Can we be direct for a minute?

You are 100% right about the selling mistakes. This is why a 'no brainer' managed portfolio is so essential for everyone as the main engine. Acquiring good stock picking skills is the equivalent of bolting on a turbo charger.

The ultimate game is always quality accumulation for the purpose of a passive income so selling is not generally necessary as long as the quality of the holdings remains high. Quality stocks with good business models will trend continually upwards over the long term plus pay steady dividends.

The skill to aim for in direct holdings is not to pick when to sell but to learn how to identify quality, stability and strength and then buy in to this during a temporary patch of weakness. Like @Nodrog said it's this temporary value displacement that makes them attractive.

 

No concerns about CBA / WES. In fact these were the hardest to let go of. Simply we’re wanting to shut down the Discretionary Trust which held all direct shares. So the proceeds from sale of direct shares overtime has been contributed to LICs / ETFs in the SMSF and Joint names in order to simplify management of our investments.

Simplicity is very important to us.

Investing in shares for the average person can be incredibly simple with next to no skill required. As has been proven time and time again simple index investing will beat the vast majority of active investors. Dealing with behavioural issues however is an entirely different ballgame. Mastering this aspect of investing which will greatly increase your chance of “staying the course” regardless of what the market throws at you is the real secret to success. Hence why I harp on about it so much.

 

Great insights @Nodrog , mayI ask how and when did you tap into direct stocks back in your day? I believe you consulted with Darryl Dixon who put you on the path of lics as well as satay king and PT did you have any direct stocks at that stage or were direct stocks bought in market doom and gloom as an additional spark to the portfolio. So in essence you built your core lic holdings and then branched out only when a screaming bargain occurred where you could of used borrowers funds where the spot yield easily accounted for the loan borrowing?

Cheers!

 

@pippen basically I’m an idiot who can’t be told, too stupid to learn from “OTHERS” mistakes and wasn’t happy until I had tried nearly every silly thing possible and experienced the pain that goes with it. I would be typing for hours if I had to cover all the stupid things I’ve done.

Roughly from the start around 35 years ago in order it was: managed funds including unlisted property; LICs; Trading stocks / futures; direct stocks / LICs; Property (had to sell all shares / LICs due to wife’s employment); shares / LICs / Index ETFs (wife changed jobs); sold property (thank bloody Christ, hated it); started selling direct shares; finally now just LICs / ETFs.

In hindsight, for me, the one and only thing I wish I’d done is stuck with Daryl Dixon’s advice from very early on and never ever veered off course. I shudder to think what the size of our portfolio would be now if I had done just that, nothing more. Other than the old LICs the only other product that I’m happy to own nowadays is cap weighted index ETFs which weren’t around in the first half of all the time I’ve invested.

Other than Dixon initially, @SatayKing and Thornhill were very influential in helping me get back on track especially psychologically and in regard to investing’s role in life. Technical expertise is easy to find, wisdom however is very hard to find and a precious commodity.

Even now I haven’t completely eliminated stupidity but manage to contain it so no major harm is inflicted on our life savings. I don’t think you can ever fully overcome your “individual” inherent psychological weaknesses but learn to manage them enough to avoid disasters.

 

Great post, the thing is...one can only know this with hindsight or by knowing one's self.

I'm sure if you ask Geoff Wilson if he wished he had of just invested in good old LICs he would have a different answer.

 

The problem with picking large “quality” businesses is that is the common mantra of the vast majority. Who doesn’t want to buy stocks with enduring economic moats, high ROE, honest and aligned management etc. i.e. who doesn’t know that ? It is hard to generate outperformance doing the same thing as everyone else. To quote Wazza (I think) “one pays a high price for happy consensus”.

From a fundamental perspective I believe that the best opportunity for individual investors are in small and micro cap stocks often taking contrarian positions (that also need to be right!). These are often tightly held stocks that are very illiquid and so small that insitituons will pass over them because it’s impossible for them to build a meaningful sized position. The individual deploying thousands rather than millions doesn’t have this problem. The issue with these type of businesses however is that typically these investments are short-medium term trades definitely not “bottom drawer” hold forever businesses and you will need to get down in the weeds yourself to find and try to understand them. You won’t be able to rely on Morningstar.

 

And you’d be mostly wrong:

What two investing insights would you give your 20-year-old self?
by Cuffelinks on May 4, 2017
What two investing insights would you give your 20-year-old self? - Cuffelinks

 

Lol, he qualified that statement by saying for a 'simple and effective exposure to a diversified portfolio' and then goes on to promote his own fund...I think you know how he operates WAM, the monthly holdings change quite regularly.

