Can we be direct for a minute?

Meh, BHP CEO's come and go, they might make a few missteps along the way but as an organisation they still play the long game.

I think overall he is doing better than Marius Kloppers. He (Kloppers) seemed to have a unique knack for getting through the deals that were pretty woeful (Ravensthorpe, US shale oil) and not be able to get through the deals that would have been great (Rio merger, Potash Co.)

 

Sorry with derailing your thread – too much read into nodrog and my misunderstanding, we quickly sorted that. He’s back to posting – all is well with the world.

Fact remains my desire to post is not very high. I just don’t think online communication is my thing.

However (there is always a but) your opening post aligns exactly with what I’m thinking through now. ‘Direct shares for the long term’ specifically for me at the moment morphing from a more hands on medium term wealth creation approach to a longer-term hands-off purchasing power preservation approach in the SMSF.

You may regret this but, I’ll add the occasional post to this thread if anything pops into my mind as I work through my situation. Be warned what pops into my head is normally questions not answers.

First question!

Why go direct shares?

Do I enjoy it enough that I don’t care if I look back on my life and have achieved the highest probability outcome of underperforming passive?

or

Do I bring something to the table that is likely to allow me to overcome the probability of underperforming? What is it that I bring.


No use even considering ‘which’ direct stocks until you have answered positively one of those questions. You’ll never be able to hold through tough times and/or you will eventually realise you don’t care enough to stay interested and switch to a passive or active manager strategy. As staying the course is the most important thing, a late realisation that you’re not suited to direct investing will be a detrimental outcome.

For me I can answer positively to the first question - I don't care the relative return outcome. I love the process. I'm also limiting the exposure to 25% of my retirement portfolio - so even if I stuff it up completely I can afford the indulgence.

As to the second question – well all I’ve really got that is concrete is that I'm in the 90% of people who are above average, so I guess it’s lucky I answer positively to question one.

What are your answers to the questions?
Are there other reasons to go the direct route?

 

Interesting questions. I also wonder if it’s a stage of life thing in some cases?

With age there seems to be an increased desire for simplicity, changed priorities and importantly the need to consider those left to manage the portfolio when one kicks the bucket etc.

I only just finished selling our last two direct shares (was over thirty holdings originally) at the beginning of the week. @SatayKing mentioned his intention to sell his direct holdings. Thornhill is continuing to substantially reduce his direct share holdings, was over 70 at one stage. I know of others privately who are older doing similar.

After years of progressively selling our direct shares (needed to minimise CGT) looking at it in hindsight I think of the tax I could have avoided and not lost time with family / friends by just taking a simple approach in the first place? But then again I learnt a lot and enjoyed investing in direct shares earlier on. I’m also better able to appreciate simple approaches and be content with same now after having dealt with the maintenance of a direct portfolio for years.

I don’t regret anything I’ve done though. I’m one of those types who can’t be told anything. For better or worse I have to have a go and learn the hard way. It seems to be the only way I get to truely understand my own psychology and what’s best suited to me. Can be a costly exercise at times though so ideally better to learn from others mistakes.

One thing that did stand out to me though with holding numerous direct shares is that what might seem exciting and absorbing at first can become a burden over time. Obviously an individual thing.

Finally I also learnt that I’m in the 90% of people “below” average. Which is likely why it’s senseless for me to invest in direct shares in the hope of beating passive funds.

 

Hi @dunno
Wondering what are your 3 international passive ETFs in super? Thanks.

 

Thanks for sharing this mate. Great words.

Damn I'm only 29 and already leaning this way. How simple will I be later? Sitting on a chair in an empty room drooling!

This is how I feel about it...

I suppose if you start off with the simple approach you'll always wonder about the complex route. But at least if you go the complex route first, you likely end up realising the value in simplicity.

It's quite tricky to predict to predict how we'll feel about it later, because we are often extremely enthused at the start and think 'yeah this is how I want to spend my time'.

But many of us are probably the same - need to experience having a bunch of stocks in our portfolio to look at and the extra paperwork and mental energy spent on it to realise perhaps it's not the best use of our time.

It creates more anxiety than I expected, not sure why. I suppose you're always wondering if it's worth it, whether you should be doing something else, picked different stocks etc.

And whether you think it does or not, aside from the time involved, it definitely consumes extra mental space and can become tiring to think about when considering what to keep and how long for, what to sell etc.

Given the sums of money involved and our efforts to acquire that money, keeping it as simple as possible makes sense, as it gives us less chance of making a poor decision leading to losses.

This lesson of the beauty in simplicity keeps smacking me in the face and taunting me

I'm learning that I'd rather use that energy for other things.

Sorry, I do realise it's not a therapy session

 

Starting to sound like another passive investing thread. Someone please post some “direct” share holdings before @Silverson kicks me out of here.

 

I am not good at analysing anything money related and really should not be in the direct share space (and I am not - yet). But - I really like a few direct shares. I am not picking them for any other reason then that I like them (which is a bad way to go).

To be honest I pick my cars the same way. I buy the ones that I like the colour and the look of the thing. So far all my cars have been great. Here's hoping I can repeat that pattern for stocks!!!

 

Maybe you're onto something - a nice company logo or certain colours may outperform

 

Yes I wonder this too.

