Forum Archive Index - April 2002

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Phaedrus, 


>
>
>A steady increase in value? You must be joking. RBD is still below
>its issue price, almost 5 years after listing. Very little
>oscillation about an upward share price line that keeps going up?
>Huh? Not on my chart. 
>
>


Well that depends on where you start your chart Phaedrus.  I was 
aware of the enormous share price dive that RBD took after listing.
If you look back at my post titled 'RBD, a share trader's nightmare' 
I specifically mentioned 'since 1998' for that reason (I was assuming 
the slump was behind me).

I don't normally go into what my exact profit and details I make on 
any particular share investment, particularly RBD.   This is 
because since 1998 I have regarded RBD as an income share, so the 
share price is irrelevant.  Yes I know this must sound like heinous 
talk to you, but that comment is no more heinous than you presenting 
a share price chart 'ignoring dividends'.   I can't 'ignore 
dividends' as that is the main reason I have invested in this 
company!

So here is the full story of me and RBD.  I am a foundation 
shareholder so did go for the 'big dip' your chart so neatly pointed 
out :-(.  This was 1997, when for me (and RBD) there was no internet. 
Only a fundamental investor would have bought in at the start of 
the RBD share price curve as a serious share trader can never buy 
into a new float.  Why not?  There is no trading history, so how 
can a serious share trader do any back testing?   I only bought a few 
shares as I wanted to find out more about the company and get on 
their mailing list.   Remember there was no RBD on the net in 1997 
and the only way to get an annual report sent to you was to be a 
shareholder.

As the big dip was on I did something that a chartist would never 
do.  I 'averaged down' buying more shares at $1.40.   The dive 
continued so I 'averaged down again' buying another block of shares 
at 67c.   Now I guess you would see this as insane behaviour, but do 
I regret the decisions?  Not at all.   I knew the reason for the dive 
(oveerhyped sales forecasts not being met).   I was not concerned.  I 
knew the fundamentals of the business had not changed.   I was buying 
the same business as sold in the prospectus only cheaper.   Over the 
next few years, when I had some cash available, I continued to nibble 
at Restaurant Brands.   Bought another block of shares at $1.30, 
another at $1.28, got given some 'for free' (the bonus issue), bought 
some more at $1.14 and finally topped these up with some at $2.08.  
So I've actually bought into Restaurant Brands on eight different 
occasions.  I have never sold any of my RBD shares.

My average cost of acquisition of my RBD shares is $1.26.
Profit (if I were to sell at $2.13) is 87c per share.  Less 2.5% 
brokerage gives me 82cps capital profit.  Add in to that accumulated 
dividends of 30.5cps.   This gives me an overall return of 112.5cps 
or 89% over 5 years, or 13.6% compounded each year after tax.

Now let's see what a trader might have done.  We'll use your chart.

Buy in at 90c, sell at $1.30.   That is a profit of 40c per share, 
less brokerage at 2.5% (buying in 2.25c and 3.25c out) leaves you a 
net profit of 34.5c

Let's say you had 'x' shares to start with.   You are now buying in 
at a higher price which means you have less than the x shares I woul 
dhave as a buy and holder, - more precisely (130/135)x.

Buy in at $1.35 sell at $1.40.  That is a profit of 5c per share, or 
(130/135)5c = 4.8cps, which when you take off brokerage (3.25c going 
in and 3.375c going out) leaves a loss of -1.825c

Next you buy in again at $1.20, but because you bought these shares 
for less than you sold them for you get more shares for your buck, 
specifically (130/135)(135/120)= 1.083 more.

Now lets say you sold them at Friday's price of $2.13.   Your gain is 
2.13-1.20= 93c per share which when adjusted comes out at 93x 1.083= 
$1.01 per 'original' share.  Again we take off the brokerage (3cps in 
5.3cps out) which gives an overall profit on this transaction of 
93cps.

Your total gain is 34.5c + -1.8c + $0.93 = $1.25 per share

Now because you are classed as a trader the tax man 
will have his 33% share of that, which reduces your profit to 82.7c, 
or more or less line ball with my 82c capital profit as a 'value' buy 
and holder.   In addition I have collected 30.5c in dividends that 
you have mostly missed.

>
> 
>Snoopy, as an advocate of the rewards of buying stocks on their
>fundamentals, and then holding them regardless, you could hardly
>have chosen a worse example than RBD. It has been a high risk, poor
>return longterm investment, at one stage losing about 70% of its
>value.
> 
>
I have never said 'buy and hold regardless'.   You made that last bit 
up.

Buy and hold *regardless* may make your trading comparisons look 
good, and be easy to calculate, but it is not a real strategy.   I 
do 'buy and hold' but I only buy and hold *value*.  I don't buy 
'whatever the price' as your comparison implies.   No value investor 
would do that.


>
>
>TA  only gave 3 trades in five years. 3
>trades that would have turned $10,000 into $24,000. "You will be
>worse off if you trade it long term. This is the case with RBD."
>Wrong! Look at the numbers - see where buying and holding got you.
>
>


Phaedrus you have forgotten the tax on that $14,000 trading gain.  
your actual gain is $9,240 *after tax* (assuming 33% tax rate). 


>
>
>  Yes, I know, I have ignored dividends and the 1:12 b
> 
>

I didn't, and I included the tax.  My results are pretty much line 
ball with yours, ignoring dividends, and rather better if you include 
dividends.

It's been an interesting exercise Phaedrus, but I don't agree you are 
better off trading RBD than buying and holding.   I know you are 
going to cry foul.   

"You didn't buy and hold for the whole term, you cheated"

In real life 'buy and hold' you can choose your entry points.  You 
don't have to put all your money in at the beginning.  I agree that: 

"buy and hold regardless with compulsory entry point at float 
time" 

would give you a worse result than trading.  But then, as I see 
it, that is a contrived scenario.   The requirement that you have to 
put all your money in on day one if you 'buy and hold' is an 
extra condition that you made up.  I suppose you will argue 
that I made my entry points to suit myself.   My counter 
argument to that is that not only am I allowed to time my entry 
points just as you are allowed to time your trading points, but 
timing my entry points, based on perceived value,  is exactly what I 
did.   And I haven't had to spend each day for 5 years sweating over 
a computer screen while doing it.  SNOOPY



















---------------------------------
Message sent by Snoopy 
e-mail  tennyson@caverock.net.nz
on Pegasus Mail version 2.55
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"Sometimes to see the wood from the trees, 
you have to cut down all the trees."



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