Colm Fagan
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Hi RedOn a previous topic:
There has been a reaction to the recent Investor day at Renishaw, one of your favoured stocks.
Investec now rates them as a sell.
The company continues to be an innovator and market leader, but the stars do not appear to be aligned on their horizon for the present time.
red
I know nothing about Renishaw's business
Would you not be better off playing golf and drinking red wine whilst your old pals in ILIM or elsewhere manage an equity mandate for you? It is a genuine question.
I don't play golf, but I do like the occasional glass of red wine. There was lots of it on offer - for free - at the Renishaw Investor Day! As for the time commitment, it doesn't take much effort to keep on top of a concentrated portfolio. I only have to keep a weather eye on a small number of stocks. I look at them in detail only once a year, sometimes less often. That's not a significant overhead.Would you not be better off playing golf and drinking red wine
With respect, that is complete nonsense.The corollary is however, that a larger number of holdings creates a greater risk because the investment is spread more widely
Unlike the 'good old days', when markets moved more slowly,
Programmed trading, using algorithms, have the capacity to create irrational volatility.
The more I see, the more I welcome private investors buying ETFs rather than active because it gives sensible investors an advantage.
And yet the last decade has been the least volatile in stock market history.
Reality does not conform to your thesis.
n a Simple example let's say I invest passively and earn 5% or I can pick individual stocks via research in my free time and earn 8%.
Yes, the statistics are firmly against active investment. I read recently that there is only a c1% chance that an active fund will beat a passive fund over 10 years. The great investor Warren Buffett advises "normal" investors to buy passive funds. I recommend the same to anyone who asks my opinion. I'll explain below why I prefer an active approach (or what I prefer to call a "passive active" approach) for my own investments.Most professional fund managers do not beat the market in the long-term;
That's probably true too, but it doesn't apply to me. I have a highly concentrated portfolio (five companies account for over 80% of my holdings) and I make only small changes over time. Four of the five top holdings at end May 2019 were also in the top 5 in May 2016. The proportions in different companies within the top five have changed over time as I've become more or less optimistic about their prospects. Those small changes have generally made positive contributions to performance. It's not time-consuming to keep tabs on a highly concentrated portfolio that changes little over time.Keeping a daily watch of market noise is generally a waste of time and one should be encouraged to find other areas of interest like philately or pilates or something
It depends on the definition of risk. It's obvious that the more concentrated the portfolio, the less likely its performance will track the broader market. It's not so obvious that the risk of loss is greater. My most concentrated portfolio ever was when I owned 100% of my own business and had very little else. I was confident the business would succeed. I didn't believe I was running too much risk. I felt much the same about four years ago when I had a sizeable portion of my investment portfolio in Renishaw and its share price was under £20. (It topped £50 last year). I'm sorry now that I didn't have even more in it at the time, even though it would have meant exposing myself to even greater "risk". Over short periods, I have performed abysmally compared to the market. I don't give a fig how my performance compares to the market. All I want is to earn a good return (say inflation plus 5% a year) in the long-term. I'm happy that I'll achieve that goal.There is Noble (sic) Prize winning research that would disagree with the general point that "a larger number of holdings creates a greater risk".
If I have, I don't think it's because of any great skill on my part. I've stuck to a few very simple rules. One is to try to keep costs to a minimum. That's one reason for having a concentrated portfolio and for making relatively few trades. (I haven't checked, but I'd say that the turnover of my portfolio is much lower than average). DIY also helps keep costs down. I'm saved the costs of professional management, which I believe adds nothing to returns, on average. (Some professionals beat the market over long periods, but it's almost impossible to know in advance who they'll be). I'm also a firm believer in the adage that "it's time in the market, not timing the market, that counts". I have practically 100% in equities. I expect to get 3% to 5% a year more (on average) from them than from bonds. Therefore, I can expect to earn 1.2% to 2.0% a year more (on average) than someone who is 60% in equities. It's simple arithmetic and has nothing to do with being a good stock-picker. Also, I believe that keeping a diary of why I'm buying or selling particular companies helps to reduce the incidence of complete turkeys. It doesn't eliminate them entirely: witness Ryanair, which was one of my top five holdings in May 2016 and is still up there, sadly.I do believe that Colm has beaten the market
Do you advocate that it is a waste of time to be a DIY investor, and that the best course is to invest indirectly through
products such as ETF's, UT's, IT's etc?
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