with high roe, dividends and are profitable.

this is a surprising conclusion to me because i always thought and still do think that buying a decent company and a cheap price is better than buying a dog at a cheaper price. the argument for buying the dog, however, make sense because the stock is so depressed, that any good news will send the price flying.
on the flip side, any bad news would send the gems price downward.

mean reversion is the tonic that cures a depressed stock and the injury that hurts the star.

i suspect that walter schloss subscribed to this idea and earned him 20+% returns over 40+ years.

i am also very curious if this is true and have bought some dogs to find out and it has been really volatile so far and it is really testing my faith.

hope you guys enjoy the book as much as i did.

[greengiraffe]

Aug 18 2015 at 8:23 AM Updated 59 mins ago

30 quotes that will make (or save) you money

The best pieces of investment advice can be boiled down to a single sentence. Here are some expert one-liners that will make you money.


"Always question yourself and your ability. Don't ever feel that you are very good. The second you do, you are dead." This and other expert quotes could make all the difference.
by Matthew Smith, Kate Cowling, Jeremy Chunn

#1 SHARES

"It is far more important to minimise the inevitable investment mistakes than be obsessed with trying to find the tenfold investment winners."

Hamish Douglass, Magellan Group CEO, CIO and lead portfolio manager

This circumspect investment approach has helped Hamish Douglas build a $30 billion listed funds management giant and establish him as Australia's number one manager of global funds through buying high-quality US stocks ignored by other market participants.

If you want to get technical, Douglass says his job is to "to assess the likely cash flows a business will generate over its lifetime, discount these cash flows back to the present value" and determine if buying today will generate an acceptable rate of return. Simple? Not quite. Effective? You bet.

#2 ASSET ALLOCATION

"It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong."

George Soros, founder of Soros Funds Management

Famous for betting US$1 billion against the British pound in 1992, the philosophy of George Soros carries real weight for investors who understand that being right at the wrong time can be just as much of a disaster as being plain wrong.

Soros was the primary adviser to Quantum, a hugely successful hedge fund, which averaged returns of 20 per cent per annum trading highly leveraged global macro themes before it closed and returned $26 billion to investors in 2011.

#3 PROPERTY

"I am never in a hurry to do any deal. There's a real cut-off point and I am very unemotional about chasing things I think are too expensive."

Lang Walker, billionaire property developer

In boom markets like Sydney and Melbourne, many investors suffer from a syndrome called fear-of-missing out. It's easy to get caught up in a bidding war at an auction but as the saying goes "Act in haste, repent at leisure".

Walker says that when assessing the value of a property he will arrive at a figure and stick to it. As he told us, every time he has been outbid in a transaction he's managed to find something even better in the weeks and months that followed.

#4 SHARES

"I spend most of my time thinking about the right price to pay for individual stocks that meet our criteria of trustworthy, competent management, conservative leverage and reasonably predictable futures. None of this is rocket science."

John Sevior, Airlie Funds Management founder and chief investment officer

John Sevior is the stock picker's stock picker. The occasionally self-deprecating fund manger is less concerned about the global macro themes that consume some commentators than he is about avoiding the pothole right in front of him.

Since kicking off his new venture in October 2012 after departing Perpetual, the Airlie Concentrated Share fund is up 57.7 per cent compared with the benchmark ASX 300's 36 per cent return over the same period. An impressive performance gleaned from a straightforward motto.

#5 SHARES

"Always question yourself and your ability. Don't ever feel that you are very good. The second you do, you are dead."

Paul Tudor Jones, founder of Tudor Investment Corporation

One of the most successful US hedge fund managers, Paul Tudor Jones is estimated to have amassed a personal fortune of US$4.6 billion through trading everything from shares and commodities, to bonds and long/short positions.

Tudor Jones shot to fame during the Black Monday market meltdown of 1987 when he reportedly tripled his clients' funds with a series of shorting strategies. The lesson here is a simple one, never get complacent about your positions.

#6 PROPERTY

"The person with the most information is generally a seller."

Paul Osborne, founder of Secret Agent

Caveat emptor! The asymmetry of information in the property market is the number one reason people get into trouble and yet it is so rarely discussed. Properties are not fungible or interchangeable. They are unique little patches of dirt each with their own quirks.

Osborne says that buyers need to operate with a heightened approach to due diligence to ensure you don't end up with a lemon. His says about a third of property sales take place because they aren't suitable, for whatever reason.

#7 SHARES

"Any company that has a material profit warning is a mandatory sell; bad news tends not to be an isolated event. If a company declines by 20 per cent, it triggers a review. If we are unwilling to buy more it becomes a mandatory sell."

Don Williams, Platypus Investments founder and CIO

Among the most consistently strong performing Australian fund managers, Platypus founder Don Williams has been able to consistently find growth in markets when there doesn't seem to be any growth around.

To make sure he's not getting caught up in a fad or a fleeting opportunity, he has some basic rules to live by. Since establishing the fund in 1998 his Australian equities fund has returned 10.3 per cent per annum.

#8 SHARES

"There is no substitute for meeting management, competitors, employees, and suppliers of listed companies to truly understand the operating environment and growth prospects. It is critical to understand the people involved in the business."

Ed Prendergast, Pengana Emerging Companies fund co-manager

Prendergast is emphasising the importance of deploying "shoe leather" in researching a company. If you own a position in a retail stock, for example, why not visit an outlet nearby and walk the floor?

Examine the foot traffic, does the fit-out meet expectations and are your interactions with the staff satisfying? Sometimes the answers to your investment questions are right in front of your nose.

#9 SHARES

"More than anything else, what differentiates people who live up to their potential from those who don't is a willingness to look at themselves and others objectively."

Ray Dalio, Bridgewater Associates founder

The man responsible for running the world's biggest and weirdest hedge fund is known for being extremely exacting and demanding plenty from his staff. Dalio is renowned for his ability to navigate global economic events, which he proved in 2008 when many of his hedge-fund peers lost money. His philosophy shows a good investor needs to understand themselves as much as the world around them.

#10 SHARES

"It's hard to buy popular stocks cheaply. Superior long-term returns are found from focusing on buying unloved shares with good fundamentals in cyclically depressed sectors. For this reason, we focus on contrarian investment ideas."

Simon Mawhinney, Allan Gray chief investment officer

Mawhinney is in charge of running possibly the best-known contrarian or deep-value funds manager in the Australian equities market. It's easier said than done but blindingly obvious when you think about it. Since its launch in July 2011 Allan Gray's Australia Opportunities Fund has returned 6.5 per cent net of fees compared with the benchmark's 3.1 per cent.

#11 SHARES

"We are looking to invest in changes. That could be the change induced by shifts in industry structure, the economic cycle, competitor behaviour, changes in the cost base, investor risk appetite. Generally there are lot of things changing for a company at any point in time so the key to investing is understanding the relative impact of changes and their likely longevity."

