Category: buyStocks

time=onYourSide iFF…#patience #stableAppreciation

Posted on by tiger40490

 

k_babysit4exit

My friend Kun.H is the first one to remind me this vague yet powerful factor (See my Feb 2021 mail below). Warren Buffett also mentioned some variation of it. He wants to buy-n-hold for decades. IFF you choose wisely, then the assistance of Time can be effective and quick. I think ValueInvesting often shows powerful examples but not everyone is able to follow ValueInvesting principles.

— BnH: time is on your side if you buy and hold. If you try to time the market to exit, then time is probably not on your side.

Assuming BnH is a good thing, BNH proves to be much easier with real assets due to higher tx cost ?!

For both BGC and khm investments, I need many more years than initially planned (10Y). Luckily, I invested at age 41 and later, so I have a long runway.

— swans and price stability
With speculative assets, I don’t feel time is on your side. See https://tanbinvest.dreamhosters.com/1786/durability-asset-appreciation/

— ChineseBambooTreeParable .. is more relevant in pff than in other domains, because:

  • buy-n-forget .. you need due diligence to pick the seed. After that, you don’t need to babysit.
  • there’s an effective “system” at work, with the power to grow the asset. No such “system” outside the pff domain.
  • in pff, from Year 1 you can see the current value:) In the classic CBTP, the current value is $0 for four long years, i.e. no immediate result 🙁

Q: which asset classes are economically no-growth ?
* gold and oil … supposed to be scarce commodities with increasing demand, but the market may take decades to reflect that.
* bccy
— is time on your side in these asset classes? It depends on your horizon and other factors.

  • Time is usually on the side of productive assets, unless the payout rate is not growing enough.
  • U.S. stocks in general yes, but non-US tend to have long trough, so during your lifetime, Time may not be on your side.
  • U.S. index ETF .. long-term trend exceeds expRatio, so yes Time is on your side.
  • (see also mail below)
  • zero-coupon bond? Its value approaches par, but it is dubious to say Time is on your side. I guess in a volatile market, you can just hold the bond to maturity and therefore Time is on your side.
  • rEstate in developing countries — yes (but probably not in most parts of U.S. See blogposts on Brian.)
  • .. For rEstate, Time can be a lifetime 😉
  • REITs .. yes the rental payout gives hope that Time is on your side.
  • small amount of physical gold (so that I can keep at home at very small negative DYOC)? Time may not be on your side as gold long trough can last decades.
  • mufu? with expense ratio time is on fund manager’s side
  • FX? No
  • annuity like CpfLife? probably yes. The longer you live, the more payout you receive.
  • endowment and other insurance products? questionable
  • .. Note there’s a high expense ratio in all insurance products, worse than mufu.

—– Letter to Kun.H
I like your comment about “have time on our side”. Mutual funds have an erosive expense ratio, so time is on the fund manager’s side 😉

To have Time on my side, one of my habits is buy-n-hold. (A related habit is buy-n-forget, as explained in the earlier mail below. If I must babysit my positions, then Time is not really on my side.)

Q: Do stock markets show long-term growth more than inflation?
A: Not sure. Depends on the region and the timeframe. Most authors use U.S. equities history over the past 100 years. What if they only look at the last 20Y? What if they look at another region beside the U.S.?
A: Beware of survival bias. There are thousands of growth stocks (including fake and failed growth stocks) in the last 50 years, but if we include all stocks across all equity markets, the long-term trend would look less convincing, less foolproof.

In contrast to growth stocks, look at T:US. Not much of a long-term trend,  but it delivers a consistent dividend, following a sustainable DPR (dividend payout ratio). Looking at my dividend stocks like T:US, I feel “Growth is overrated and based on flawed analysis but dividends seldom lie.”

Our friend, Time, is a big help in dividend stocks — If the business has healthy profit, cash flow and DPR, then time will prove that the stock is worth buying. Its valuation will tend to grow with the overall market, perhaps at a low beta.

With growth stocks, Time is even more helpful. Beware
* we must pick the real growth stocks not fake ones (with dividend stocks I mostly look at track record only)
* we may need to baby-sit them after we buy (less baby-sitting for dividend stocks… buy-n-forget)

It’s easier to be patient with an investment when it generates periodic cash incomes.

You raised the excellent question about bonds. High coupons are usually on long bonds… where inflation (Time) is NOT on our side. In contrast, about half of my dividend stocks could hopefully grow with the stock market. Both dividend amount and stock price would grow. Nevertheless, there is indeed a chance that my dividend stocks underperform bonds.

With both growth stocks and dividend stocks, we need to have Time on our side and we need patience.

