Thoughts on my investment Strategy

Thanks for the response. What's to stop the banks revaluing down? especially if valuations are relative to other stock? Lowered valuations in a downturn and all of a sudden you may be facing covenant issues and the banks are in control, sound like a well trod path to another default crises which makes for a paradigm hit to those long-term yield plus growth assumptions.

Devils advocate

 

And that's what I see as the single biggest risk in this asset class. And that's regardless whether its listed or unlisted. Yes listed gives you the option to bail out with a click of a button, but once there is a sniff of a crisis and the average investor becomes aware that the bank is about to pull the plug on funding then your listed shares wont be worth selling.

 

So its been a fairly uneventful start to the year in my equities portfolio. Finished injecting all spare cash back into the market and stuck to a monthly fixed buy in. A little boring so far but probably how it should be. I have picked up some more property trusts to keep things interesting.

Though I am seeing some storm clouds ahead and thought I should put together a plan for what action if any I should take if the market delivers a correction of sorts. This is not about selling out and timing back in. Its purely about ramping up the buying when the markets are offering a discount compared to current prices.

As the cash pile has been depleted I am willing to use debt during this period. Currently have access to debt at 3.29%. But reworking that at the moment to get it down to 3.04%.
Thinking along the lines of 10% drop from market peak will be my signal to hit a round 1 buy. 15% drop round 2. 20% round 3. I am not expecting it to really get past 20% drop but if it does then maybe a round 4 at 25% depending on what loose change I can scrape together. I have access to debt totalling about 30% of my current equities portfolio value. Plus depending on how long the turn down takes and lasts I could have additional funds come through equalling another 5-10% of current portfolio total.

Thinking out loud here, Approx 10% of total portfolio value today buy in at each of rounds 1,2 & 3 assuming we get there. If we reach the round 4 level drop anything spare will then go in. At that point I would have maxed out my access to debt which is against PPOR. Not sure how I feel about holding that much debt again. Its been a while since I have had much debt at all.

In this scenario and depending on the final value of the portfolio debt to total portfolio value if we factor in the other asset classes will still only be around 10%.

I figured I would put this down in writing to get opinions on the strategy but at the same time I find it very useful to be able to read back over the plan a few times and see if it still makes sense. For some reason reading your thoughts compared to just going over them in your head works better in rationalising a decision or plan.

I understand this event if it even becomes an event should not change the long term strategy but at the same time my plan is to increase my exposure to equities and if I can do that during a downturn then all the better.

 

How will you feel after Round 4 buy in and the market continues to go on to 50% down.
Not saying your plan is wrong, just how will you feel, emotional intelligence is more and more being recognised as a reliable lead indicator.

 

Good point. I acknowledge the fact that I have very little chance of picking the bottom and will have to be happy with what ever I pick up at discounts to today’s prices. If there is no drop at all from this point on will I still buy more shares? Sure. So if I get some at 10% below today and some at 15% below today and a little more at 20% below then I have to accept that it could end up 30% down total.
As a long term buy and hold each discount interval I pick up equities at will give me a small advantage compared to having bought it at today’s price.
I don’t see this as some sort of get rich strategy or even a strategy to get to a certain goal. It’s purely an attempt at extracting a little extra performance in the short term. Either way this capital is going to find its way into the portfolio over the next 12 months. So if I can bring it forward at a time of discounting then I will.

 

My mistake, I read it that you were using debt to load up on plunges, if you are putting lazy capital to work as soon as you can and taking advantage of discounts as well then probably less impact on emotions.

 

Sorry, maybe I am the one causing the confusion. So yes the plan is to use debt to buy in a downturn.
But debt via my PPOR loan. So low rates and no margin calls. Plus the overall debt level would be very low compared to total investment portfolio at around 10%.
Lastly the debt I would use to buy during the drop would be a figure that I would have coming in over the next 12 months from regular income so would have bought equities with it anyway in the coming 12 months. I’m just using debt now to buy it upfront and take advantage of the drop.

Being the overly cautious type I have considered that working income that I expect to come through over the next 12 months could reduce or fail to arrive depending on business conditions. Even in that situation being our portfolio is cash flow heavy due to being loaded with income paying property trusts and equities that also pay dividends, in the event investment income was to reduce by 50% we should still be able to cover the repayments on any outstanding debt we load up on.

There is also a part of the portfolio invested in contributory mortgage funds. Total portfolio is double the size of the max debt we can take out. The portfolio is spread out across 18 different mortgage funds that expire and return capital at varying intervals every few months. So in the event that income flow from all other avenues dries up then as these different funds mature I would pay down the debt.

I think I am being very cautious with this approach to use debt and have multiple back up plans in place should things not go accordingly. I like to have a back up plan for the back up plan just in case.

 

There's not enough discussion of beer and coffee atm. Sharpen up people. Stocked up tonight at Dan Murphys. Prices hadn't dropped 30% unfortunately.

 

Banks have been getting smashed of late, other than CBA most are in the $15-$16 range

@BigA

How are you're unlisted property trusts going in this tumultuous market?

 

Wow so much has changed since last posts.

 

So far no reaction. Being unlisted there will be a delay in seeing the damage.

If I had to guess. I would say as long as this thing gets under control soon then minimal impact. Yes values might come down some, but with mostly having long term tenants locked in leases the cash flow should remain stable.

If this thing turns really ugly, then I have serious concerns about how some of these unlisted funds would play out. I feel some will be safer than others. Those exposed to long term government or big name corporate tenants should be ok. Luckily my exposure to retail property is on the small side as I think that’s the biggest risk sector.

My hope is that if it does get really ugly, that lessons were learnt from the gfc and the government together with the banks will allow some leniency with loan repayments and not call in loans. We are already hearing about governments working with the banks to give borrowers some breathing space.

Fingers crossed.

 

Big A,

Did you manage to get your non-super BT Panorama account sorted so you can transact on it?

I may be going down the same path shortly and am keen to hear if the dramas you had got sorted.

Regards,

Jason

 

Hey @JasonC , yeah everything has now been transitioned and is in the panorama wrap. The super wrap we are unable to transact on our selves. But a simple email to the advisor and he can act on our behalf as we wish. With super it’s not that big of an issue unless you don’t have an advisor. Not very often I transact in super. At most once a quarter super contributions are deposited into the wrap cash account and we allocate it into one of the funds. Our super holdings are only a small holding compared with out personal portfolio so I don’t give it that much thought. The plan is to have it mirror the personal equities portfolio.

 

The best I could do with Panorama (without an adviser) is to have a single log-in for both accounts (investor and super). They are still separate beyond this, and I can't access all the funds available to those using an adviser.

Which sucks.

 

Yeah I found BT painful to deal with. Every time I spoke to a different person there I was told something different. Even though its your account and you pay the fees, they seem to pander to advisors rather than the actual customer. And I let them know about it too. Tore into them on a few occasions. Now that its all up and running I am not having issues.

So yeah I also have a single log in but on the platform they are two separate accounts. Not sure why they don't give you access to all the funds without an advisor attached. Do you have transaction authority on the super wrap even though you don't have an advisor linked to your account? For my personal holding I hold the authority to transact. Though on the super wrap only the advisor can transact. Again no big deal as I wouldn't normally make a transaction to buy or sell without speaking to the advisor first. Especially so on the super side.

 

Yes, I have authority on both the investment and super accounts. I've yet to use either though.

 

That’s what I thought. They told me I can’t have authority to transact on my super wrap. The incompetence of such a large organisation is mind boggling. What I found when dealing with them is I would be told something different each time I spoke to a different person on the phone.