Sean Fenton, Tribeca Investment Partners portfolio manager

Catalysts are where investors can make the best returns for their bet. While professionals will seldom own up to investing simply on the basis of a catalyst, the good investors will always have catalysts in their back of their minds.

This approach has enabled Tribeca to find returns in a market where many other investors can't. The Tribeca Alpha Plus Fund returned 20.5 per cent after fees for the 2014-15 financial year to take out the number one position on the Mercer Investment Survey for Australian equities managers.

#12 SHARES

"Never cite boredom as a reason to sell a stock. Always sell the first hiccup in a concept stock. Always buy a 'fallen angel' slowly. Avoid companies moving into an investment year. Never back an incompetent manager no matter how good the company he fronts."

Ben Griffiths, Ely Griffiths founder and portfolio manager

Known as one of Australia's best small caps stock pickers, Ben Griffiths established specialist small caps funds management firm Ely Griffiths in 2002. Griffiths prides himself on his ability to recognise trends and exploit trends to his advantage.

There are patterns in the sharemarket and Griffiths' philosophy highlights a few of the important ones. In a challenging environment for the smaller end, these simple rules have helped Griffiths deliver returns well above the market.

#13 SHARES

"These are the key tenets I live by: Capital preservation is the number one consideration. Don't invest in blue sky. Ensure the business has a strong business model; sound and robust management. Do the numbers and focus on free cash flow."

David Paradice, Paradice Investments founder

David Paradice of "Para" is revered among investors, having built a $10 billion funds management business starting with his highly regarded small caps fund which has earned him the honorary title of small caps king.

Para likes to keep things simple, which is why his core philosophy is stripped back to some of the most basic tenets of investing. No matter how complex a situation becomes, or seemingly endless the alternatives are, the best investors are always able to simplify the process.

#14 SHARES
"We consider the downside first. We look at balance sheet, cash flow, profitability. If you've looked at all these, then you've done your homework and you don't have to worry too much. The other thing is, do your own homework."

Nathan Parkin, Perpetual Investments deputy head of equities

One of the rising stars at one of Australia's oldest and best-known funds management firms, Nathan Parkin was recently appointed deputy head of equities at the firm that has produced more superstars than any other firm.

Parkin is known best for his ability to find opportunities the market might have missed. This is not a skill you can pick up from reading the reports others have written, it requires dedication and the ability to walk the walk.

#15 PROPERTY

"Patience. Patience. Patience. We're in an industry where everyone's throwing obstacles at you and it can take years. You've just got to keep rolling on all the time."

Lang Walker, billionaire property developer

If you are trying to add another floor to your property and the bureaucracy is making you tear your hair out, spare a thought for property developer Lang Walker who has broken through the red tape to complete more than 200 developments.

Among his biggest developments were The Finger Wharf at Woolloomooloo, Broadway Shopping Centre and Collins Square in the Melbourne CBD, Australia's largest mixed-use commercial project which is valued at more than $1.6 billion.

#16 PROPERTY

"The use of leverage should be conservative. The cheap-money era may end sooner than we expect."

Paul Osborne, founder of Secret Agent

Look, nobody's asking you to start reading the tea leaves from US Federal Reserve statements, there are enough analysts around the globe doing that already and haven't they done a smashing job! The lesson here is, be cautious.

You don't need to be US Federal Reserve chairwoman Janet Yellen to know that when rates start rising being geared up to the eyeballs will get very painful, very quickly, no matter how sound the underlying asset is. So build your equity, the sleep-at-night ratio remains one of the most important investment metrics around.

#17 PROPERTY

"You cannot make money flipping assets when investing in direct residential property. The transactions costs are too high"

Richard Wakelin, director and founder of Wakelin Property Advisory

Sorry reality TV, the numbers just don't stack up. No matter how hard you try or how many cracks you paint over, speculating on property is still the fast track to personal ruin.

Even if you do bank a double digit return in 12 months the costs involved in listing a property, paying stamp duty, advertising and associated agents fees will eat away at your capital too much to make it worth your while.

#18 PROPERTY

"Don't go for a cheap $50 online valuation – get a full inspection done."

Chris Gray, CEO of property portfolio company Empire

Even if it's your 100th investment property, Empire's Chris Gray says you should never ever skimp on the valuation of a fresh acquisition. Gray says that this will almost guarantee that you won't get ripped off by paying too much for a property and at $500 a pop for a full inspection it's a small price to pay.

#19 SUPERANNUATION

"Rule one. Never lose money. Rule two. Never forget rule number one."

Warren Buffett, Berkshire Hathaway chairman

Of all the investment aphorisms, this remains the simplest and perhaps the best. Known as the world's greatest investor, Warren Buffett finessed the simple yet demanding value investing creed developed by Benjamin Graham to build a personal fortune worth US$72 billion.

The observation has a special importance for investors at all stages. For those in the accumulation stage, it is a reminder that there is nothing harder than having to make up lost ground. For those in the drawdown phase, well, need we say more?

#20 ASSET ALLOCATION

"The way I have dealt with the risk matrix of our business has been to diversify across the different sectors."

Lang Walker, billionaire property developer

They say diversification is the only free lunch in investing. While Walker is specifically referring to the major property segments such as retail, commercial, industrial and residential this can be just as easily adapted to your entire portfolio.

Take a look at your asset allocation. Are you heavily exposed to one asset class over another? Is that because of a comprehensive risk-reward analysis you have conducted or did it just happen? Take stock at least once a year and rebalance when necessary.

#21 SUPERANNUATION

"You should not simply focus on interest rate. For operational cash, you need to define what you need and then match that liability to a suitable cash option."

Kevin Toohey, Atchison Consultants general manager

An important distinction. With most of us so focused on how low the returns from cash are it's easy to forget that we all need cash for expenses and in retirement you need to be able to accurately forecast these expenses many years into the future.

Furthermore, while we are happy to lump at-call, term deposits and other instruments under the heading of cash remember they are all different. A cash fund that holds bank bills is different from cash in the bank. A cash ETF may be underpinned by bank deposits but is still a fund with different characteristics.

#22 SUPERANNUATION

"At different points you've got to still expect inflation-plus, but the question is inflation plus what?

Harvey Kalman, Equity Trustees executive general manager

Everybody loves it when markets deliver returns in the high teens but you can't expect your investments to do this consistently over the long term. One of the biggest funds in Australia for instance, the Future Fund, has a target of CPI plus 4.5-5.5 per cent.

If inflation is running at 3 per cent and you are getting another 5 per cent on top, that's a pretty good result compounded over the past 10 years. Ground your expectations and don't rely on bumper years to help you reach your goals.

#23 ASSET ALLOCATION

"Your risk profile needs to be compatible with your goals. When your goals or circumstances change, you would need to revisit that risk profile."

Wade Matterson, Milliman practice leader

There are a few gems in here worth unpacking. Firstly, that any investment plan needs to start with your goals and work backwards. If you are unhappy with the amount of risk you are taking on then perhaps it's time to revisit your goals.

