Time to buy bank shares?

There may be about 10 or a dozen people in the World in history who have managed to successfully beat the market by reading the accounts of companies. This shows just how difficult it is.

There is absolutely no need for anyone to read accounts. They will inform your decision no better and they run a real risk of misleading you.

If you want to invest in the stockmarket, then buy a balanced portfolio of shares and forget about them.

You should not be put off investing by people claiming that you need to understand accounts.

If I was considering investing in Aer Lingus now and I was given a choice of an hour with Michael O'Leary or with the Council of the Irish Association of Investment Managers, I know which one I would choose.

Brendan
 
Brendan said:
If I was considering investing in Aer Lingus now and I was given a choice of an hour with Michael O'Leary or with the Council of the Irish Association of Investment Managers, I know which one I would choose.
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I like it.
 
sorry to hijack but what are your opinions on the s&p500 and its prospects over the next couple of years. I appreciate that it is just speculation but would be interested to know.

Its recovering from a big dip which seems to have happened immediately after the couple of dips its experienced in the past 100 years.
 
Brendan said:
There may be about 10 or a dozen people in the World in history who have managed to successfully beat the market by reading the accounts of companies. This shows just how difficult it is.
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While it is true that the number of successful long term investers is small (however a lot more than 10), there is no reason why anybody could have similar success by just copying their decisions. All large scale investors have to publish their investment holdings on a quarterly basis.
An extensive study was published last year on the 'art' of copying Buffett:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=806246#PaperDownload
 
Bronte said:
Chris who in Ireland has succeeded when buying shares?
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Not sure what being in Ireland has anything to do with success when buying shares, but I have! However, Irish shares have never made up more than 5% of my portfolio
 
Chris said:
Not sure what being in Ireland has anything to do with success when buying shares, but I have! However, Irish shares have never made up more than 5% of my portfolio
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Do you mind me asking over what period of time and how much you made? The Irish stock market has lost heavily so I'm interested in your magic formula. People with gilt edged investments and pensions have lost heavily.
 
Bronte said:
Do you mind me asking over what period of time and how much you made? The Irish stock market has lost heavily so I'm interested in your magic formula. People with gilt edged investments and pensions have lost heavily.
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I have been investing since 1998 and have had an average gain of about 14% per annum. That includes bad years in 2001 and 2002 where I made a paper loss of about 10% and 12% respectively, and my worst year so far, 2008, where I made a paper loss of 19%. Even last year my losses beat all major indices.

I agree that the Irish market was one of the most heavily hit (down 55% in 2008), but as I said previously, Irish shares have never made up more than 5% of my protfolio. In comparison, the DAX was down 'only' 25% last year.

As for a magic formula, there is none. I learnt my investment strategy from my dad, and it would fall into the category of value investing with a heavy focus on diversification. I spent years reading and learning about economics and investments (which is not my professional background), especially focusing on two books by Ben Graham, 'The Intelligent Investor' and 'Security Analysis'; the latter took me a very long time to grasp.

Now I do understand that most people do not have the time, interest or patience to learn everything there is about investment. However, with some basic understadning of balance sheets and how to calculate, Return on Capital, Price/Book value, Price/Earnings value, dividend yield, you can go a long way towards making better stock selections than a monkey.

As already mentioned, diversification is an important part of my strategy, and I think that the Askaboutmoney investment guide is pretty good at explaining the merits; it does however fall short of stressing the need to diversify by country and continent as well.

Bottom line, if you don't want to look at annual reports before making investment decisions, then you would be better off with a cheap and diversified index linked fund. If you want to pick your own stocks, at least know what basic shape the company is in.
 
Brendan said:
There is absolutely no need for anyone to read accounts. They will inform your decision no better and they run a real risk of misleading you.
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I am stunned by this comment. If you're willing to completely abdicate responsibility in informing yourself of your investment decision, you might as well take your money to a casino.

