Is there an undervalued asset class in the house?

[FinanceDude]

What's the point? You aren't going to be convinced and will just waste lots of my time arguing, so I cannot be bothered.

But do me a favor and butt out. We get it: you think buying individual securities is a lousy idea. Now kindly leave us unwashed stock-pickers the hell alone.

 

[cute fuzzy bunny]

Well I sure as hell wont be escalating this to THREE winkies!

But on a serious note, I'm quite convince-able. I just havent ever seen anyone show me that their adjusted annualized returns over a decade+ period actually beat any risk equivalent market indexes.

I guess my interests, all kidding aside, are that a lot of 'stock pickers' dont ever actually do the exercise of seeing if their efforts really are worth it. Seems to me that we remember the winners and forget the losers - picks and yearly returns.

It'd be a bit disappointing if novice investors, allured by the prospects of making a few good picks and beating the market...dont realize or arent cautioned that this rarely, if ever, actually happens.

That having been said, I've made my point. Which was invited, and not spontaneously produced...

 

[cute fuzzy bunny]

I heard INTEL is a screaming buy.............

You know, I cut a paragraph out of the above post that addressed this. I've seen plenty of people get rich on one or two stocks. Luck and the guts to put enough assets into one of these home run hits is rare.

In many of the cases, its someone sitting there with unexercised stock options that sees the price shoot up, sells off, and fans the stacks of cash. Not a whole shitload of risk involved there.

But now that you mention it, I did recommend INTC a little while back and I think a bunch of people around here have made a good chunk of change off of that recommendation...

 

[brewer12345]

heh heh heh . So what criteria do you put into your stock screener before you search for stocks?

That's actually an interesting question. Usually, I start with a view of the world and a corresponding industry focus. Mostly, I start digging around industry groups that are widely hated and pretty beaten down. Reinsurers after Katrina-Rita-Wilma, banks after the subprime implosion, auto parts makers in 2005, etc. After that, I just look for ones that have the potential to survive an industry downturn and will offer lots of upside from current prices once the industry rights itself. Many get taken over once things start to improve.

 

[FinanceDude]

Well I sure as hell wont be escalating this to THREE winkies!

But on a serious note, I'm quite convince-able. I just havent ever seen anyone show me that their adjusted annualized returns over a decade+ period actually beat any risk equivalent market indexes.

I guess my interests, all kidding aside, are that a lot of 'stock pickers' dont ever actually do the exercise of seeing if their efforts really are worth it. Seems to me that we remember the winners and forget the losers - picks and yearly returns.

It'd be a bit disappointing if novice investors, allured by the prospects of making a few good picks and beating the market...dont realize or arent cautioned that this rarely, if ever, actually happens.

That having been said, I've made my point. Which was invited, and not spontaneously produced...

I work in the same office with a private money manager. He has set stock portfolios he manages based on a client's risk profile.

He enhances the return by selling calls on the underlying stock.

I do find it interesting that you keep referring to 10-15 year periods in comparing index funds to indivdual stocks. Those of us who manage stock portfolios do rebalancing in the portfolios on an ongoing basis. I tend towards buy and hold but have up to 50% turnover in my most aggressive portfolios. There are times when I make a decision that the stock "has to go".......(see Fannie Mae) I have been known to go 10% in cash during certain times of volatility.

I can see the connection between index funds and managed funds, as far as apples to apples. However, I am NOT a fund manager, I have a LOT more flexibility in what I do...........

 

[unclemick]

85% Target Retirement 2015 plus SS plus non cola pension = 100% retirement.

15% The Norwegian widow needs new shoes, may actually buy a kayak someday, mad I say mad money.( golf gets me aggrivated).

Keep those cards and letters coming folks - still holding STON and EGLE from the old days.

" Never tell me the odds." Han Solo from one of the Star Wars.

heh heh heh Psst - Bernstein was more definative with 'The 15 Stock Diversification Myth.' But I'm not listening!

 

[FinanceDude]

You know, I cut a paragraph out of the above post that addressed this. I've seen plenty of people get rich on one or two stocks. Luck and the guts to put enough assets into one of these home run hits is rare.