The second idea worth exploring is that the time to change your asset allocation is when your goals or circumstances change, not when markets in Greece or China rise and fall. Remember that the signal is always personal never universal.

#24 ASSET ALLOCATION

"A balanced investment portfolio should hold between 20 and 40 per cent in fixed income. If you're more conservative, say you're 65 and want to focus on income, you'll probably want to go higher than that."

Damien Wood, Spectrum Asset Management principal

The old rule of thumb that you should subtract your age from 100 to find out your allocation to growth assets (and by default fixed income) is no silver bullet but it is a useful depiction of how the "glide-path" model of asset allocation works.

The glide-path method tries to avoid any sudden step changes in your asset allocation. Making a number of gradual adjustments to your holdings over time is much more preferable and leaves you less exposed to any sudden market fluctuations.

#25 ASSET ALLOCATION

"Most Australians are long property and shares. Automatically that tells you where you are underweight: fixed interest, global assets and securities outside the ASX top 20. "

Harvey Kalman, Equity Trustees executive general manager

It's probably no surprise that for most investors their super fund is simply an extension of their investing preferences. But this can be a missed opportunity because your super fund can be structured to complement your other assets.

As long-term investment, super can be the perfect investment hedge. What's more, investors have access to many more long-term investments than ever before with the proliferation of ETFs, LICs and high-quality options from industry funds.

#26 – PROPERTY

"The broader country has risk of oversupply because councils say that their income comes from approving apartments, so everyone is approving apartments"

Harry Triguboff, billionaire property developer

This observation from the person who almost single-handed introduced the concept of apartment living to Australia is critical because when it comes down to the nitty-gritty the success of any investment comes down to supply and demand.

Speaking to The Australian Financial Review in April, Triguboff echoed the concern of the Reserve Bank about the enormous numbers of residential developments springing up in places like Melbourne. So do your homework and place scarcity of the asset among your top priorities.

#27 - PROPERTY

"Seek third party advice to get an objective point of view. If you are not paying for the product or service, you are the product."

Chris Gray, CEO of property portfolio company Empire

This advice could equally apply to any of the major asset classes (or indeed service purporting to be "free"). However it has special resonance in the property sector where standards of advice tend to be a bit looser than elsewhere.

When receiving advice it is critical to understand how the adviser is getting paid, ask for these details upfront so any conflict of interest is apparent. Make sure the adviser is fully accredited. Academic qualifications and industry accreditation is usually a good start.

#28 – SUPER

"For anyone still working past 60, it's hard to find a reason not to start a transition to retirement pension. That's how effective they are."

Jonathan Philpot, HLB Mann Judd partner wealth management

Transition-to-retirement strategies can appear complex but they can deliver a powerful boost to your overall position. Effectively, once preservation age is reached, a worker can start drawing a tax-free pension while salary sacrificing at the same time.

The strategy works on multiple levels allows the investor to reduce the amount of income tax they would pay on their income while also saving on the tax they would pay on superannuation earnings. That's what we call a win-win scenario.

#29 – ASSET ALLOCATION

"The most outstanding investment records have been built by people who specialise, develop a deep understanding and stay within their circle of competence."

Hamish Douglass, Magellan Group CEO, CIO and lead portfolio manager

The vertically integrated model of bank-aligned advisers has produced great outcomes for the wealth management arms of the banks but some very ordinary ones for many of the clients they are supposed to be serving.

Consider your own investments. Is your fixed income exposure being managed by a specialist or by some coincidence is it being managed by the same company which appears on your adviser's letterhead? Compare the performance of your portfolio manager with the rest of the market and have a good reason to stay with them.

#30 – SUPER

"Managers will ensure that the best returns are coming from the flagship and that's the balanced fund."

Greg Medcraft, ASIC chairman and IOSCO chairman

This gem that Australia's top corporate cop shared with us back in April was too good not to give another run. Growth options get all the attention for their sexy (often) double-digit returns and alluring mix of high-performing assets.

But as Medcraft outlined, the fund option with the most money invested and the most attention paid to it is almost always the balanced option. When comparing funds look beyond the short term and consider its performance over five-, seven- and 10-year periods.

[GFG]

Aug 18 2015 at 8:23 AM Updated 59 mins ago

30 quotes that will make (or save) you money

The best pieces of investment advice can be boiled down to a single sentence. Here are some expert one-liners that will make you money.


"Always question yourself and your ability. Don't ever feel that you are very good. The second you do, you are dead." This and other expert quotes could make all the difference.
by Matthew Smith, Kate Cowling, Jeremy Chunn

#1 SHARES

"It is far more important to minimise the inevitable investment mistakes than be obsessed with trying to find the tenfold investment winners."

Hamish Douglass, Magellan Group CEO, CIO and lead portfolio manager

This circumspect investment approach has helped Hamish Douglas build a $30 billion listed funds management giant and establish him as Australia's number one manager of global funds through buying high-quality US stocks ignored by other market participants.

If you want to get technical, Douglass says his job is to "to assess the likely cash flows a business will generate over its lifetime, discount these cash flows back to the present value" and determine if buying today will generate an acceptable rate of return. Simple? Not quite. Effective? You bet.

#2 ASSET ALLOCATION

"It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong."

George Soros, founder of Soros Funds Management

Famous for betting US$1 billion against the British pound in 1992, the philosophy of George Soros carries real weight for investors who understand that being right at the wrong time can be just as much of a disaster as being plain wrong.

Soros was the primary adviser to Quantum, a hugely successful hedge fund, which averaged returns of 20 per cent per annum trading highly leveraged global macro themes before it closed and returned $26 billion to investors in 2011.

#3 PROPERTY

"I am never in a hurry to do any deal. There's a real cut-off point and I am very unemotional about chasing things I think are too expensive."

Lang Walker, billionaire property developer

In boom markets like Sydney and Melbourne, many investors suffer from a syndrome called fear-of-missing out. It's easy to get caught up in a bidding war at an auction but as the saying goes "Act in haste, repent at leisure".

Walker says that when assessing the value of a property he will arrive at a figure and stick to it. As he told us, every time he has been outbid in a transaction he's managed to find something even better in the weeks and months that followed.

#4 SHARES

"I spend most of my time thinking about the right price to pay for individual stocks that meet our criteria of trustworthy, competent management, conservative leverage and reasonably predictable futures. None of this is rocket science."

John Sevior, Airlie Funds Management founder and chief investment officer

John Sevior is the stock picker's stock picker. The occasionally self-deprecating fund manger is less concerned about the global macro themes that consume some commentators than he is about avoiding the pothole right in front of him.

Since kicking off his new venture in October 2012 after departing Perpetual, the Airlie Concentrated Share fund is up 57.7 per cent compared with the benchmark ASX 300's 36 per cent return over the same period. An impressive performance gleaned from a straightforward motto.