My objective is not windfall appreciation. My objective is a dependable income, like retirees. For my objective dividend stocks are safer. I believe Time is on my side. Time will tell.

hot stocks: higher beta than div stocks #w1r2

Posted on by tiger40490

See also

This blogpost is about a hot stock’s 1) correlation with broad market 2) volatility. Beta is a useful concept to capture them all.

High volatility stocks are harder to buy-n-forget , and tend to threaten my firewall.

— In a non-recessionary decline/correction, actual dividend amount will probably be stable among my dividend stocks. My firewall is easier to maintain.
— In a recession, high-yield businesses tend to have more robust profitability [1]. High-yield stock P/E tend to stay better than hot stocks on average. High-yield stocks tend to be more defensive and weather-proof. I maintain my firewall largely based on robust profitability. I have more confidence, more peace of mind.

The aristocrats and many other div-stocks refuse to cut dividend even in a recession 🙂

[1] A few hot stocks (MSFT, Oracle) are also robust

T:US is not “hot” by my definition.

— Why do I pit div stocks against hot stocks?
As explained in div stocks widely seen as low-growth #laughing, hot stocks by definition enjoy a price premium due to investor mind share. This price premium tends to depress CDY. Therefore, by my definition, hot_stocks vs div_stocks are almost mutex. (Note this doesn’t mean dividing my stocks into “female vs male”. )

My big positions are all dividend stocks. The relentless pressure from fellow investors stems from hot growth stocks. I have been struggling to incorporate hot stocks into my “system”.
— hot money … mostly hits hot stocks (far more than div stocks). This explains their high correlation with the broad market.

High beta (high volatility) vs high return .. are often indistinguishable.

Cryptocurrencies, commodity futures show the same feature.

— index stocks … are subject to hot money flow via ETFs. As ETF grows in popularity esp. among retail investors, I feel index stocks would get more volatile.
Why? See https://www.nber.org/digest/sep14/do-etfs-increase-stock-volatility (2014) and (2015) https://www.sec.gov/comments/s7-11-15/s71115-1.pdf. Surprisingly, a SP500 ETF is not exactly replicating the SP500 returns. It participates and amplifies that return.

Mufu? An index-tracking mufu would also increase volatility of the index stocks. As 40% new (hot) money comes in, fund manager has to move that amount from cash account to the “stocks account”. To maintain the current composition, she has to buy virtually all the existing names (like AAPL), thus increasing demand for AAPL. With a 30% redemption, she has to sell a huge chunk of her stocks (trying to maintain current composition), thus increasing selling pressure on AAPL.

Therefore, the more “popular” AA stock gets among fund houses, the higher its beta.

Suppose the AA business is under-performing. The company wishes to remain in SP500 (and other indices) because SP500 “club membership” would ensure a lot of blind (hot) demand for AA stocks. When overall market is flush with (hot) money, the index ETFs receive inflows, and passively buy AA according to AA’s weight in each index. In contrast, index-tracking mufu managers would actively evaluate AA and  may or may not buy it, but at least AA is on the radar. Once kicked out of all indices, AA would be under the radar.

As part of sp500 (and other indices) the demand for AA stocks is mostly driven by overall market, rather than AA  business fundamentals !

How about T:US (and other utility stocks)? An index stock, hit with hot money, but low beta.

Without analyzing the data, I guess over the last decades (and the next decades) index ETF has grown far more popular, which somewhat increases the volatility and return of the constituent stocks, which in turn attracts more hot money. Looks like a positive feedback loop. I think that increasingly, the only hope to match (or beat) SP500 involves trading volatile (growth) stocks or trading the same SP500 constituent stocks.

I guess ETFs mostly invest in popular stocks. Over the past decades, the steady increase in ETF participation probably leads to more concentration more gravitation towards the big index-component stocks.
As ETFs become increasingly popular vis-a-vis stock-picking, the popular stocks probably receive even more mindshare and volume than before.
These hot stocks probably become more volatile due to retail hot money.

learning(as recreational investor) #fund^stock-pick #w1r3

Posted on by tiger40490

Q: How do I compare with my wife, as a stock picker? My view is likely biased, though I would try to counter-balance my bias
%%A: I think she dare not touch other names. Good for her.

… This question belongs to the end !

Q2: “learning” is a vague buzzword. What kind of thing can you learn? A vague question but be as specific as you can, please?

  • PP) (self + market) psychology  .. The crazy psychology of those investors… we just get used to it, without gaining insight. It’s a big rough sea.
  • EE) economists’ (like Shiller) analysis ..  including market valuation and timing. I took two modules under Mark Hendricks.
  • AA) security analysis as in value investing or quant analysis .. I only spend 10 minutes per name.
  • .. pre/post trade dividend analysis.
  • TT) trading techniques .. risk control, order placement, position mgmt,,,

中长线 analysis (I never did) sounds like learning in EE and AA, but if not applied on stock-picking, then I guess it is only applied on sector picking and market timing.

bccy market is so unstable and fluid that I don’t see any learning in terms of EE, AA,,,

Q6: what are your specific reasons for learning? A vague question but be as specific as you can, please?