In many of the cases, its someone sitting there with unexercised stock options that sees the price shoot up, sells off, and fans the stacks of cash. Not a whole shitload of risk involved there.

But now that you mention it, I did recommend INTC a little while back and I think a bunch of people around here have made a good chunk of change off of that recommendation...

Some stocks I sold too late: Taser, Boston Chicken, Lucent, Siebel, Sun Micro, CMGI, Daimler-Chrysler, Tyco, MCI

Some stocks I sold too early: Microsoft, WalMart, Walgreens, Warner Lambert

Stocks I have never sold out of(core holdings) GE, PG, MO, BP, HOG, JCI, KSS, JNJ, HP o)

 

[FinanceDude]

85% Target Retirement 2015 plus SS plus non cola pension = 100% retirement.

15% The Norwegian widow needs new shoes, may actually buy a kayak someday, mad I say mad money.( golf gets me aggrivated).

Keep those cards and letters coming folks - still holding STON and EGLE from the old days.

" Never tell me the odds." Han Solo from one of the Star Wars.

heh heh heh Psst - Bernstein was more definative with 'The 15 Stock Diversification Myth.' But I'm not listening!

 

[brewer12345]

Uncle, FWIW< I no longer consider STON t o be a screaming bargain. I've sold about half my stake and I am waiting for closer to 30 to give the rest the heave-ho.

 

[cute fuzzy bunny]

The 15-Stock Diversification Myth

One of my favorite words...kurtoskewness!

 

[cute fuzzy bunny]

I can see the connection between index funds and managed funds, as far as apples to apples. However, I am NOT a fund manager, I have a LOT more flexibility in what I do...........

Agreed. Now do your ideas in aggregate, over a long period of time, actually beat equivalent risk level market indexes?

Better still, I'm presuming your very best ideas go into your own portfolio. You do a 1040 every year where your gains and losses are tabulated. Your gains and losses vs dollars invested is fairly available. You've been doing this for a while.

So over the last 10-15 years, has your personal rate of return beaten the S&P 500 or TSM? What were your trading costs? How much additional risk did you take on to accomplish any upside?

 

[CyclingInvestor]

But on a serious note, I'm quite convince-able. I just havent ever seen anyone show me that their adjusted annualized returns over a decade+ period actually beat any risk equivalent market indexes.

qtr me SPY
1994 -2% 0%
1995 21% 38%
1996 31% 22%
1997 22% 34%
1998 -7% 29%
1999 -2% 20%
2000 36% -10%
2001 16% -12%
2002 7% -22%
2003 47% 28%
2004 35% 11%
2005 24% 5%
2006 22% 16%

Here are my returns for the 13 full years I have been investing in individual
stocks, combining the results across all 4 (regular, roth, ira1, ira2) accounts.
Whether they are risk-equivalent depends on your definition of risk, but almost
all investments were in top-quality (IMO) stocks, with a few bonds and
more questionable stocks in the early years, and a little bit of MMF. I usually
was very close to 100% invested in 10-15 stocks at a time, sometimes dropping
to as few as 5 or as many as 20+. No one stock accounted for more than
15% of my gains. The portfolio was small until 1997, when a large 401k rollover
quadrupled its size. I am positive that I accounted correctly for deposits and
withdrawels.

 

[brewer12345]

Better still, I'm presuming your very best ideas go into your own portfolio. You do a 1040 every year where your gains and losses are tabulated. Your gains and losses vs dollars invested is fairly available. You've been doing this for a while.

So over the last 10-15 years, has your personal rate of return beaten the S&P 500 or TSM? What were your trading costs? How much additional risk did you take on to accomplish any upside?

This is where things get sticky: where the rubber meets the road. Dunno about you, but a lot of my assets are tax sheltered, so much of the gain and loss never sees a Sched D. Of the taxable stuff, much of it is held for years. So again, Sched D isn't the greatest way to do this. This ignores all the messy stuff that goes with time-weighted vs. money-weighted returns, GIPS compliance, etc. that I never want to touch with the proverbial 10ft. stick.