#5 SHARES

"Always question yourself and your ability. Don't ever feel that you are very good. The second you do, you are dead."

Paul Tudor Jones, founder of Tudor Investment Corporation

One of the most successful US hedge fund managers, Paul Tudor Jones is estimated to have amassed a personal fortune of US$4.6 billion through trading everything from shares and commodities, to bonds and long/short positions.

Tudor Jones shot to fame during the Black Monday market meltdown of 1987 when he reportedly tripled his clients' funds with a series of shorting strategies. The lesson here is a simple one, never get complacent about your positions.

#6 PROPERTY

"The person with the most information is generally a seller."

Paul Osborne, founder of Secret Agent

Caveat emptor! The asymmetry of information in the property market is the number one reason people get into trouble and yet it is so rarely discussed. Properties are not fungible or interchangeable. They are unique little patches of dirt each with their own quirks.

Osborne says that buyers need to operate with a heightened approach to due diligence to ensure you don't end up with a lemon. His says about a third of property sales take place because they aren't suitable, for whatever reason.

#7 SHARES

"Any company that has a material profit warning is a mandatory sell; bad news tends not to be an isolated event. If a company declines by 20 per cent, it triggers a review. If we are unwilling to buy more it becomes a mandatory sell."

Don Williams, Platypus Investments founder and CIO

Among the most consistently strong performing Australian fund managers, Platypus founder Don Williams has been able to consistently find growth in markets when there doesn't seem to be any growth around.

To make sure he's not getting caught up in a fad or a fleeting opportunity, he has some basic rules to live by. Since establishing the fund in 1998 his Australian equities fund has returned 10.3 per cent per annum.

#8 SHARES

"There is no substitute for meeting management, competitors, employees, and suppliers of listed companies to truly understand the operating environment and growth prospects. It is critical to understand the people involved in the business."

Ed Prendergast, Pengana Emerging Companies fund co-manager

Prendergast is emphasising the importance of deploying "shoe leather" in researching a company. If you own a position in a retail stock, for example, why not visit an outlet nearby and walk the floor?

Examine the foot traffic, does the fit-out meet expectations and are your interactions with the staff satisfying? Sometimes the answers to your investment questions are right in front of your nose.

#9 SHARES

"More than anything else, what differentiates people who live up to their potential from those who don't is a willingness to look at themselves and others objectively."

Ray Dalio, Bridgewater Associates founder

The man responsible for running the world's biggest and weirdest hedge fund is known for being extremely exacting and demanding plenty from his staff. Dalio is renowned for his ability to navigate global economic events, which he proved in 2008 when many of his hedge-fund peers lost money. His philosophy shows a good investor needs to understand themselves as much as the world around them.

#10 SHARES

"It's hard to buy popular stocks cheaply. Superior long-term returns are found from focusing on buying unloved shares with good fundamentals in cyclically depressed sectors. For this reason, we focus on contrarian investment ideas."

Simon Mawhinney, Allan Gray chief investment officer

Mawhinney is in charge of running possibly the best-known contrarian or deep-value funds manager in the Australian equities market. It's easier said than done but blindingly obvious when you think about it. Since its launch in July 2011 Allan Gray's Australia Opportunities Fund has returned 6.5 per cent net of fees compared with the benchmark's 3.1 per cent.

#11 SHARES

"We are looking to invest in changes. That could be the change induced by shifts in industry structure, the economic cycle, competitor behaviour, changes in the cost base, investor risk appetite. Generally there are lot of things changing for a company at any point in time so the key to investing is understanding the relative impact of changes and their likely longevity."

Sean Fenton, Tribeca Investment Partners portfolio manager

Catalysts are where investors can make the best returns for their bet. While professionals will seldom own up to investing simply on the basis of a catalyst, the good investors will always have catalysts in their back of their minds.

This approach has enabled Tribeca to find returns in a market where many other investors can't. The Tribeca Alpha Plus Fund returned 20.5 per cent after fees for the 2014-15 financial year to take out the number one position on the Mercer Investment Survey for Australian equities managers.

#12 SHARES

"Never cite boredom as a reason to sell a stock. Always sell the first hiccup in a concept stock. Always buy a 'fallen angel' slowly. Avoid companies moving into an investment year. Never back an incompetent manager no matter how good the company he fronts."

Ben Griffiths, Ely Griffiths founder and portfolio manager

Known as one of Australia's best small caps stock pickers, Ben Griffiths established specialist small caps funds management firm Ely Griffiths in 2002. Griffiths prides himself on his ability to recognise trends and exploit trends to his advantage.

There are patterns in the sharemarket and Griffiths' philosophy highlights a few of the important ones. In a challenging environment for the smaller end, these simple rules have helped Griffiths deliver returns well above the market.

#13 SHARES

"These are the key tenets I live by: Capital preservation is the number one consideration. Don't invest in blue sky. Ensure the business has a strong business model; sound and robust management. Do the numbers and focus on free cash flow."

David Paradice, Paradice Investments founder

David Paradice of "Para" is revered among investors, having built a $10 billion funds management business starting with his highly regarded small caps fund which has earned him the honorary title of small caps king.

Para likes to keep things simple, which is why his core philosophy is stripped back to some of the most basic tenets of investing. No matter how complex a situation becomes, or seemingly endless the alternatives are, the best investors are always able to simplify the process.

#14 SHARES
"We consider the downside first. We look at balance sheet, cash flow, profitability. If you've looked at all these, then you've done your homework and you don't have to worry too much. The other thing is, do your own homework."

Nathan Parkin, Perpetual Investments deputy head of equities

One of the rising stars at one of Australia's oldest and best-known funds management firms, Nathan Parkin was recently appointed deputy head of equities at the firm that has produced more superstars than any other firm.

Parkin is known best for his ability to find opportunities the market might have missed. This is not a skill you can pick up from reading the reports others have written, it requires dedication and the ability to walk the walk.

#15 PROPERTY

"Patience. Patience. Patience. We're in an industry where everyone's throwing obstacles at you and it can take years. You've just got to keep rolling on all the time."

Lang Walker, billionaire property developer

If you are trying to add another floor to your property and the bureaucracy is making you tear your hair out, spare a thought for property developer Lang Walker who has broken through the red tape to complete more than 200 developments.

Among his biggest developments were The Finger Wharf at Woolloomooloo, Broadway Shopping Centre and Collins Square in the Melbourne CBD, Australia's largest mixed-use commercial project which is valued at more than $1.6 billion.

#16 PROPERTY

"The use of leverage should be conservative. The cheap-money era may end sooner than we expect."

Paul Osborne, founder of Secret Agent

Look, nobody's asking you to start reading the tea leaves from US Federal Reserve statements, there are enough analysts around the globe doing that already and haven't they done a smashing job! The lesson here is, be cautious.

You don't need to be US Federal Reserve chairwoman Janet Yellen to know that when rates start rising being geared up to the eyeballs will get very painful, very quickly, no matter how sound the underlying asset is. So build your equity, the sleep-at-night ratio remains one of the most important investment metrics around.

