Forum Archive Index - April 2002

[Phaedrus <Phaedrus@techemail.com>]

Snoopy,
        Thanks for your careful detailed reply. Predictably, I disagree on many 
points.

  "....that depends on where you start your chart". There is only one fair 
place to start this comparison - at the start, at listing. However tempting it 
is for you (or me!) to select a part of the graph that suits our argument, we 
should always look at the full story.

 "I have regarded RBD as an income share, so the share price is irrelevant." It 
IS relevant. What use is a 3.4% yield (taxable) if, in gaining it, you have 
sustained a capital loss that is not even tax deductable, as in your case? The 
figure of 3.4% comes from the Saturday morning Herald - looks small to me. Do 
you still regard RBD as an income share?

 After a 70% drop in price since listing, at a time when every one of your 
purchases were showing losses ranging from small to catastrophic, you claim  "I 
was not concerned. I knew the fundamentals of the business had not changed". 
Wow, I admire your equanimity, but doesn't this, at the very least, prove that 
market sentiment is more important than fundamentals? Wasn't your confidence in 
your stock selection method and/or timing, shaken, just a little bit, by losses 
of this magnitude?

 Trading Gains. I get different figures to you. See table below. Assumptions :- 
Initial Investment $10,000. Profits re-invested. Brokerage $29.50 per trade. 
Dividends excluded. In/Out figures as from your post.

Shares   In   Out      Buy       Sell       Profit      %
11078    90   130    $10,000    $14,372     $4,372    43.7%
10624   135   140    $14,372    $14,844       $472     3.3%
12346   120   213    $14,844    $26,266    $11,422    76.9% (Still Open)

 Accepting that your average entry price is $1.26, the same $10,000 has bought 
you 7936 shares, currently worth $16,904. That's $6904 profit versus $16,266. 
Less tax = $10,951.

 Your statement that "My results are pretty much line ball with yours, ignoring 
dividends, and rather better if you include dividends" is simply not true. 

 Dividends. You state "In addition I have collected 30.5c in dividends that you 
have mostly missed" Not so. By my calculations, there have been 9 dividend 
payments since listing. The Trader as per this example would have received 6 of 
them, and on more shares each time than you have had at any point. Hard to 
compare, but in any case the amount of money involved either way is not large, 
especially in comparison with the capital gains involved. That's why I ignore 
dividends. I presume that in your calculations you deducted 33% tax from your 
dividends.

 Tax. Never forget that paying tax on profits is only half the equation. All 
losses I make are tax-deductable - yours are not. All my costs are deductable, 
textbooks, newspapers, journals, courses, phone, Internet etc. A percentage of 
rates, power, home maintenance etc. The taxman pays for my PC and software and 
upgrades. You have to buy your own, using tax paid dollars. 

 Time. Your $6,900 profit has taken 5.5 years in the market. That's $1255 per 
year. 12% per annum. Tax free. 
 The traders $16,266 profit took 2.4 years in the market. That's $6778 per 
year. Over 45% per annum. AFTER TAX. Conclusive? I think so.

 Risk. If you view time in the market as risk (as I do) then the trader has run 
appreciably less risk than the longterm holder. Neither has the Trader had to 
endure massive drawdowns as the longterm holder has. Neither does he run the 
risk of massive drawdowns in the future. The system will pull him out of the 
trade before losses become large. Less risk.

 The future. RBD is in a nice uptrend at the moment. No one knows how long this 
will last, but we do know that it will end sometime. The Trader has an exit 
strategy in place - you do not. From past experience we know that you are 
willing to ride out downtrends that erode up to 70% of your capital. No-one 
knows how big the next one will be. But we do know that you will wear it, ride 
it right to the bottom, no matter what its magnitude. Confident that the 
fundamentals of the company have not changed. 

Effort. You state "...I haven't had to spend each day for 5 years sweating over 
a computer screen while doing it". That is why many longterm traders chose a 
200 day moving average. Few trades, and very little monitoring required. Most 
of the time you would only have to check once a month or so. When price action 
drew nearer the moving average, perhaps once a week. Nearer still, you could 
check every day if you wanted to, but with a longterm system like this that is 
not strictly necessary.
 Snoopy, do you realise that you have traded more actively with RBD, and spent 
more on brokerage (8 transactions) than a longterm "Trader" would have? (5 
transactions to date).

 TA system. These assumed results were obtained using the simplest, crudest 
most straightforward longterm trading system I could think of. A worst case 
scenario. The use of a slightly more sophisticated system gives results that 
are appreciably better. If we are going to allow backtesting, optimisation, 
stoplosses etc results are better yet again. I was trying to keep this example 
as simple as possible, rather than trying to maximise gains.

 You state "I have never said 'buy and hold regardless'. You made that last bit 
up. I don't buy 'whatever the price' ".  True, but you HOLD whatever the price. 
You hold regardless of 70% of your initial investment being wiped out, for 
example. 

 Snoopy, I thought I had presented a rather conclusive argument, with regard to 
RBD at least. If this does not convince you, I doubt that anything will. We 
will just have to agree to differ. At least we each have some understanding of 
the others viewpoint. That's something.

      Regards,
                Phaedrus.



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