Forum Archive Index - July 2003

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

Hi Macdunk,
 
>
> The average Investor can only earn or lose whatever percentage the
> market Increases or decreases, plus yield each financial year.  Lets
> suppose the average yield Is 6pc, and the market top forty Increased
> by 4pc for the year then the average would be plus 10pc.
>     
>

Correct, but beware the NZX50 index.    This new index includes 
dividends and also assumes all the dividends are reinvested back into 
the NZX.    Since reinvestment like this almost never happens there 
won't be many investors that outperform the NZX50!

>
>The point being we can then compare
> our performance with the average Investor, plus we can compare with
> property Investment, and other Investment opportunities. 
>

When you buy a property the price you pay might reflect the annual 
rent you can get, but it does not include that rent.

>
> Property
> Investment cant really be compared to the share market It being funded
> In a different way. The average Investor borrows money to fund It,
> where as with shares It Is funded with savings. 
>

It is true that you generally cannot buy a share protfolio on just 10% 
deposit.   However, it is possible to borrow to invest in the 
sharemarket.  So I think you are drawing an artificial distinction here 
MacDunk.

Both the underlying investment and the funding must be considered as 
separate issues.

>
>I did always think how
> Interesting It would be for the average Investor to compare the
> Investment opportunities against each other, taking Into account 
> that shares are a slightly higher risk than property.   
>

Only if you regard risk as synonymous with volatility. 

How about this for a bet we could have with each other Macdunk?

You put up the value of your house.  I will match that equity with an 
investment in a portfolio of five shares I have selected in accordance 
with the criteria espoused by Warren Buffett.

If after 10 years your house has increased in value by more than my 
share protfolio, I will sign all those shares over to you at no charge.
OTOH if my share portfolio has increased in value more than your 
house, you must give your house to me.

Now, which of us is taking the higher risk?

SNOOPY



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