Forum Archive Index - July 2002

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

Hi Morgy,

>
>
>Snoopy
> 
>I think you miss the point of what phaedrus is trying to say to you
>& I believe this is why, please, this is not meant as an offence to
>you as I appreciate you are passing on what you believe is right,
>
>

Don't apologize Morgy.  This ol' hound dog wants to be challenged!  
If every ensuing post was a 'yes' 'yes' sycomphant post, then this 
forum would be quite boring.



>
>
>debate will allow those onlookers to decide for themselves.
>
>



That's the objective all right.  People should decide for themselves, 
But it doesn't mean we all have to make the same decisions.



>
>
> he pointed out that you couldn't have capital appreciation and 
> ranging as part of the same argument, a fairly obvious flaw
> I would have thought, 
>
>



You can when the 'capital appreciation' is within the range of the 
range trading.  I wasn't suggesting anything radically different from 
that in the TEL example.  On the other hand, the more gradual the 
capital appreciation, the greater the likelihood that any gains from 
it will be wiped out by excessive trading.


>
>
>yet you immediately change the  scenario when previously you 
>wanted a trading range to suit your argument. 
> 
>
>

I don't think I moved from the position that Telecom will stay in 
some sort of trading range.

>
>
>I dont really study NZ shares so caught up with TEL from
> phaedrus's chart on sharechat.  TA 101 would ask  you where's the
> trades  you talk about making ?,  there aint any, this hound aint
> done no hunting for a long time. Not since early 99 according to
> this chart. 
> 
>

Telecom has changed substantially since 1999.  Looking forwards, I 
don't see how trading history from that period has any value to me.

>
>
> In the same argument you wont allow the trader to make any perfect
> trades because of course that wouldnt be possible & it probably
> isnt, 
>
>

The trade I assumed to be made was from within a range that starts 
from 3% of the bottom of the range and finishes within 3% of the top.
It's not perfect, but it's pretty good.

>
>
>but allow the continuation of what you call an average
> shareprice appreciation of .28c per year. If you gave me that advice
> in Dec 98 , you would be my ex financial adviser. 
>
>

In December 1998, Telecom was a growth share nearing the top end of 
it's growth spurt (with hindsight) which had continued since it's 
listing.   I would never invest myself assuming that the share price 
chart line was going to continue rising indefinitely.   Warren 
Buffett suggests that when you analyse a business, you should do so 
over a period that takes into account the good times and the bad.  
There were no 'bad times' to analyse, so any prediction as to how the 
share price of Telecom might behave over the longer term business 
cycle would be futile.  In short I would have given you no such 
advice in December 1998.


>
>
>I would of course still have my income from the share 
>
>


Actually you wouldn't.  The dividend payout was halved.


>
>
> but my devalued capital would be nearly half.
> That is an undisputed fact as it is a shown statistic
> on the chart that a third former could work out, 
> not something you
> imagine will happen because it sounds good like later in your email
> when you say the shareholder wants to sell in 5-7 years and low &
> behold as if by magic the share price has appreciated to the right
> amount to give you your wonderful  .28c per share average growth
>
>


I was trying to build a business case (albeit a fairly crude one for 
the purposes of this example) to show that modest appreciation in the 
share price is statistically likely.  I am not suggesting that such a 
share price appreciation is in any way a certainty.  

What is certain is this.  We can work out historic P/E ratios, and we 
know that a share price, if on a P/E significantly higher than that, 
will probably trend downwards to more average P/E levels in time.  
Conversely when a share trades below its historic P/E level, we expect 
that in the future the share  P/E ratio will 'regress to the mean' 
upwards at a later date.

Like all statistical events this is not certain, which is why 
some diversification is important for the long term investor as that 
investor reaches the end of their investment time horizon.

>
>
>(the only scenario that remained consistent) and still with the
>income to boot & at the right time. The point is simple, look at
>what actually has happened or is currently happening rather than
>what you would like to happen, this will make for much easier
>investing for all types.
> 
>

I'm not advocating simply 'making up' what I would like to happen.  
I would base my views on some sort of credible business plan going 
forwards.  Telecom has changed so much since 1999 that I don't see 
looking at a chart of what happened 3 years ago as part of a credible 
forecasting tool for today's business going forwards.  

Oh, and I do look at what is currently happening, as this is the only 
way you can calculate whether your investment is sufficiently 
discounted from future events to give you a high enough return to 
meet your 'rate of return' target.

SNOOPY




.  
---------------------------------
Message sent by Snoopy 
e-mail  tennyson@caverock.net.nz
on Pegasus Mail version 2.55
----------------------------------
"You can tell me I'm wrong twice, 
but that still only makes me wrong once."

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