#17 PROPERTY

"You cannot make money flipping assets when investing in direct residential property. The transactions costs are too high"

Richard Wakelin, director and founder of Wakelin Property Advisory

Sorry reality TV, the numbers just don't stack up. No matter how hard you try or how many cracks you paint over, speculating on property is still the fast track to personal ruin.

Even if you do bank a double digit return in 12 months the costs involved in listing a property, paying stamp duty, advertising and associated agents fees will eat away at your capital too much to make it worth your while.

#18 PROPERTY

"Don't go for a cheap $50 online valuation – get a full inspection done."

Chris Gray, CEO of property portfolio company Empire

Even if it's your 100th investment property, Empire's Chris Gray says you should never ever skimp on the valuation of a fresh acquisition. Gray says that this will almost guarantee that you won't get ripped off by paying too much for a property and at $500 a pop for a full inspection it's a small price to pay.

#19 SUPERANNUATION

"Rule one. Never lose money. Rule two. Never forget rule number one."

Warren Buffett, Berkshire Hathaway chairman

Of all the investment aphorisms, this remains the simplest and perhaps the best. Known as the world's greatest investor, Warren Buffett finessed the simple yet demanding value investing creed developed by Benjamin Graham to build a personal fortune worth US$72 billion.

The observation has a special importance for investors at all stages. For those in the accumulation stage, it is a reminder that there is nothing harder than having to make up lost ground. For those in the drawdown phase, well, need we say more?

#20 ASSET ALLOCATION

"The way I have dealt with the risk matrix of our business has been to diversify across the different sectors."

Lang Walker, billionaire property developer

They say diversification is the only free lunch in investing. While Walker is specifically referring to the major property segments such as retail, commercial, industrial and residential this can be just as easily adapted to your entire portfolio.

Take a look at your asset allocation. Are you heavily exposed to one asset class over another? Is that because of a comprehensive risk-reward analysis you have conducted or did it just happen? Take stock at least once a year and rebalance when necessary.

#21 SUPERANNUATION

"You should not simply focus on interest rate. For operational cash, you need to define what you need and then match that liability to a suitable cash option."

Kevin Toohey, Atchison Consultants general manager

An important distinction. With most of us so focused on how low the returns from cash are it's easy to forget that we all need cash for expenses and in retirement you need to be able to accurately forecast these expenses many years into the future.

Furthermore, while we are happy to lump at-call, term deposits and other instruments under the heading of cash remember they are all different. A cash fund that holds bank bills is different from cash in the bank. A cash ETF may be underpinned by bank deposits but is still a fund with different characteristics.

#22 SUPERANNUATION

"At different points you've got to still expect inflation-plus, but the question is inflation plus what?

Harvey Kalman, Equity Trustees executive general manager

Everybody loves it when markets deliver returns in the high teens but you can't expect your investments to do this consistently over the long term. One of the biggest funds in Australia for instance, the Future Fund, has a target of CPI plus 4.5-5.5 per cent.

If inflation is running at 3 per cent and you are getting another 5 per cent on top, that's a pretty good result compounded over the past 10 years. Ground your expectations and don't rely on bumper years to help you reach your goals.

#23 ASSET ALLOCATION

"Your risk profile needs to be compatible with your goals. When your goals or circumstances change, you would need to revisit that risk profile."

Wade Matterson, Milliman practice leader

There are a few gems in here worth unpacking. Firstly, that any investment plan needs to start with your goals and work backwards. If you are unhappy with the amount of risk you are taking on then perhaps it's time to revisit your goals.

The second idea worth exploring is that the time to change your asset allocation is when your goals or circumstances change, not when markets in Greece or China rise and fall. Remember that the signal is always personal never universal.

#24 ASSET ALLOCATION

"A balanced investment portfolio should hold between 20 and 40 per cent in fixed income. If you're more conservative, say you're 65 and want to focus on income, you'll probably want to go higher than that."

Damien Wood, Spectrum Asset Management principal

The old rule of thumb that you should subtract your age from 100 to find out your allocation to growth assets (and by default fixed income) is no silver bullet but it is a useful depiction of how the "glide-path" model of asset allocation works.

The glide-path method tries to avoid any sudden step changes in your asset allocation. Making a number of gradual adjustments to your holdings over time is much more preferable and leaves you less exposed to any sudden market fluctuations.

#25 ASSET ALLOCATION

"Most Australians are long property and shares. Automatically that tells you where you are underweight: fixed interest, global assets and securities outside the ASX top 20. "

Harvey Kalman, Equity Trustees executive general manager

It's probably no surprise that for most investors their super fund is simply an extension of their investing preferences. But this can be a missed opportunity because your super fund can be structured to complement your other assets.

As long-term investment, super can be the perfect investment hedge. What's more, investors have access to many more long-term investments than ever before with the proliferation of ETFs, LICs and high-quality options from industry funds.

#26 – PROPERTY

"The broader country has risk of oversupply because councils say that their income comes from approving apartments, so everyone is approving apartments"

Harry Triguboff, billionaire property developer

This observation from the person who almost single-handed introduced the concept of apartment living to Australia is critical because when it comes down to the nitty-gritty the success of any investment comes down to supply and demand.

Speaking to The Australian Financial Review in April, Triguboff echoed the concern of the Reserve Bank about the enormous numbers of residential developments springing up in places like Melbourne. So do your homework and place scarcity of the asset among your top priorities.

#27 - PROPERTY

"Seek third party advice to get an objective point of view. If you are not paying for the product or service, you are the product."

Chris Gray, CEO of property portfolio company Empire

This advice could equally apply to any of the major asset classes (or indeed service purporting to be "free"). However it has special resonance in the property sector where standards of advice tend to be a bit looser than elsewhere.

When receiving advice it is critical to understand how the adviser is getting paid, ask for these details upfront so any conflict of interest is apparent. Make sure the adviser is fully accredited. Academic qualifications and industry accreditation is usually a good start.

#28 – SUPER

"For anyone still working past 60, it's hard to find a reason not to start a transition to retirement pension. That's how effective they are."

Jonathan Philpot, HLB Mann Judd partner wealth management

Transition-to-retirement strategies can appear complex but they can deliver a powerful boost to your overall position. Effectively, once preservation age is reached, a worker can start drawing a tax-free pension while salary sacrificing at the same time.

The strategy works on multiple levels allows the investor to reduce the amount of income tax they would pay on their income while also saving on the tax they would pay on superannuation earnings. That's what we call a win-win scenario.

#29 – ASSET ALLOCATION

"The most outstanding investment records have been built by people who specialise, develop a deep understanding and stay within their circle of competence."

Hamish Douglass, Magellan Group CEO, CIO and lead portfolio manager

The vertically integrated model of bank-aligned advisers has produced great outcomes for the wealth management arms of the banks but some very ordinary ones for many of the clients they are supposed to be serving.