Its a bit like Buffett picking his own stocks and telling everyone else to index.

 

Well he got three out of four right. Even Wilson’s not perfect.

 

I live off a solid core of dividends from shares - plus I keep an amount of cash to live dangerously. I dividend strip in a small way by buying shares then selling them after 45 days. I only do this with WBC/NAB/ ASX and WES shares as I am reasonably confident their share price wont fall too much and if they do I can wait till they recover, so far I am in front

I am one of those who will be hurt by Bill Shorten's plan to stop refunds of franking credits probably losing 30% of my income which will mean the difference of living reasonably well or having to count my pennies or I could buy things I dont need to reduce my assets and go on the pension, something I dont want to do .. we shall see

 

Have you looked at the results of selling the share the on the ex-dividend date and buying back on the record date, retaining dollars to the value of div+franking credit?

 

Yes, I have read about this method, too messy for me I watch very closely the share price graphs over the past 12 months, read the financial news and watch the politics of the moment before I make a decision ...

 

I've recently come to this realisation and now plan to allocate around 15% of my portfolio to small caps. I dont have the time or inclination to research small caps so have recently subscribed to the Under the radar report.
One thing that I've found surprising is the dividends that are available in the small cap space. I was interested in small caps for the growth potential and wasn't expecting much in the way of dividends at all but some of the recommendations so far are yielding 5 and 6 %.


Willy

 

Very few people have enough of an edge to buy a portfolio of specific stocks that will outperform the index... 80% of professionals fail to beat the index, so how does the average Jane or Joe who has a full-time job outside of researching stocks manage to beat professionals who do it full-time in a paid capacity?

I know enough to accept I don't have the time or ability to do so, but I am a firm believer of value investing.

It appears this thread has gone back to LICs, so here is some light reading for something new which may be of interest to people that like LICs due to the low cost structure - https://egpcapital.com.au/wp-content/uploads/2018/07/PerformanceLetterFY2018_Final.pdf

My strategy is pretty simple - invest in funds run by value investors. Never sell.

50% of my net worth is invested in EGP, the remainder is equity in property.

I have a SMSF with 3 members now and over 75% is in EGP. The remaining 25% is invested in another fund run by a value investor.

I've mentioned this on the forum before a few times with no real interest, but I'm posting again in case there's anyone out there who's interested in the idea of outperformance with little to no management fees, only performance fees.

 

Do you worry about survivability of a fund like EGP? I like the fees concept, but if it had another few years performance like 2018, I wonder if enough people would stay the course to make the fund viable.

 

A good read about EPG and similar funds

21 Questions With Tony Hansen of Eternal Growth Partners

LIC's get a mention

The mavericks disrupting funds management titans

 

Nope. I took the opportunities to add to EGP throughout 2018 and just recently added another $75k.

It makes as much sense to project its performance in 2018 as it does to project its performance in 2013 when it did 32.58%

 

Is there such a thing as direct passive? That is, you buy good businesses at value and never sell. Does direct imply trading?

I'm interested in how index ETFs behave during a crash scenario. Their algorithm requires them to exit when the weighted value of a share in its portfolio decreases. What happens when they try to sell but get a lower price as the market moves down? Do they sell more? Will their forced selling increase the momentum of the market's fall? I assume that if the market moved down simultaneously there would be no buying and selling but if the shares dropped chaotically then they might need to do plenty of buying and sellimg to maintain the cap weighting.

E.g if only one share dropped 50% they should sell half of that holding. Then if the rest of the market dropped 50% would they sell 50% or just buy back the share they just sold?

 

I think there is, direct to me implies buying companies individually and holding forever.

Good point in regards to ETF's during a crash, can some of the investment generals weight in here?

 

I think when the general market falls individual shares and their proportions also falls accordingly.

Let's say we have an index ETF with 1000 CBA shares which has a market cap of 9% in ASX200. Now if CBA price keeps dropping due to royal commission fears and it now represents only 8% of the market index. Does that mean ETF has to sell? I don't think so because their 1000 shares due to lower price should now represent 8% of the index.

I think they are forced to sell / buy is when holders of ETF start to either sell or buy is what would normally trigger buy or sell. That is a risk but we are told that's what the market makers are there for. For long term holders they should not worry about this particular risk.

That's my understanding anyways.

(EDIT: The other time when ETF buys or sells is once a quarter when index provider outlines the additions/removals from the index)

Cheers,
Oracle.