The risk measurement part is also tricky. You have in mind traditional beta, std dev, etc. measures? How do you deal with stuff that is illiquid? What is an appropriate performance/risk benchmark, bearing in mind that the relevant benchmark might change considerably as an individual investor rotates from small caps to large caps to junk bonds to beev3r cheez3 futures to...

There will be no pleasing you on this score, so I decline to play the game. I'd suggest others do the same.

 

[Nords]

I heard INTEL is a screaming buy.............

But now that you mention it, I did recommend INTC a little while back and I think a bunch of people around here have made a good chunk of change off of that recommendation...

For a guy who posts as "FinanceDude", the level of detail to your analysis (let alone its quality) leaves a little to be desired.

But, yes, I was buying last July/Aug at $17.43 & $17.79/share. With reinvested dividends I'm up 24% at yesterday's close.

I bought because Otellini seemed to be leading his way out of a wet paper bag with rising margins & cash flow due to cuts, because the trading volume seemed to have shaken out, and because certain former Intel employees speculated that Intel would sucker AMD into huge capital expenditures that would nail AMD's profits when Intel dropped chip prices.

I do find it interesting that you keep referring to 10-15 year periods in comparing index funds to indivdual stocks. Those of us who manage stock portfolios do rebalancing in the portfolios on an ongoing basis. I tend towards buy and hold but have up to 50% turnover in my most aggressive portfolios.
I can see the connection between index funds and managed funds, as far as apples to apples. However, I am NOT a fund manager, I have a LOT more flexibility in what I do...........

Hey, indexes rebalance too. Witness what happened to the S&P500 during the 1990s. I don't know index turnover ratios but I suspect they're lower than 10%.

The reason for the long-term comparison to an index is that it's difficult to distinguish luck & the market's rising tide from a manager's actual skill. I'd go for 20 years, personally, and that drops out even Bill Miller. About the only people left are guys like Fisher, Ruane, Schloss, Buffett, and Simpson. Hmmm, I'm noticing personality & lifestyle traits among those guys that I don't believe I possess.

So yes, stock-pickers can beat the market. It probably takes a certain amount of hard-wiring and even so a lot of man-hours. But if a stock-picker isn't comparing their after-tax performance to an appropriate index then they're just deluding themselves with feel-good poor-quality analysis. And even if they're beating the index despite higher turnover costs, one would want to take risk (volatility) into account.

In my case I decided that, although my learning curve is finally paying off, there are better things to do with my time. When I was working I definitely wouldn't have had the time to do this properly, and I'm not sure that I would've had the intestinal fortitude to put the ER portfolio into it either. Now that I'm lazy and lack a profit motive I think I'm heading for a brick wall.

So I'm looking for the exit points with Intel, Diana Shipping, Eagle Shipping, Tate & Lyle, & Superior. I think my shorts on Abercrombie & Fitch and First Fed have room to run for a while...

 

[unclemick]

The 15-Stock Diversification Myth

One of my favorite words...kurtoskewness!

In New Orleans long ago and far away - I used to say that word out loud around the house - and the women threw stuff at me!

heh heh heh heh heh heh heh heh - ? Unlike the pro's who post here - my exit points are 7 years unless the stock does extremely. BTY - ancient history but back in New Orleans my safety deposit box bottom had a few 'gone pecan' stock certificates of defunked co.'s. I planned some someday to do an artsy fartsy collage - since I 'knew' my stock picking ability would generate a few more by old age.

 

[cute fuzzy bunny]

There will be no pleasing you on this score, so I decline to play the game. I'd suggest others do the same.

I am not seeking to be 'pleased', but simply - and at an invitation - to add my opinion to the discussion. I owned close to 100 individual issues at one point and some made money, some didnt. In my final analysis, my efforts created a lot of work and expense and except for a few years where I knocked the cover off the ball, I didnt beat a broad market index over the long haul.

As Bernstein points out in the paper linked above, your odds are roughly 1 in 6 of being able to beat the market with 30 stocks in your portfolio...so while i'm no math whiz i'm guessing you need a couple of hundred to be sure?