Consider your own investments. Is your fixed income exposure being managed by a specialist or by some coincidence is it being managed by the same company which appears on your adviser's letterhead? Compare the performance of your portfolio manager with the rest of the market and have a good reason to stay with them.

#30 – SUPER

"Managers will ensure that the best returns are coming from the flagship and that's the balanced fund."

Greg Medcraft, ASIC chairman and IOSCO chairman

This gem that Australia's top corporate cop shared with us back in April was too good not to give another run. Growth options get all the attention for their sexy (often) double-digit returns and alluring mix of high-performing assets.

But as Medcraft outlined, the fund option with the most money invested and the most attention paid to it is almost always the balanced option. When comparing funds look beyond the short term and consider its performance over five-, seven- and 10-year periods.

Hey GG
this is really good and esp relevant here
Thanks for sharing...

[greengiraffe]

Hi Buddies,

I always strive to be at my best... Enjoy...

GG

Aug 18 2015 at 8:23 AM Updated 59 mins ago

30 quotes that will make (or save) you money

The best pieces of investment advice can be boiled down to a single sentence. Here are some expert one-liners that will make you money.


"Always question yourself and your ability. Don't ever feel that you are very good. The second you do, you are dead." This and other expert quotes could make all the difference.
by Matthew Smith, Kate Cowling, Jeremy Chunn

#1 SHARES

"It is far more important to minimise the inevitable investment mistakes than be obsessed with trying to find the tenfold investment winners."

Hamish Douglass, Magellan Group CEO, CIO and lead portfolio manager

This circumspect investment approach has helped Hamish Douglas build a $30 billion listed funds management giant and establish him as Australia's number one manager of global funds through buying high-quality US stocks ignored by other market participants.

If you want to get technical, Douglass says his job is to "to assess the likely cash flows a business will generate over its lifetime, discount these cash flows back to the present value" and determine if buying today will generate an acceptable rate of return. Simple? Not quite. Effective? You bet.

#2 ASSET ALLOCATION

"It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong."

George Soros, founder of Soros Funds Management

Famous for betting US$1 billion against the British pound in 1992, the philosophy of George Soros carries real weight for investors who understand that being right at the wrong time can be just as much of a disaster as being plain wrong.

Soros was the primary adviser to Quantum, a hugely successful hedge fund, which averaged returns of 20 per cent per annum trading highly leveraged global macro themes before it closed and returned $26 billion to investors in 2011.

#3 PROPERTY

"I am never in a hurry to do any deal. There's a real cut-off point and I am very unemotional about chasing things I think are too expensive."

Lang Walker, billionaire property developer

In boom markets like Sydney and Melbourne, many investors suffer from a syndrome called fear-of-missing out. It's easy to get caught up in a bidding war at an auction but as the saying goes "Act in haste, repent at leisure".

Walker says that when assessing the value of a property he will arrive at a figure and stick to it. As he told us, every time he has been outbid in a transaction he's managed to find something even better in the weeks and months that followed.

#4 SHARES

"I spend most of my time thinking about the right price to pay for individual stocks that meet our criteria of trustworthy, competent management, conservative leverage and reasonably predictable futures. None of this is rocket science."

John Sevior, Airlie Funds Management founder and chief investment officer

John Sevior is the stock picker's stock picker. The occasionally self-deprecating fund manger is less concerned about the global macro themes that consume some commentators than he is about avoiding the pothole right in front of him.

Since kicking off his new venture in October 2012 after departing Perpetual, the Airlie Concentrated Share fund is up 57.7 per cent compared with the benchmark ASX 300's 36 per cent return over the same period. An impressive performance gleaned from a straightforward motto.

#5 SHARES

"Always question yourself and your ability. Don't ever feel that you are very good. The second you do, you are dead."

Paul Tudor Jones, founder of Tudor Investment Corporation

One of the most successful US hedge fund managers, Paul Tudor Jones is estimated to have amassed a personal fortune of US$4.6 billion through trading everything from shares and commodities, to bonds and long/short positions.

Tudor Jones shot to fame during the Black Monday market meltdown of 1987 when he reportedly tripled his clients' funds with a series of shorting strategies. The lesson here is a simple one, never get complacent about your positions.

#6 PROPERTY

"The person with the most information is generally a seller."

Paul Osborne, founder of Secret Agent

Caveat emptor! The asymmetry of information in the property market is the number one reason people get into trouble and yet it is so rarely discussed. Properties are not fungible or interchangeable. They are unique little patches of dirt each with their own quirks.

Osborne says that buyers need to operate with a heightened approach to due diligence to ensure you don't end up with a lemon. His says about a third of property sales take place because they aren't suitable, for whatever reason.

#7 SHARES

"Any company that has a material profit warning is a mandatory sell; bad news tends not to be an isolated event. If a company declines by 20 per cent, it triggers a review. If we are unwilling to buy more it becomes a mandatory sell."

Don Williams, Platypus Investments founder and CIO

Among the most consistently strong performing Australian fund managers, Platypus founder Don Williams has been able to consistently find growth in markets when there doesn't seem to be any growth around.

To make sure he's not getting caught up in a fad or a fleeting opportunity, he has some basic rules to live by. Since establishing the fund in 1998 his Australian equities fund has returned 10.3 per cent per annum.

#8 SHARES

"There is no substitute for meeting management, competitors, employees, and suppliers of listed companies to truly understand the operating environment and growth prospects. It is critical to understand the people involved in the business."

Ed Prendergast, Pengana Emerging Companies fund co-manager

Prendergast is emphasising the importance of deploying "shoe leather" in researching a company. If you own a position in a retail stock, for example, why not visit an outlet nearby and walk the floor?

Examine the foot traffic, does the fit-out meet expectations and are your interactions with the staff satisfying? Sometimes the answers to your investment questions are right in front of your nose.

#9 SHARES

"More than anything else, what differentiates people who live up to their potential from those who don't is a willingness to look at themselves and others objectively."

Ray Dalio, Bridgewater Associates founder

The man responsible for running the world's biggest and weirdest hedge fund is known for being extremely exacting and demanding plenty from his staff. Dalio is renowned for his ability to navigate global economic events, which he proved in 2008 when many of his hedge-fund peers lost money. His philosophy shows a good investor needs to understand themselves as much as the world around them.

#10 SHARES

"It's hard to buy popular stocks cheaply. Superior long-term returns are found from focusing on buying unloved shares with good fundamentals in cyclically depressed sectors. For this reason, we focus on contrarian investment ideas."

Simon Mawhinney, Allan Gray chief investment officer

Mawhinney is in charge of running possibly the best-known contrarian or deep-value funds manager in the Australian equities market. It's easier said than done but blindingly obvious when you think about it. Since its launch in July 2011 Allan Gray's Australia Opportunities Fund has returned 6.5 per cent net of fees compared with the benchmark's 3.1 per cent.

