The good times are over?

Discussion in 'Investment Strategy' started by crc_error, 9th Jan, 2008.

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  1. Tropo

    Tropo Well-Known Member

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    Michael,

    It’s too early to tell if we hit 4800 or not, but the question is when you will get all your money back assuming that you’ll survive coming stormy weather.
    It can take years to just break even and in the meantime you may lose opportunity to invest somewhere else. That’s what opportunity cost is all about....
    Sometimes it is better to exit the market than worry about what is going to happen.
    But again....it’s your money and your decision.
    ;)
     
  2. Smartypants

    Smartypants Well-Known Member

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    Hi all.

    Interesting topic.

    I still consider myself a novice when it comes to investing in the sharemarket. I have a substantial holding with Navra and a smaller holding with CFS (LPT's).

    The LPT's have (of late) taken a battering whilst Navra floats around as it does (depending on market).

    So far I've decided to just 'ride the storm out'. Hopefully this is the smart thing to do. Time will tell.

    I could possibly sell all and try to pick the right time to buy back in but don't think I'm experienced enough so am relying on fund managers to get through unscathed.

    As I've mentioned in previous posts, I always use distributions to pay margin loan down and also contribute extra to margin loan when cashflow permits.

    Just hope the market/s do a U-turn sometime soon.
     
  3. lorrimer

    lorrimer Well-Known Member

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    Smartypants, if you are putting all your distributions plus extra back into the margin loan, what are you gaining from holding the portfolio? Obviously you are hoping for capital growth,
    but this seems a very tax inefficient way of trying to achieve it.
    Wouldn't you be better off buying something like an index fund and then draw down on the margin loan as and when required. You could save an awful lot of tax and the portfolio should grow faster as a result.
    I'm not critisising, just trying to get a better understanding of other peoples strategies.
    I'm with you on the buying and selling comment. It's far too easy to lose out both ways.
     
  4. MichaelW

    MichaelW Well-Known Member

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    Nigel,

    Sim got in trouble because he made a "silly" decision as per his previous posts in order to try and optimise his short term tax position. Left himself over-exposed by pre-paying interest and is now wearing the consequences.

    I got caught in margin call territory because ANZ over-invested me. When I switched my portfolio I said invest $X in A/B/C and the balance in D. Unfortunately, they calculated the invested amount in D incorrectly and invested me $50K into margin call territory. Their clerical error now means I have to fork out cash to get out of margin call territory or sell down units to get out. But since they over-invested me, the market has come off 5% and my units are all down so selling them off would crystalise losses. But I do have another $130K on the sidelines on top of the $30K already pumped into the ML yesterday. So, yep, I do have cash parked on the sidelines to meet margin calls.

    I'll watch and wait a bit longer, but if worse comes to worse, I can always liquidate some units to stay clean, but that is a less than desirable outcome.

    Cheers,
    Michael.
     
  5. coopranos

    coopranos Well-Known Member

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    If it is people's idea that things arent getting better, a drop in US interest rates may present the last selling opportunity for a while...

    Also, there seem to be a few people with short memories - we have only just been knocked back to about September last year, we are nowhere near August 07 lows, and it doesnt seem to me to much of a stretch to think things could get knocked back to those levels again.
    XJO has made repeated attempts to get back into high territory, and every time it gets ploughed.
    I dont think people can start claiming "blood on the streets" or "the herd is all out of the market now" quite yet - maybe if we were at 12 months lows that would be a fairer comment, but a long way off yet I think.

    Finally for those who contend that the ASX doesnt follow the US as much anymore, how can you still argue that? Has anything fundamentally changed in the Australian or Chinese markets? No - but look at them!!
    they are getting tonked, for no other reason than the US! We have a few hundred years of history to overcome before the world stops hanging off the US, I seriously doubt it will happen in our generation, and if it does it will mean America has fallen into chaos (such as if they decided to devalue their dollar to oblivion to help with their foreign debt). If that happens, the safe money wont be in the markets, it will be in gambling on assasinations.
     
  6. Smartypants

    Smartypants Well-Known Member

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    Hi lorrimer.

    To clarify, I work out how much interest I have been charged for the quarter (on margin loan and LOC), then when I receive distribution I pay it to applicable loan. If there is any extra, I pocket it (or pay a bit more off any one of my loans)

    In between distributions, as I mentioned before, if I have any 'spare' cashflow, I try to reduce my margin loan.

    Why do I do this?

    Somewhere down the line, I intend on using the Navra fund to live off.

    I.e, when the figures are correct (to my liking), the navra fund plus a few rental properties (and/or any variety) will pay me passive income.

