Forum Archive Index - April 2002

["Nick Kearney" <nickk@quicksilver.net.nz>]

My 2 bob worth

Partly in response to Snoopy.......you could have held AIRNZ for income from
3 yrs back.........look where you'd be now with them @ 32c

you could have held FFS for income when they were $2.20 a few years
back.........now @ 25c......

Brierley paid a god divvy when they were $6....now @ 51c...

Buy and hold has its drawbacks.

Just pointing it out.  Not meant to be critical.

Cheers

Nk

----- Original Message -----
From: "Phaedrus" <Phaedrus@techemail.com>
To: <Sharechat@sharechat.co.nz>
Sent: Sunday, April 14, 2002 2:48 PM
Subject: [sharechat] CHARTING AND PHAEDRUS


> 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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