#11 SHARES

"We are looking to invest in changes. That could be the change induced by shifts in industry structure, the economic cycle, competitor behaviour, changes in the cost base, investor risk appetite. Generally there are lot of things changing for a company at any point in time so the key to investing is understanding the relative impact of changes and their likely longevity."

Sean Fenton, Tribeca Investment Partners portfolio manager

Catalysts are where investors can make the best returns for their bet. While professionals will seldom own up to investing simply on the basis of a catalyst, the good investors will always have catalysts in their back of their minds.

This approach has enabled Tribeca to find returns in a market where many other investors can't. The Tribeca Alpha Plus Fund returned 20.5 per cent after fees for the 2014-15 financial year to take out the number one position on the Mercer Investment Survey for Australian equities managers.

#12 SHARES

"Never cite boredom as a reason to sell a stock. Always sell the first hiccup in a concept stock. Always buy a 'fallen angel' slowly. Avoid companies moving into an investment year. Never back an incompetent manager no matter how good the company he fronts."

Ben Griffiths, Ely Griffiths founder and portfolio manager

Known as one of Australia's best small caps stock pickers, Ben Griffiths established specialist small caps funds management firm Ely Griffiths in 2002. Griffiths prides himself on his ability to recognise trends and exploit trends to his advantage.

There are patterns in the sharemarket and Griffiths' philosophy highlights a few of the important ones. In a challenging environment for the smaller end, these simple rules have helped Griffiths deliver returns well above the market.

#13 SHARES

"These are the key tenets I live by: Capital preservation is the number one consideration. Don't invest in blue sky. Ensure the business has a strong business model; sound and robust management. Do the numbers and focus on free cash flow."

David Paradice, Paradice Investments founder

David Paradice of "Para" is revered among investors, having built a $10 billion funds management business starting with his highly regarded small caps fund which has earned him the honorary title of small caps king.

Para likes to keep things simple, which is why his core philosophy is stripped back to some of the most basic tenets of investing. No matter how complex a situation becomes, or seemingly endless the alternatives are, the best investors are always able to simplify the process.

#14 SHARES
"We consider the downside first. We look at balance sheet, cash flow, profitability. If you've looked at all these, then you've done your homework and you don't have to worry too much. The other thing is, do your own homework."

Nathan Parkin, Perpetual Investments deputy head of equities

One of the rising stars at one of Australia's oldest and best-known funds management firms, Nathan Parkin was recently appointed deputy head of equities at the firm that has produced more superstars than any other firm.

Parkin is known best for his ability to find opportunities the market might have missed. This is not a skill you can pick up from reading the reports others have written, it requires dedication and the ability to walk the walk.

#15 PROPERTY

"Patience. Patience. Patience. We're in an industry where everyone's throwing obstacles at you and it can take years. You've just got to keep rolling on all the time."

Lang Walker, billionaire property developer

If you are trying to add another floor to your property and the bureaucracy is making you tear your hair out, spare a thought for property developer Lang Walker who has broken through the red tape to complete more than 200 developments.

Among his biggest developments were The Finger Wharf at Woolloomooloo, Broadway Shopping Centre and Collins Square in the Melbourne CBD, Australia's largest mixed-use commercial project which is valued at more than $1.6 billion.

#16 PROPERTY

"The use of leverage should be conservative. The cheap-money era may end sooner than we expect."

Paul Osborne, founder of Secret Agent

Look, nobody's asking you to start reading the tea leaves from US Federal Reserve statements, there are enough analysts around the globe doing that already and haven't they done a smashing job! The lesson here is, be cautious.

You don't need to be US Federal Reserve chairwoman Janet Yellen to know that when rates start rising being geared up to the eyeballs will get very painful, very quickly, no matter how sound the underlying asset is. So build your equity, the sleep-at-night ratio remains one of the most important investment metrics around.

#17 PROPERTY

"You cannot make money flipping assets when investing in direct residential property. The transactions costs are too high"

Richard Wakelin, director and founder of Wakelin Property Advisory

Sorry reality TV, the numbers just don't stack up. No matter how hard you try or how many cracks you paint over, speculating on property is still the fast track to personal ruin.

Even if you do bank a double digit return in 12 months the costs involved in listing a property, paying stamp duty, advertising and associated agents fees will eat away at your capital too much to make it worth your while.

#18 PROPERTY

"Don't go for a cheap $50 online valuation – get a full inspection done."

Chris Gray, CEO of property portfolio company Empire

Even if it's your 100th investment property, Empire's Chris Gray says you should never ever skimp on the valuation of a fresh acquisition. Gray says that this will almost guarantee that you won't get ripped off by paying too much for a property and at $500 a pop for a full inspection it's a small price to pay.

#19 SUPERANNUATION

"Rule one. Never lose money. Rule two. Never forget rule number one."

Warren Buffett, Berkshire Hathaway chairman

Of all the investment aphorisms, this remains the simplest and perhaps the best. Known as the world's greatest investor, Warren Buffett finessed the simple yet demanding value investing creed developed by Benjamin Graham to build a personal fortune worth US$72 billion.

The observation has a special importance for investors at all stages. For those in the accumulation stage, it is a reminder that there is nothing harder than having to make up lost ground. For those in the drawdown phase, well, need we say more?

#20 ASSET ALLOCATION

"The way I have dealt with the risk matrix of our business has been to diversify across the different sectors."

Lang Walker, billionaire property developer

They say diversification is the only free lunch in investing. While Walker is specifically referring to the major property segments such as retail, commercial, industrial and residential this can be just as easily adapted to your entire portfolio.

Take a look at your asset allocation. Are you heavily exposed to one asset class over another? Is that because of a comprehensive risk-reward analysis you have conducted or did it just happen? Take stock at least once a year and rebalance when necessary.

#21 SUPERANNUATION

"You should not simply focus on interest rate. For operational cash, you need to define what you need and then match that liability to a suitable cash option."

Kevin Toohey, Atchison Consultants general manager

An important distinction. With most of us so focused on how low the returns from cash are it's easy to forget that we all need cash for expenses and in retirement you need to be able to accurately forecast these expenses many years into the future.

Furthermore, while we are happy to lump at-call, term deposits and other instruments under the heading of cash remember they are all different. A cash fund that holds bank bills is different from cash in the bank. A cash ETF may be underpinned by bank deposits but is still a fund with different characteristics.

#22 SUPERANNUATION

"At different points you've got to still expect inflation-plus, but the question is inflation plus what?

Harvey Kalman, Equity Trustees executive general manager

Everybody loves it when markets deliver returns in the high teens but you can't expect your investments to do this consistently over the long term. One of the biggest funds in Australia for instance, the Future Fund, has a target of CPI plus 4.5-5.5 per cent.

If inflation is running at 3 per cent and you are getting another 5 per cent on top, that's a pretty good result compounded over the past 10 years. Ground your expectations and don't rely on bumper years to help you reach your goals.