In the case of banking shares, I do agree that annual reports (at least the Irish ones) were practically useless in judging the position of the business. In other cases though, a cursory glance of the annual reports of Waterford Wedgwood and the Newcourt Group would have told you that these companies were bankrupt.

Reading annual reports will give you an idea of the risk that you're exposing your capital to. Without making recommendations, let's look at two Irish companies who operate in the same domain. If you look at the reports of Abbey Group (housebuilders), you'll see a business that has relatively low debt, a huge cash pile, profitable, slowed down building after construction collapsed, etc. From their accounts, I know that if I invest in Abbey, at least I am sure that the company has a balance sheet that says it's in a position to ride out the downturn.

On the otherhand, look at McInerney housebuilders. Huge debt, low cash, massively loss making and breaching debt covenants, etc. To me, McInerney is a deadman walking. I can clearly see that if I invest my money in them, there's an extremely high risk of losing all my capital.
 
Wholeheartedly agree with that statement.
 

I'm curious about the two companies you mention here though it doesn't have to be specifically them. Would that mean that a financial advisor would advice you not to invest in them and that therefore if they did advise you they were negligent in so doing because just by reading the report they would know to stay away from them. Also would you know who invests in them if they are so obviously the worst share to 'invest' in. Someone obviously had shares in them.

Some of you guys are experts, presumably working for financial institutations advising people where to invest, then how come so many people have lost money on shares/pensions/investments?
 
No one has a crystal ball. It's easily possible that awful companies can turn out to be good investments and brilliant companies can be terrible investments. Back in the early 1900's, the Equus Buggy Whip Company was one of the largest manufacturers of horse-drawn vehicles. By all accounts, it was a well-run company. However, the combustion engine revolutionized travel and rendered the horse obsolete. No one can foresee all possible events, therefore the best you can do is work to minimize the risk to your portfolio.
Bronte said:
Some of you guys are experts, presumably working for financial institutations advising people where to invest, then how come so many people have lost money on shares/pensions/investments?
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I'm going to quote what I said in an earlier post.
 
So are you saying that the experts just copy each other right or wrong and one would be better off picking shares oneself because you have just about as much chance as they do in picking right and you don't have to pay fees?

You and Chris make it sound so easy to make money..............
 
Bronte said:
Some of you guys are experts, presumably working for financial institutations advising people where to invest, then how come so many people have lost money on shares/pensions/investments?
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This statement ignores the fact that so many people made a fortune in the years leading up to the mess we're in.

Just to clarify, I do not work as a financial advisor, I don't even make recommendations to friends and family (except for my dad). As for investment analysts' opinions, don't bother with them, as it mostly serves as propaganda for their vested interest.


Bronte said:
You and Chris make it sound so easy to make money..............
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If anything, I have pointed out how difficult it has been for me to achieve what I have.
However, there are somewhat simpler ways that I have pointed out, that will give you decent returns on your investment:
1) pick a cheap index linked fund and you are guaranteed to achieve the same returns as the index (minus charges of course)
2) copy what the likes of Buffett do

What I didn't point out is that not all of my investment decision were good ones, with a couple of them down-right stupid in hind sight. This is something that will happen even to the best investors, it is inevitable, as there is no magic formula.
 
Brendan said:
There is absolutely no need for anyone to read accounts. They will inform your decision no better and they run a real risk of misleading you.

Brendan
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I also repeat what i posted earlier:

The great investor Peter Lynch said "Investing without looking at the numbers is like playing bridge without looking at the cards."

I like to sleep at night.
 

His logic was we wait until they doubled (they have more than doubled) that we take back the 20K and let the rest ride.
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Don't forget about Capital Gain Tax
 
My own tuppence is that the Gov will re-capitalise the banks via NAMA. They will take over these loans at a deep discount to please the voters/media and then supply the banks with additional post-NAMA capital. The banks are then "clean" and capitalised. Nationalisation is the biggest unknown in all of this and even if they are temporarily nationalised (say 3 years) they will be back on the market. Now if I could just convince Mrs Firefly!
 
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