Forum Archive Index - August 2003

["Morgy" <ica.sports@xtra.co.nz>]

Well I guess you are right, your philosophy has shifted somewhat over the
last couple of years and I am pleased that your buy and hold mentality has
moved to a more rounded approach, I comment as follows,

I miss queued my industry classification standard, I should have wrote GICS
rather than GISC, my apologies. The GICS is the Global Industry
Classification Standard, if you go to the Standard & Poors web site you will
find all the info relating to it, within that standard the asx still retains
sub industrial breakdowns into further specific groups, when charted
correctly you get a visual picture of what is happening to stocks within the
market.


I cant follow your logic about a big slumbering giant squashing a mid cap?,
my answer is so what, I dont love the company I have no emotional attachment
to it. It performs or it goes and you jump on the lumbering giant that wakes
up.
I dont know about performance for mid caps V Blue chips , I just know that
relative strength performance can indicate whats moving at the moment.

One of the key things I believe I hear from you is that you tend to fall in
love with a stock, backing your scrupulous analysis with your hard earned
cash.
The tendency with that is to back the stock come hell or high water, Macdunk
described this in a post just recently. Hence the reason why we have someone
to buy the down moving stocks from us because on a fundamental basis it
looks cheap. Take a look at Telstra on the asx, a widely held stock that was
in a downtrend for over a year, it only went down because some people
thought it was overpriced and wanted to quit before it went down further and
some people thought it was cheap and wanted to buy it, who was right ?. I'm
not sure if it pays a dividend but I would have thought the holding cost
over this period of time would have out weighed the benefits, there was no
gaurantee the stock would not plummet further to penny dreadful status,
surely AMP would be in the minds of most people carry this stock as it
descended, HIH shareholders would also have had bad memories.


The point I am trying to make is that the first loss is the cheapest as long
as it is backed by a money management program.  Elder in his book "come into
my trading room" describes it best from my point of view as a businessman.
Losely he describes it as a vegetable vendor with a crate of tomatoes on his
stall, it has some time decay, i.e there is a risk every time he buys a
crate of produce if the product doesn't sell quickly enough the goods may
become soiled and eventually unsellable, better to discount it and get rid
of it so you have your money ready to buy more stock tomorrow or next week.
Having his capital available to earn again while taking less of a profit or
possibly a small loss is more efficient use of capital than holding on
hoping that things will be right.
However if you own the tomatoe hothouse and can be fairly sure that the
tomatoes will always be there you dont have to sell cheaply. Hence I thnk
that if you consider the theory here and apply it to Buffett,. Mainly he
owns most of the companies so he has an insider knowledge and can also
change things if they dont work. For you guys in little ol NZ , you are
getting outdated info (something you guys complain about all the time, lack
of continuous disclosure) if it is correct at all and decide to buy and hope
(sorry meant hold). Once again I reiterate I dont have a problem with your
method other than the fact that you tend to miss the key issues, namely
price action, that is, what is the collective judgement of the market at the
moment on all the information available (to some more than others). This
added to your comapny anlysis will allow you a broader and clearer picture
of the overall market I think you would agree. In fact given your softening
stance ove rthe last year I would not be surprised to see a charting program
or web site on your PC


Regards

Morgy





----- Original Message ----- 
From: <tennyson@caverock.net.nz>
To: <sharechat@sharechat.co.nz>
Sent: Sunday, August 03, 2003 11:24 PM
Subject: Re: [sharechat] TWR, AMP fundamentals and Wealth Management


