Forum Archive Index - August 2003

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

Hi Morgy,
>
>
> The biggest impediment to high returns for fund management
> and investment businesses like Buffets is the difficulty in being able
> to move large sums of money between investments with the requisite
> liquidity requirement in both the target and departing stocks. 
>

Plus the fact that funds are taxed when they do this, but private 
investors (i.e. not traders) are not taxed when switching between 
investments.

Of course all this is relative.  Buffett for instance probably couldn't 
make any serious return by coming to New Zealand because our 
market is too small for him.   Yet there are smaller fund managers that 
eschew the NZ top ten (the shares with the best liquidity) and still 
make acceptable returns.

>
>Hence
> the desire to stay involved once the investment decision is made. This
> must therefore leave them exposed in lean years and also to sudden
> "news" events that the smaller less capitalised trader can avoid or
> take advantage of.
>

Not always.  You would be surprised at the amount of churning that 
goes on in allegedly long term funds.    But you are right in that one 
thing a fund manager cannot do is sell most of their shares and sit on 
the sidelines, waiting to time their moves in and out of the market.

I do take issue with your phrase 'lean years' Morgy.  Are you not the 
same Morgy who was urging everyone to 'get out of the market' in the 
run up to the attack on Iraq?    Yet my own defensive portfolio has 
risen by something like 7% (after tax) in the nine months since that 
time.  And that is without any buying and selling.   There are 
companies that continue to do well, even in the so called 'lean years'. 

>
> I
> believe your strategy loses the advantage gained by the active private
> investor to quickly move between trending sectors and associated
> stocks. 
>

My strategy is only to invest in the best one or two companies in a 
given sector.   Over time the best shares rise above what is happening 
in their sector.   I don't follow sectors at all, except to take advantage of 
Mr Market when he drags down the price of a good company because 
of 'industry factors'  (whatever that means).

>
>As for dividend return, I dont think that you have to hold for
> 12 months before you are entitled to a dividend. Lots of money can be
> made during that time. 
>

True.  However when a company pays a big dividend, the share price 
is hammered immediately.   The only way to get out before the big 
price drop is to miss the dividend entirely.

>
>I agree with Macdunk that beating the bank isnt
>  exactly a dynamic goal 
>

'Merely beating the bank' is not my goal.  I aim to do twice as well as 
the bank.   Some people would see that as quite an aggressive 
strategy.

>
> I think also the time input element is an important
> component of your investment philosophy.
> 

Indeed it is.  I can go away for months if I want to and do nothing with 
my investments knowing that my employees ( those are the people 
who work in the companies in which I hold shares) are working damn 
hard for me.     I don't need to go near a computer screen at all.

SNOOPY




 

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