    Yes, there will be tax to pay but I'm still not sure if I like the idea of LOE.

    Not everyones cup of tea, but for now, it's what I'm working on achieving.

    As for index funds, I could do the same thing but I don't think I would get the same distribution as I'm getting with an income fund.

    Index funds or ETF's (or even direct shares) may come into play at some stage.

    Hope this answers you.
     
  7. lorrimer

    lorrimer Well-Known Member

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    Hi Smartypants,
    That sounds like a very wise strategy considering you don't need the distributions at this time.
    I'm in the situation where I am living on the distributions. This together with the market correction and the fact that I prepaid and capitalised interest, has seen my LVR rocket from 46% a year ago to 60% now.
    My strategy was also to try to keep the LVR under control especially in the early years, but unfortunately my growth funds (LPTs) have proved to be real dogs and put paid to my strategy. Fortuntatley I did keep !0% of the portfolios value in reserve as a buffer which does help me sleep a little bit easier.
     
  8. Alan__

    Alan__ Well-Known Member

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    Firstly, to those currently feeling some 'strain', I sincerely hope this is a temporary hickup and things work out well for you. :)

    Since this is an Investment Education Site, I guess this is all part of it though and we should share our experiences and observations. When the good times are rolling, we probably don't discuss Risk Minimisation as much but I guess it's certainly timely at present.

    In my case, last year, I personally started to feel I was in 'risk' territory. For me it was: a) We were going to be buying a new PPOR and I didn't want to put this at risk with too high a Share Exposure, b) I wasn't feeling comfortable with all the answers I was getting with some particular investments , and c) I felt the Market was getting too high.

    So my wife and I sat down and decided that given our particular circumstances we would sleep much better if we temporarily reduced our investment exposure. We upgraded to a new PPOR but sold down a reasonable percentage in other areas to reduce our perceived risk.

    We agonised over the decision for a few weeks as we knew we may well be missing out on some good growth and income but at the end of the day, unless you sleep very well with your investment decisions, it's just not worth it.

    I guess the reminder for us all, is to use sites like this to keep ourselves educated and then to keep within our own personal risk boundaries. The memory of one particular financial loss was what encouraged me to reduce my exposure last year so I guess that experience had some value after all. :eek:
     
  9. dkmc

    dkmc Well-Known Member

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    With my mostly index portfolio
    Ive seen property drop nearly 20% in 3 months
    Obviously a result of the subprime crisis

    However with my direct property - Adelaide has gone up 25% in the last 1yr
    brisbane up 20% in the last year

    Even though my index portfolio is well diversified
    There was no category that escaped the downward trend
    emerging markets perhaps - has been steady
    Cash was king in the last 3 months
    I didnt hold enough cash to make a big difference and I also held too much property in SLF in my personal name

    Still my structured index portfolio has lost 10% in the last 3 months
    which is pretty good considering the aggressive nature of my portfolio

    Im keeping my eye out for some entry points

    Id like to buy some bank stocks - and I think theyd be good value if they drop another 30%
    Dividend yields on those are currently around 5.1-5.3% for some of the big banks
    Once dividend yields get to 7%+ I think bank stocks would be good for a long term portfolio - for borrowed funds

    BHP - I think around $35

    Im not a stock picker and indexing is still my core

    Im in a position to start using my line of credit
    So when I find good entry points into - I will invest heavily
    After that I also can start margin loaning
    So overall Im in a good position

    Ive just bought another property too - in brisbane
    So im going to have to look at my expenses closely and watch the cashflow


    But the diversification of direct property certainly helps
    Its been clear that even though u diversify in stocks, including LPTs
    they can all go down

    Direct property remained negatively correlated!
     
  10. dkmc

    dkmc Well-Known Member

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    Ive always been cautioning newbies here against
    margin loans

    currently close to 10%
    how are you going to return better than 15% to make it worthwhile

    Thats just crazy
     
  11. dkmc

    dkmc Well-Known Member

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    Havent seen real blooood yet
     
  12. lorrimer

    lorrimer Well-Known Member

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    It was interesting to see that out of 11 major markets in Asia today only 2 were down, OZ and NZ.
    The others all made healthy gains.
    So is the decoupling finally taking place? and are we with Asia or the yanks?
    Whatever the case it does prove that there is still a lot to be said for diversification.
     