> Hi Morgy,
>
> >
> >I believe that the current market conditions do not warrant
> > longterm analysis, the cycle is currently too volatile,
> >
> >
>
> There are two ways to look at volatility.   If a share you own suddenly
> plunges in value, that is bad.   But if a share you own suddenly leaps
> in value I find there are very few complaints.     I am on the look out
for
> the potential of the latter type of volatility.   It's good for investors!
>
> >
> >
> >in todays
> > market the players for the future are still emerging, if you read the
> > article on Vodaphone in the paper over the weekend you will see how
> > difficult it is for companies to establish a global footprint within
> > 20 years of their consolidation. I think it said if my memory serves
> > me correctly that only 3 companies had joined the world top 100
> > companies since 1985. Given the globalisation of the world economies
> > in the last decade I find this amazing and relevant to the following
> > strategy
> >
> > I therefore suggest the following  methods for short term investors
> > (up to 12 months) that may allow them exposure to better performing
> > stocks than second guessing the commentators. Firstly cyclical
> > analysis and later sector relative strength.
> >
> > Cyclical analysis dictates that certain industries do well at certain
> > times of the economic cycle. This is fairly well known but is also
> > simple to follow and prove. The GISC standard which has been
> > developed, now allows investors and traders to compare world markets
> > on an apples and apples basis, the info is easy to get and a little
> > reading will give you the basis of this investment method.
> >
>
> Can you give us a thumbnail sketch as to what you understand the
> GISC standard is?    I'm not familiar with it, and I expect many other
> sharechatters may not be either.
>
> >
> > However rather than just invest in a sector that traditionally
> > performs well at certain times I believe that this must prove itself
> > at every point in the cycle,
> >
>
> I agree that the business cycle this time around will not be an exact
> repeat of the business cycle of the past.  I also believe that a business
> must prove itself and we cannot rely on the fact that because the share
> price is down it will inevitably bounce, simply because 'it must have
> bottomed out'.     So perhaps our philosophies are not as far apart as I
> thought Morgy?
>
> However, the ways we exploit the low points in the business cycle
> differ.  Let's take retail in general and WHS in particular.     Retail
goes
> up and down in cycles.  You Morgy would wait for enough institutional
> support in the market to push a share like WHS into an uptrend before
> you jumped on the bandwagon.    If the Australian Yellow Shed
> situation sorts itself out then I am sure this will happen.
>
> I, OTOH have bought in already.   Why?     Because the share has
> already received a hammering this year ( I don't have to predict when a
> share price hammering will occur.  I merely have to be ready after it
> has happened and have some cash in the bank to take advantage of
> the situation).
>
> I am already confident that Stephen Tindall has has the wherewithal to
> get the right marketing, right product in store and right stock turn mix
to
> make a success of *any* retail operation.   I don't think that fund
> managers can teach Tindall anything about retailing.   So the fact that
> fund managers aren't flat out buying WHS shares doesn't put me off.
> And I don't think the popularity of Warehouse shares over the next 3
> months (say) will have any bearing as to ultimately how successful the
> Yellow shed operation will be.    IMO Stephen Tindall, with his track
> record,  *has* proved himself at every point in the  retail business
> cycle.   I do not need the the WHS share price to move at all to
> convince me of that he can do it again.
>
> If fund managers are determined to sell down the WHS, ignoring
> Tindall's past record of building a retail business from scratch and
> managing through the difficult ups and downs on the way, why not take
> advantage of these fund managers short sighted thinking?   If these
> fund managers offer their shares cheaply enough to the market why
> not just buy 'em?  I did!
>
> >
> >Your point
> > on different companies doing well in the next market push is highly
> > relevant and if one was to just invest on a cyclical basis you could
> > be in the right game but at the wrong park, i.e a bit like being a Man
> > City fan for the last 20 years when all the action is down the road at
> > Man United.
> >
>
> Yes, very good point.    I can't predict where the next great
> 'Manchester football club' will come from.  But I do know that I would
> put my money on 'Manchester City' to make a better fist of a comeback
> than 'Morgy and Snoopy's Manchester Back Street Boys'.  I'm not
> saying that you and I, Morgy,  couldn't come up with a football team to
> challenge 'Manchester United'.  What I am saying is that it would be a
> lot tougher for us to get the sponsorship and players in behind us than
> it would be for 'Manchester City' club which has a track record in the
> football business.
>
> Reverting back to the stockmarket 'game', this is why I tend to steer
> clear of new issues.   This doesn't mean that new issues or companies
> moving into new markets can't do well.  Just that it is more difficult if
> you are an up and coming company.  And from an investor viewpoint
> more importantly, it is very difficult to pick which of the up and coming
> companies are the ones that will go on to become the major players of
> tomorrow.
>
> >
> > If we suspect that an industry group or sub group is doing well then
> > we must investigate exactly what groups are doing well and by what
> > measure. This introduces the second part of the startegy, which is
> > Relative Strength measurement
> >
>
> I whole-heartedly agree again.  This is exactly what I do!   However,
> despite the goal being the same our methods differ again Morgy.   I
> look for a relative advantage of the business (that is what all those
> focus investment group screening criteria are about).    You on the
> other hand look for outperformance of the share price on the share
> market.    An important difference.
>
> >
> > Mid Caps
> > have been performing extremely well , on a cyclical basis we know that
> > they lead the market in recovery because they are leaner and meaner
> > than the blue chips, they are also where the next line of blue chips
> > come from.
> >
>
> Indeed, there are studies around that show that mid caps do
> outperform blue chips over five to ten years periods, which is why I am
> a big fan of mid-caps.
>
> >
> > Next step, what industry group within Mid Caps is doing
> > well, as it happens financial services have been doing well
> > particulary small and mid cap companies. An example is  RCD:ASX  (a
> > small to mid cap financial services company) see the run that this
> > stock has made in the last year or so. All of this information is
> > available to both the professional advisor and the private trader.
> >
>
> Yes, but is the fact that a mid cap financial company 'is doing well'
> sufficient if a slumbering giant big player decides to wake up, roll over,
> and squash them?
>
> >
> > I believe that we do not have the information that
> > Buffett does to examine companies in his manner
> >
>
> I would disagree with that.   Ever read one of the 'Buffettology' books?
> They constantly emphasize that the information Buffett uses is not
> overly complex or technical or secretive.    Indeed the opposite.  He
> only invests in shares that are 'easy to understand'.
>
> >
> >and I also believe
> > that his level of investment allows greater due dilligence than
> > generally available to the average investor, one would imagine he gets
> > many invitations to sit with companies that want his money, one can
> > afford to be selective if the cake is always on the table.
> >
>
> Everyone can be selective Morgy.  The simple matter of just keeping
> your hands in your pockets is one way to do it.    I think Buffett himself
> has admitted there are long lengths of time where he just doesn't see
> anything on the sharemarket worth buying.
>
> >
> >The NZSE is  so small that perhaps you also have
> >an advantage in that the market is
> > fairly incestuous but also limits a broader strategy.
> >
>
> The NZX is almost certainly too small for Buffett to worry about.   In
> fact a couple of the shares I hold are probably too small for even most
> NZ fund managers to worry about.     But as you suggest Morgy, it is
> up to us to adapt our investment styles to suit the market that we have.
>
> Regards,
>
> Snoopy
>
>
>
> --
> Message sent by Snoopy
> on Pegasus Mail version 4.02
> ----------------------------------
> "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."
>
>
>
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