Forum Archive Index - June 2002

["Jim Insley" <jinsley@paradise.net.nz>]

Snoopy,  where does this 15c. per share brokerage figure come from? Who
would pay that amount? What have I missed?


----- Original Message -----
From: <tennyson@caverock.net.nz>
To: <sharechat@sharechat.co.nz>
Sent: Monday, July 01, 2002 9:16 AM
Subject: Re: [sharechat] Nick K vindicated already for his sell decision


> Hi Jefley,
>
> >
> >
> >I still have fbu and tel that are sliding around, and in a ranging
> >market I would hold both until either my stop-loss, or strong chart
> > signals yell sell.
> >
> >Snoopy, i can imagine that you would say if the fundamentals were ok
> >when i bought, and they have not changed, then i should hold,
> >
> >
>
>
> FBU and TEL are both companies paying a solid dividend yield.  You
> are right Jefley.   If I held those I wouldn't be selling.  But that
> is a pretty narrow portfolio you have there.   If it were me, I'd be
> using any uncertainty in the market to get into three or four more
> shares to complement those two holdings!
>
>
> >
> >
> >but i'm not really a long-term investor and i
> >get very unhappy when my capital appears to erode.
> >
> >
>
>
>
> Or conversely you are only happy buying and holding when the shares
> you hold keep going up ad infinitum.  Get real!
>
> If we look on the Stock Guru competition since January we can see
> that FBU is down 3.2% and TEL is down 5.79%.   As of last Friday,
> your capital *has* eroded!  No doubt about it!  From a long term
> investors point of view this indicates the folly in tying your
> entire sharemarket exposure to just two shares.
>
> Both FBU and TEL are what I would call 'income' rather than
> growth shares.  This means they will basically range trade.
>
> Lets take the specific example of Telecom.  I have indicated in
> another post that I believe it will probably range trade between
> $4.50 and $5.50.  I have no idea exactly when it will hit the bottom
> and top of that range, or even if it will.  I only know that
> statistically this is likely.
>
> Let's take the traders approach and take the simple example of
> getting out of Telecom when it goes into a downtrend and buying back
> in when it goes into an uptrend.  You make two trades at a brokerage
> rate of 1.5% each (or 3% total).  Let's say the average price you
> traded at was $5 per share.  3% of this is 15c per share.
>
> If you get your trade right you might still do better than the buy
> and holder of course, as your capital gain will hopefully be greater.
> Or will it?
>
> Let's say you executed the near perfect trade.  You wouldn't buy in
> right at the bottom ($4.50) or sell right at the top ($5.50) as you
> would have to wait for the uptrend and downtrends respectively to be
> confirmed.   Let's say you were buying in at $4.60 and selling at
> $5.40.  That is a profit of 80c-15c(brokerage) = 65c per share.  From
> this you must pay the tax man 33% of your capital profit.  This
> lowers your profit to 43c per share.  Of course, this is with perfect
> hindsight.  The  chance of any particular trade coming off, even for
> the best traders, is only around 60%.  This reduces your expected
> profit to 0.6 x 43c = 26c.
>
> TEL pays 4 dividends per year.  The TEL trader may or may not be in
> for the dividend.  Let's say the share trader is just as likely to be
> in the market as out of it, which means they pick up half the
> dividends, or 10c per share.  Total expected trader profit is
> 26+10=36c per share.
>
> Now let's take the point of view of the long term investor.  If you
> have owned TEL for 10 years the share price has risen from an
> equivalent of around $2.20 to $5.  That is an average share price
> appreciation of 28c per year, and any capital gain is tax free.
> This is the expected increase in share price in the statistical sense
> if the long term trend continues.  A long term investor would pick up
> all the dividends, making an expected total profit of 28+20=48c per
> share.
>
> This result shows the long term investor is likely to be better off
> than the trader.  Or more fully, the completely dumb long term
> investor who buys and holds no matter what is likely to be 25% better
> off than the very best of traders who executes the very best trade
> possible.
>
> Moral of the story:  Trading income shares is a wealth hazard.  Don't
> do it Jefley!
>
> SNOOPY
>
>
>
>
>
>
>
>
> ---------------------------------
> Message sent by Snoopy
> e-mail  tennyson@caverock.net.nz
> on Pegasus Mail version 2.55
> ----------------------------------
> "Q: If you call a dog tail a leg, how many legs does a dog have?"
> "A: Four.  Calling a tail a leg doesn't make it a leg."
>
>
> --------------------------------------------------------------------------
--
> To remove yourself from this list, please use the form at
> http://www.sharechat.co.nz/chat/forum/
>
>
>


----------------------------------------------------------------------------
To remove yourself from this list, please use the form at
http://www.sharechat.co.nz/chat/forum/