I learned my lesson and I'd like to share it with those who give a hoot. In this case I think i've made my point: most of your setups are too complex to even measure if you're doing better than a cheap index fund.

At least I give people my best ideas, I dont mind taking my lumps over bad ones, and I let people know I'm going to sell off something i recommended when I do it, rather than days or weeks later.

 

[cute fuzzy bunny]

Cyclinginvestor - You've done well grasshopper!

Were your returns well spread or were there one or two stocks that gave you the bulk of your returns? Did you anticipate that they'd be big winners when you bought them or were they pleasant surprises?

In the 401k rollover, was that a concentrated portfolio or was it primarily holdings of your employers stock?

Wow...I'm pleased! And we're learning!

 

[brewer12345]

Welcome to my ignore list, cute fuzzy [moderator edit]. Congrats: you are the first and only occupant.

 

[cute fuzzy bunny]

I imagine there are plenty of others and i'm perfectly okay with that.

But since i'm on it and cant offend you, hows that investment in MOVI and blockbuster working out?

 

[CyclingInvestor]

Cyclinginvestor - You've done well grasshopper!

Were your returns well spread or were there one or two stocks that gave you the bulk of your returns? Did you anticipate that they'd be big winners when you bought them or were they pleasant surprises?

In the 401k rollover, was that a concentrated portfolio or was it primarily holdings of your employers stock?

The returns were well spread between stocks, but the results from 1998-2005 were
heavily influenced by REITs (negatively in 98-99, positive in 00-05). I do not asset-
allocate, but try to own the best-valuation stocks in the small universe (about 30) of
stocks I follow. In late 98 thru the end of 05 all those slots were occupied by REITs.
Although I had already discovered REITs via ValueLine, I will always be thankful
to Ralph Block's books and Motley Fool posts for giving me sufficient understanding
of REIT fundamentals to invest heavily in them.

My 401k was SP 500 index before I rolled it over, the only low-fee choice I had.

I never buy a stock because I expect it to go up - I buy it because I get the most
(IMO) risk-adjusted dividend flow in the future. Random (IMO) short-term price
fluctuations just allow me to 'trade up' future dividend flows. Of course, this means
I almost always buy 'falling knives' (with strong business fundamentals), so there are
sometimes periods like the 15 months from late 98 to the end of 99 where the
market value of my portfolio lags the indices, but since I had always planned to retire
on the dividends it was easy to ignore it.

 

[FinanceDude]

For a guy who posts as "FinanceDude", the level of detail to your analysis (let alone its quality) leaves a little to be desired.

The INTC reference was a joke toward CFB........you didn't get that?

Are you saying you want a full blown discussion of stochastics, Wave Theory, CAPM, Black and Scholes Option Pricing Model, etc? Because I could post that stuff on here but 80% of the folks wouldn't care or understand it.........

Most of my discussion is in the PM mode with the other "stock-pickers" on the board. That way we can talk freely without ongoing nit-picking and thread overrun.......

 

[FinanceDude]

Welcome to my ignore list, cute fuzzy [moderator edit]. Congrats: you are the first and only occupant.

 

[brewer12345]

That way we can talk freely without ongoing nit-picking and thread overrun.......

Barring moderator involvement (don't hold your breath), I suspect that this section of the boards will always be overrun with adamant indexers looking to nitpick (particularly a certain knowitall alpha male who doesn't take several hints to give it a rest and seems to be overcompensating for *something*).

A shame, really. I thought this would turn out to be a relatively civil place to kick ideas around. Looks like I was overly optimistic Time will tell, I guess.

 

[2soon2tell]

Brewer,

Whats your opinion of Canadian O&G trusts. They were beaten down heavily in the last year due to proposed tax law changes by the Canadian govt.

2soon

 

[brewer12345]

Brewer,

Whats your opinion of Canadian O&G trusts. They were beaten down heavily in the last year due to proposed tax law changes by the Canadian govt.

2soon

Might be some gold to pan for, but I mostly think the better-run O&G operating companies are a better choice.