But the problem I face is if I position now for how I "may" feel when I'm older then I would need to forego my enjoyment of direct share investing today. I know how I feel for certain today - I don't know for certain how I may feel in the future. Maybe I won't be one of the people who want to divest direct shares? You can always appoint and reward an executor who can make the transition to passive for your beneficiaries if need be.

 

Buy and hold for the long term puts you beyond a time frame where you can have much visibility of how things will turn out from an analytical quantitive perspective.

You mock yourself ( saying its a bad way to go) - but these qualitative things you talk about and pick up on which cause you to like a company are probably really important for picking long term stocks well. I suspect females are probably far better at these intuitive qualitative perceptions than males.

 

Gosh I hope you are right.

 

That’s why I had to have a go at direct shares. Life would be awfully dull if we avoided doing things we enjoy when young based on what we might think / feel when old. If I didn’t have a go I would be left wondering like a lot of things in life.

When it comes to ones life savings though if one wants to experiment with different investing approaches then ideally best to do it when younger. Disaster potentially awaits those lacking education (and the right psychology) who attempt to do this stuff later in life. Life savings may be potentially decimated and the most important thing in ones life lost ie TIME.

@dunno for what it’s worth I think what you’re looking to do sounds perfect. Bit along the lines of @The Falcon in that the core of the portfolio is in boring passive but there’s still part of the portfolio set aside for enjoyment and potential outperformance. Besides given your level of skill failure is not even a consideration. How can that not be a win win!

Maybe it’s why I can’t let go of old LICs for all indexed, that my enjoyment. Obviously i’m easily excited. And they do say that as one ages performance matters less:

 

@sharon, you have one of the most inquiring minds here. I can’t see how you won’t succeed.

Think of yourself as a “collector”. But unlike the vast majority of the population who collect rubbish, you collect ASSETS. What better interest could one have.

 

Thank you. It is very kind of you to say.

Yes - I do think long term. Although now that I am slowly gaining a better understanding of money and how it works and compounding - I HATE my mortgage. Gosh damn that thing is such a drag and needs to be killed. My spending pattern has changed dramatically since I have started to frequent this site. I blame all that regulars here. And I must admit - I am loving it.

 

Hell you could even pick a basket of stocks that way, bunch it up into an ETF... ASX:SHAZ?

The amount of ETFs out there now nothing is surprising!

 

I too am with you on the first one!
I honestly am not overly concerned with 'outperforming' I'm more concerned with procrastinating hence why I have decided to go down this road as I know I would not have stuck to my plan any other way.
One thing that may/may not work in my favour is inability to sell stocks. That is my only reservation I feel as if my buy and hold for ever approach may not be so well suited to direct holdings, but then the other voice in my head says even if afew bomb out the others will do the heavy lifting.
Also LICs and ETF's will make up a huge portion of my holdings so that'll help with the sanf! Dividends have hit the account from afew holdings this week too. Tricky part is working out what to buy with the dividends just paid, would like more CBA but leaning towards something with some exposure to the Indian markets.

 

Mate your experience and logical investing approach is something I welcome with open arms! Your not going anywhere! You never know this thread may ignite a spark within and get you back into the odd direct stock.

A LIC rehab thread if you will

 

For long term investors most mistakes often turn out to be selling mistakes. Stocks going through tough times often come good again or get taken over. And for the rare one that goes bust others will shoot the lights out compensating for the occasional dog many times over. Lethargy bordering on sloth like management of the portfolio often works in the long term investor’s favour. Others, especially those with a shorter term focus, I’m sure will disagree but I can only speak from my experience and a few others I know including the likes of Thornhill.

The big advantage direct shares have over LICs is when markets tank. The large popular LICs generally move into premium territory negating some of the value opportunity. Direct stocks however will have you salavating at the opportunity provided you have the stomach to take advantage of it. During the depths of the GFC I wasn’t buying LICs so much but mostly the likes of the banks, WES, WOW, MQG, ASX, PPT, LLC and numerous other direct stocks. LIC buying was about 18 months or so later when the post GFC rally failed and the bear market commenced. That’s when the old LICs lost their premium and represented great value, a rare opportunity.

Now that I no longer invest in direct shares the cap weighted index ETFs (eg VAS) substitute for direct shares in times of gloom if LICs are expensive.

I suppose the way you can look at direct shares is that there’s usually something of decent value on offer most of the time if you know what to look for. Unfortunately with index funds / index proxy LICs these opportunities are few and far between.

Maybe rather than age the loss of interest in direct shares nowadays is due to the wealth effect, I just don’t need to chase direct share opportunities anymore? Or maybe not? Investing is a unique interest in that it’s one’s own money on the line. Very different to other pursuits. It can bring out the very best AND the very worst in people. More a psychological battle than technical pursuit.

 

He he, no been there done that. I blame @The Falcon for the last time it happened. Given that the last two shares to go were CBA and WES there’s no going back. Thankfully I’m lazy (and increasingly so) so happy to leave the work to others whether human or algo. Key criterea are wide diversification, low fee, low turnover, minimal key person risk and high probability of long term survivorship.

 

Cracking response thanks very much!
I've noticed a theme in many of your fantastic posts of late, really emphasising the importance of the battle between the ears.

Just a side question, why have you decided to sell your direct holdings, why not just let them sit in the shadows and do their thing whilst focusing/topping up your passive investment options? Do you see the likes of cba and wes facing headwinds etc or is it simply a case of enough exposure via LICs and rather deploy that capital elsewhere?