Forum Archive Index - January 2000

["hugh webber" <hugh.webber@clear.net.nz>]

"I have a simple (simplistic?) answer.
Dividend yield overseas is very low and often irrelevant.
Risk is quite low if (a) you spread your investment over up to 20 shares
and (b) sell and lock in some of your gains. D".

That's a reasonable short tem approach if capital gain is your only
objective provided you can master picking 20 clear winners at once (Warren
Buffett says he can't). However in the long term its earnings yield per
share that matters most and in any severe downturn (which usually catch
most people by surprise) its the quality stocks with good earnings per
share which don't collapse in a heap like the rest. The fact that dividend
yield is overseas is very low and often irrelevant is a sign that (a) there
are some good fast growing quality techs and some bad techs with fast
growing share prices (b) that share markets overseas are over mature and
due for a healthy correction. (once previously where that statement
"dividend yield is very low and often irrelevant" was true Warren Buffett
sold off everything and returned the money to his investors. After the
correction when "dividend yield is very low and often irrelevant" was no
longer true he started up Berkshire Hathaway and did brilliantly). In NZ in
1987 the "dividend yield was very low and often irrelevant". 

Spreading over x number of shares is, as Warren says, a way of covering up
your mistakes and its much better to do more thorough analysis or hold off
a bit and try and get them all right. With larger numbers of shares you're
just locking into mediocrity and a low average rate of return.

Warren is also against selling to lock in gains, with the right sort of
share he advocates just staying in long term regardless of short term
vagaries. I can't help noting that just before the 1987/88 property crash
Bob Jones said he had changed his motto from "Location location location"
to "Never sell". I seem to recall that he did sell (out of Robt Jones
Investments) and left his shareholders high and dry (currently Trans
Tasman). 


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