  • motivation: intellectual curiosity — some people earn a degree in their 70’s, not to use the knowledge in some career. See also recreational investing
  • big motivation: total return (including current income and windfall far out)
  • motivation: better understanding (of the rough sea PP + EE), better control (of my little dug-out). [1]

[1] Is this motivation underneath the big motivation? Probably not. My twin brother, an ETF investor, could end up with higher profit at some point, but without any understanding/control. I don’t want to end up like him.

Q11: Do I gain any insight from hot growth stock picking? (Similar question can be asked on FX, FXO, gold, oil.)
A: not sure. Whatever capital appreciation could be due to timing or dump luck. In contrast. I gained AA/TT insights on div stock picking only months later, when my div stocks performed well during a downturn — unexpected success.

Q22: did I learn anything from years of mufu “research”?
A: close to zero in EE, some self-discovery in PP.

Q22b: with so limited learning, do I get any real joy from mufu/ETF investing?
A: I feel it’s like watching sex vs having sex. If you don’t know why you made money, then it’s mostly dumb luck with timing… no joy. Doesn’t satisfy my intellectual curiosity.

Q33 (Dahlan discussion): do you learn the most from investment failures, or do you learn more from expected success, unexpected success…?
%%A: I feel some failure is required learning (re commodifies and FXO..) in the PP, AA and TT domain. You won’t become competent swimmer without scary encounters with killer waves.

— The 10Y-question. Context: Like many investors, I started investing during my internship [commodities, UniFund…].
Q: with a 10Y career as an amateur investor ..  am I better than an intern?
A: No better, as a mufu picker. Answer is similar to Q22.
A: Yes as a rEstate and stock(?) picker, I had more frequent buying experiences than many. For rEstate, “Test Result” comes in very slowly. I did lots of research into EE/AA and some PP.

I don’t know Adam Khoo. I think he is an experienced motivational speaker, and trainer, where his talent and wisdom have sustainable value. I don’t know his investment skills.

Q: why does no investor give money to an intern as a fund manager?
A: because the intern shows no wisdom, no trec, and is mostly a blind follower of sentiment. In contrast, an intern can work as a junior but professional programmer, thanks to his technical knowledge gained over 3Y at least. Learning is an essential ingredient. Buffett: “Only when the tide goes out do you discover who’s been swimming naked.”

  • Q: Compared to many seasoned investors like me, an intern can achieve better return via SP500 ETF over 3Y. I think it is sustainable.  Is the intern better than me?
  • Q: Compared to many seasoned investors like me, an intern can achieve even higher return via ARKK over 3Y. I think it is less sustainable.  Is the intern better than me?
  • Q: Compared to many seasoned investors like me, an intern can achieve even higher return via BTC over 3Y. I think it is less sustainable.  Is the intern better than me?

big loser despite analyst ratings: fallen angel@@ #div

Posted on by tiger40490

Many people say that “since analyts were positive but this stock fell, this is evidence against all the analysts”. I adopt a different perception…

  1. go to any site listing the biggest losers for the day (or the week?)
  2. Now go through a 10-min due diligence on each name
  3. is it a household name? More familiar names are slightly easier to assess
  4. check analyst rating. If no rating, then stand aside. If you see a positive analyst rating before the drop, then the drop may imply that the price is even more attractive than when ratings were published.
  5. check CDY after the fall
  6. (time consuming, so do it last) check fool.com to see why the sudden drop
  7. for the 1 or few surviving items, pre-clear.

Most of the time, CDY would be way below 4%. This is a harsh reality. Therefore, babysitting might be required. No buy-n-forget.

Half the times, quantum would be more than $50, and requires fractional. This is a harsh reality.

Beware the infatuation… A wrestle of greed vs fear.

— FSM also lists biggest losers. Used for a year. No analyst rating ! No news articles explaining the drop.

##cautionary tale@speculative picks #mrna

Posted on by tiger40490

My “system” features 3-10 minutes of quick due diligence each on a large number of new stocks. In this system, Speculative buy is quite possible. Result is unpredictable.

( In an alternative system, if you want a stability track record of stock picking, it can be improved slightly, by due diligence on CDY, dividend history, company size, analyst rating etc. )

— eg: WNS of India. Luckily I bought only $3.80
— eg: MRNA (Moderna) ..
— eg: CRBP

==== quick but not speculative
— eg: BGC partners .. I bought due to my “insider” knowledge. The stock remained underwater for years.
🙂 a bit of dividend, better than nothing.
— eg: BKCC (blackrock …).. I bought due to the Blackrock association
🙂 high CDY maintained through 2020
— eg: ICICI bank of India