#23 ASSET ALLOCATION

"Your risk profile needs to be compatible with your goals. When your goals or circumstances change, you would need to revisit that risk profile."

Wade Matterson, Milliman practice leader

There are a few gems in here worth unpacking. Firstly, that any investment plan needs to start with your goals and work backwards. If you are unhappy with the amount of risk you are taking on then perhaps it's time to revisit your goals.

The second idea worth exploring is that the time to change your asset allocation is when your goals or circumstances change, not when markets in Greece or China rise and fall. Remember that the signal is always personal never universal.

#24 ASSET ALLOCATION

"A balanced investment portfolio should hold between 20 and 40 per cent in fixed income. If you're more conservative, say you're 65 and want to focus on income, you'll probably want to go higher than that."

Damien Wood, Spectrum Asset Management principal

The old rule of thumb that you should subtract your age from 100 to find out your allocation to growth assets (and by default fixed income) is no silver bullet but it is a useful depiction of how the "glide-path" model of asset allocation works.

The glide-path method tries to avoid any sudden step changes in your asset allocation. Making a number of gradual adjustments to your holdings over time is much more preferable and leaves you less exposed to any sudden market fluctuations.

#25 ASSET ALLOCATION

"Most Australians are long property and shares. Automatically that tells you where you are underweight: fixed interest, global assets and securities outside the ASX top 20. "

Harvey Kalman, Equity Trustees executive general manager

It's probably no surprise that for most investors their super fund is simply an extension of their investing preferences. But this can be a missed opportunity because your super fund can be structured to complement your other assets.

As long-term investment, super can be the perfect investment hedge. What's more, investors have access to many more long-term investments than ever before with the proliferation of ETFs, LICs and high-quality options from industry funds.

#26 – PROPERTY

"The broader country has risk of oversupply because councils say that their income comes from approving apartments, so everyone is approving apartments"

Harry Triguboff, billionaire property developer

This observation from the person who almost single-handed introduced the concept of apartment living to Australia is critical because when it comes down to the nitty-gritty the success of any investment comes down to supply and demand.

Speaking to The Australian Financial Review in April, Triguboff echoed the concern of the Reserve Bank about the enormous numbers of residential developments springing up in places like Melbourne. So do your homework and place scarcity of the asset among your top priorities.

#27 - PROPERTY

"Seek third party advice to get an objective point of view. If you are not paying for the product or service, you are the product."

Chris Gray, CEO of property portfolio company Empire

This advice could equally apply to any of the major asset classes (or indeed service purporting to be "free"). However it has special resonance in the property sector where standards of advice tend to be a bit looser than elsewhere.

When receiving advice it is critical to understand how the adviser is getting paid, ask for these details upfront so any conflict of interest is apparent. Make sure the adviser is fully accredited. Academic qualifications and industry accreditation is usually a good start.

#28 – SUPER

"For anyone still working past 60, it's hard to find a reason not to start a transition to retirement pension. That's how effective they are."

Jonathan Philpot, HLB Mann Judd partner wealth management

Transition-to-retirement strategies can appear complex but they can deliver a powerful boost to your overall position. Effectively, once preservation age is reached, a worker can start drawing a tax-free pension while salary sacrificing at the same time.

The strategy works on multiple levels allows the investor to reduce the amount of income tax they would pay on their income while also saving on the tax they would pay on superannuation earnings. That's what we call a win-win scenario.

#29 – ASSET ALLOCATION

"The most outstanding investment records have been built by people who specialise, develop a deep understanding and stay within their circle of competence."

Hamish Douglass, Magellan Group CEO, CIO and lead portfolio manager

The vertically integrated model of bank-aligned advisers has produced great outcomes for the wealth management arms of the banks but some very ordinary ones for many of the clients they are supposed to be serving.

Consider your own investments. Is your fixed income exposure being managed by a specialist or by some coincidence is it being managed by the same company which appears on your adviser's letterhead? Compare the performance of your portfolio manager with the rest of the market and have a good reason to stay with them.

#30 – SUPER

"Managers will ensure that the best returns are coming from the flagship and that's the balanced fund."

Greg Medcraft, ASIC chairman and IOSCO chairman

This gem that Australia's top corporate cop shared with us back in April was too good not to give another run. Growth options get all the attention for their sexy (often) double-digit returns and alluring mix of high-performing assets.

But as Medcraft outlined, the fund option with the most money invested and the most attention paid to it is almost always the balanced option. When comparing funds look beyond the short term and consider its performance over five-, seven- and 10-year periods.

Hey GG
this is really good and esp relevant here
Thanks for sharing...

[CityFarmer]

Based on my record, Walter & Edwin Schloss used a broadly diversify approach, with often 60+ stocks. I reckon they were using an approach somewhere between quantitative and qualitative. They might not meet the management, but they did follow company news and reports, and having widely varied weightage depended on faith.

One local fund, Yeoman Cap, is using more level quantitative approach. You can find more info here.

http://yeomancapitalmanagement.com/

Great thread!

Toby Carlisle has a book called "deep value: why activist investors and other contrarians battle for losing companies"

http://small-cap.ru/wp-content/uploads/2...tions-.pdf

the theme of the book revolves around how value has been extracted by activist investors, why the acquirer's multiple is a good valuation tool and studies that show that, not only that value investing is superior to glamour investing, but also that contrarian value investing is the most superior.

contrarian value is, generally speaking, buying truly depressed companies with low roe, no dividends and/ or losses. compared to buying gems with high roe, dividends and are profitable.

this is a surprising conclusion to me because i always thought and still do think that buying a decent company and a cheap price is better than buying a dog at a cheaper price. the argument for buying the dog, however, make sense because the stock is so depressed, that any good news will send the price flying.
on the flip side, any bad news would send the gems price downward.

mean reversion is the tonic that cures a depressed stock and the injury that hurts the star.

i suspect that walter schloss subscribed to this idea and earned him 20+% returns over 40+ years.

i am also very curious if this is true and have bought some dogs to find out and it has been really volatile so far and it is really testing my faith.

hope you guys enjoy the book as much as i did.

[HSquare.Cap]

@Nebula - Havent check out Deep Value, but have been great admirer of Tobias's work. I still rmb reading his "Quantitative Value" back in early 2013. He really nailed down the effectiveness of using a quantitative value method. The central tenet of his argument is that quant value method mitigates behavioral biases inherent in qualitative analysis. His methodology is similar to that employed by LSV.

Buying truly beaten down stocks is really exemplification of value investing- a high quality stock can be a bad investment and a low quality can be a good investment. Its all about how much we have paid for it. Looking forward to hearing more from you. I would like to discuss some Singapore stocks here in the future, so we could prob pick a few stocks and tear them down tgt!


@greengiraffe - Great stuff mate! Appreciate you sharing these gems with us. So much wisdom in that 30 quotes. As I learn more and more about value investing, I realize its more than just investing. Its also about being a great human with great character. Not sure if the guys here feel the same way too?