  13. Tropo

    Tropo Well-Known Member

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    Interesting

    Bush convenes Plunge Protection Team - Telegraph


    Keep an eye on Japan, still the world's top creditor by far, with $3 trillion in net foreign assets. The Bank of Japan has been the biggest single source of liquidity for the global asset boom over the last five years. An army of investors - Japanese insurers and pension funds, housewives and hedge funds borrowing at near zero rates in Tokyo - have sprayed money across the Antipodes, South Africa, Brazil, Turkey, Iceland, Latvia, the US commercial paper market and the City of London.
    The Japanese are now bringing the money home, as they always do when the cycle turns. The yen has risen 13pc against the dollar and 12pc against sterling since the summer. We are witnessing the long-feared unwind of the "carry trade", valued by BNP Paribas in all its forms at $1.4 trillion.
    The US data is now relentlessly grim. Unemployment jumped from 4.7pc to 5pc - or 7.7m - in December, the biggest one-month rise since the dotcom bust and clear evidence that the housing crunch has spread to the real economy.
    "At this point the debate is not about a soft land or hard landing; it is about how hard the hard landing will be," said Nouriel Roubini, professor of economics at New York University.
    "Financial losses and defaults are spreading from sub-prime to near-prime and prime mortgages, to commercial real estate loans, to auto loans, credit cards and student loans, and sharply rising default rates on corporate bonds. A severe systemic financial crisis cannot be ruled out.
    This will be a much worse recession than the mild ones in 1990-91 and 2001," he said.
    Sovereign wealth funds stand ready to rescue banks, as they have already rescued Citigroup and UBS. But as Moody's pointed out this week, the estimated $2,500bn in lost wealth from the US house price crash is more than the entire net worth of all the sovereign wealth funds in the world.

    Add fresh losses as the property bubbles pop in Britain, Ireland, Australia, Spain, Greece, The Netherlands, Scandinavia and Eastern Europe, as they surely must unless central banks opt for inflation (which would annihilate bonds instead, with equal damage), and you can discount $1,500bn in further attrition.
    Not even a Bush New Deal can hold back the post-bubble tide that is drawing in across the globe. What it can do is buy time. Fortunately for America - and the world - the US budget deficit is a healthy 1.2pc of GDP ($163bn). Washington has the wherewithal to fund a fiscal blitz.
    Britain has no such luxury.
    Our deficit is 3pc of GDP at the top of the cycle. Gordon Brown has shut the Keynesian door.
     
  14. MichaelW

    MichaelW Well-Known Member

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    Hi Guys,

    Looks like being a nice little open on the ASX this morning if we follow the US lead overnight. Up over 1%. And commodities look like outperforming in the near term:

    Gold, platinum hit new highs, mining shares soar | smh.com.au

    I'm quite happy with my asset mix at the moment which has me overweight commodities and Asia. As lorrimer posted two up, Asia is doing OK, and it looks like commodities are due to have another day in the sun soon. I've posted a few times here why they still look like good value.

    Time will tell, but I'm still quite comfortable with my portfolio as it stands and believe it will weather the storm quite well.

    Cheers,
    Michael.

    PS Did I tell you guys that I bought a Kg of AU at US$770 a few months back. That little hedge has returned me 16% thus far based on last nights price of US$891. ;)
     
  15. crc_error

    crc_error The Rule of 72

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    I actually hold LGL which has done very well recently. Plus my two recent investments of colonial resources and plat asia should do well.

    So even though I have some dogs, hopefully some of these will help ride out the storm.
     
  16. Tropo

    Tropo Well-Known Member

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    By Michael Patterson

    Jan. 9 (Bloomberg) --
    U.S. stocks gained the most in two weeks after Warren Buffett's Berkshire Hathaway Inc. said it may invest in municipal bond insurers and Hewlett-Packard Co. predicted earnings will withstand an economic slowdown.

    Bloomberg.com: Worldwide
     
  17. Smartypants

    Smartypants Well-Known Member

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    Thought this would be the case as well, but an hour and a half into trading and we're down 20 odd points.

    Only early I suppose and things will hopefully turn around throughout the day.
     
  18. crc_error

    crc_error The Rule of 72

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    thats why its important to have OS exposure.. we might find that international funds might be the winners this year as ASX has had records for far to long.

    anyone who has australian shares exposure only is risking missing out on this years winners.
     
  19. Rod_WA

    Rod_WA Well-Known Member

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    I thought about buying NCM at $25, but didn't. :(

    Just bought $20k more BHP at $39.00. Go you good thing.;)
     
  20. crc_error

    crc_error The Rule of 72

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    LPT index is down another 1.7%

    what the hell is wrong with it!! how can it keep falling like this? it must be down at 3 year lows now.
     

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