Forum Archive Index - January 2000

["Brian Brakenridge" <brianbrak@xtra.co.nz>]

Hugh, Mike, Dave:

 

My posts last October/ November were an attemp to get discussion going on the basic principles of equity investment. Mike I think you "got the ball rolling" but it fell into a cow pat and stopped dead. Despondently I have sat back since and watched as a lot of folk clamour to get onto the IT wagon. Recently however, you guys and a couple of others have added some excellent content to this forum.

 

I'm not going to comment about those who are desperately trying to make a fast buck on IT stocks. There are two ways of making money on the stock market. First is speculating and second is investing. I don't know anything about speculating so it wouldn't be appropriate to comment.

 

Hugh you recently talked about Index Funds and also the international content of others portfolios.

 

Firstly, I strongly believe in the use of Index Funds as a basic foundation of any investor with a long term view. Don't quote me but I believe the S&P500 Index if tracked back to 1900 has averaged 11.5% compounding. The MSCI World Index is about 12% for the past 10 years. In the last 10 years in the US 85% of Mutual Funds have under performed their comparative Indexes. I have no reason to believe NZ Mutual Funds have done any better though it is difficult to get good info to back this up. I believe that a long term investor should have a core of their investments in a World or S&P500 Index as opposed to a NZ Index and practice dollar cost averaging. Remember a large number of the S&P500 companies are multi-nationals and derive significant income from overseas so in effect are close to a World Index in themselves.

 

Regarding the balance of a portfolio, even a conservative old outfit like the NZ Consumers Institute recommend 50% of your equity investment should be offshore and incidentally, that until you reach retirement, your equity investment should always outway other investments such as property and fixed interest.

 

Regarding IT investments, I do believe there is a revolution taking place and that a prudent investor should have an exposure to this sector. At this point I'm going to contradict myself and say that we have invested in a Mutual Fund in the US which is weighted towards IT but invests in companies which have strong growth potential and excellent cash flows. If you are wanting to get involved in the IT scene but are not a speculator then I recommend you look at www.oakassociates.com 

 

In general I am not a fan of actively managed Mutual Funds. They generally have excessive entry and exit fees, high management fees, large annual turnover of stocks, hold large numbers of stocks (sometimes 1000s), carry out a tremendous amount of advertising to attract clients and have a very short track record. 

 

We decided on Oak because they have no entry or exit fee, management is always 1% or less, very low turnover of stock, invest in a small number of strong companies for long term growth and have an 8 year track record for their mutual funds (25%) and go back to 1986 for their private funds. One of their core companies is CISCO which has a huge cash flow, no debt and cash reserves of US$12b.

 

Disclaimer: This isn't a sales pitch, just sharing our experiences with others in the forum.

 

Regarding our NZ investments we have BCH, GPG, PDL, PFI, SAN, TEL, WAM, WHS. We hope these are good sound companies with growth potential. On occasion we may drop one in favour of another and each month practice dollar cost averaging by adding a fixed amount to one of the above and to the WiNZ fund. We always like to have a % of cash in reserve and if the "bubble" does burst we'll be in like a robbers dog. 

 

Anyway thats our take on it. I know there are thousands of variations but we strongly adhere to the doctrine of long term buy and hold. We are relatively new to the game and will twink things up a bit as we learn.

 

Look forward to others sharing their philosophy. If you are one of those investing in start-up NZ IT stocks it would be interesting to know how many of you have a broader approach and are just having a play and how many are full-on into speculation.

 

I've said more than enough. Sorry to clog your screens. Cheers for now, Brianbrak

 

Pohuenui Island Lodge
Fiona & Brian Brakenridge
P. B. Havelock
Marlborough, New Zealand
Tel. 64-3-579 8161 Fax. 64-3-579 8361
Email: pohuenui.island@xtra.co.nz
http://www.marlborough.co.nz/pohuenui/