LTBH and soap

Wider investment strategy discussions not dealt with elsewhere
OLTB
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LTBH and soap

Postby OLTB » December 22nd, 2016, 2:22 pm

Afternoon all

I came across the following saying recently - a new one to me, but not to many of you I'm sure:

’Your investment portfolio is like a bar of soap: The more you touch it, the smaller it gets.'

Sounds like sensible advice to me and links quite well with the Doris type of investors within HYP (apart from those tinkerers!) and is something I aim to follow as the Vanguard LifeStrategy 80 fund is a solution I think I've made my mind up on for my non-HYP pot.

Just wondered if anyone had chosen both routes - i.e. one pot they've just left to ride the markets and the other they've 'played' with - and ultimately which one came out on top?

Cheers, OLTB.

idpickering
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Re: LTBH and soap

Postby idpickering » December 27th, 2016, 12:15 pm

OLTB wrote:Afternoon all

I came across the following saying recently - a new one to me, but not to many of you I'm sure:

’Your investment portfolio is like a bar of soap: The more you touch it, the smaller it gets.'

Sounds like sensible advice to me and links quite well with the Doris type of investors within HYP (apart from those tinkerers!) and is something I aim to follow as the Vanguard LifeStrategy 80 fund is a solution I think I've made my mind up on for my non-HYP pot.

Just wondered if anyone had chosen both routes - i.e. one pot they've just left to ride the markets and the other they've 'played' with - and ultimately which one came out on top?

Cheers, OLTB.


A very interesting post, and point OLTB. I'm strictly a HYPer with no other strategy in mind, but have come to the realisation that to tinker is folly. In almost a year now I've left my HYP alone with the monthly top ups being my only 'changes'. I feel better for it, and I'm sure my HYP does too. :D

Lootman
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Re: LTBH and soap

Postby Lootman » December 27th, 2016, 4:05 pm

OLTB wrote:
Just wondered if anyone had chosen both routes - i.e. one pot they've just left to ride the markets and the other they've 'played' with - and ultimately which one came out on top?

I can't answer that question directly but here is what I have noticed over the last 30 years of investing. And this commentary is limited to UK shares - the situation for foreign shares has changed even more in that time, with the rise of emerging markets and the turnaround in US shares since 1990.

In practice you always have to "play with" a portfolio because of the frequency of corporate actions and the need to reinvest cash that the portfolio spins off via dividends. Even if you spend those dividends there will still be significant changes in a "static" portfolio over decades. If there is a central reference library near you that has old copies of the FT, take a look at the share price pages from 30/40 years ago and notice how much has changed since then. Back then you would probably have bought Hanson, ICI, Coats Viyella, Cadburys, Marconi, GEC, Wellcome, Lucas and other names that have long gone. You will see no utilities or privatised entities, nor many tech or service names that are familiar to you now.

The other thing you notice about an "unchanged" portfolio is how, after a decade or two, it is totally out of balance. You'll have a couple of multi-bagging winners that dominate your portfolio, a couple of total losers that have minimal value, and a cluster of holdings around the middle. If you're lucky those couple of winners will greatly outweigh your losers, because your losses are limited but your gains are not. And that is the principle behind the traders' maxim - "Let your winners run". But is that really what you're trying to achieve here?

And that unbalanced portfolio - is that a concern? Imagine you had bought Apple 20 years ago and another 9 shares. At this point Apple is probably well over 90% of that portfolio, maybe 99%. Would you have chosen that kind of distorted weighting at the outset? If not, why is it OK now?

In fact, the whole principle behind LTBH is that you're clever enough to know what to buy and in what amounts, but you are somehow totally useless at selling. Can both be true at the same time?

And what about risk? If your portfolio ends up being heavily weighted in just a couple of names, how do you assess the extra risk that you are taking?

I'd advocate moderation. Endlessly churning your portfolio as you chase from fad to fad, reacting to market noise, is a pretty good way to lose money. But sticking your head in the sand and refusing to ever manage risk or adjust exposure as the world changes isn't that prudent either.

Dod1010
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Re: LTBH and soap

Postby Dod1010 » December 27th, 2016, 4:19 pm

I certainly do not see my investment portfolio in the least like a bar of soap. I liken it to a garden and investment like gardening. Mostly once you have done your sowing you should leave well alone to let it mature, except to remove the obvious weed, but like a garden you cannot just leave it. It needs trimming and kept in shape once a year as it settles down otherwise one or two of the really strong growers will overwhelm it. But if you keep moving things around it will never become an attractive garden; mostly you need to leave it to mature. I do not think the analogy is too far fetched, and I think covers most bases.

Dod

Bubblesofearth
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Re: LTBH and soap

Postby Bubblesofearth » December 28th, 2016, 8:11 am

Lootman wrote:
If there is a central reference library near you that has old copies of the FT, take a look at the share price pages from 30/40 years ago and notice how much has changed since then. Back then you would probably have bought Hanson, ICI, Coats Viyella, Cadburys, Marconi, GEC, Wellcome, Lucas and other names that have long gone. You will see no utilities or privatised entities, nor many tech or service names that are familiar to you now.


True but that doesn't mean money invested in those companies and left alone would now be worthless. Far from it when you consider, for example, the value of AZN which contains the Zeneca from ICI. Or the present value of those old Wellcome or Cadbury shares.

And that unbalanced portfolio - is that a concern? Imagine you had bought Apple 20 years ago and another 9 shares. At this point Apple is probably well over 90% of that portfolio, maybe 99%. Would you have chosen that kind of distorted weighting at the outset? If not, why is it OK now?


Imagine you had bought Apple 20 years ago then sold it after it doubled or trebled in value so as to rebalance your portfolio. How would you feel now?

My impression from what I've read, and from talking to the few wealthy people I know, is that serious wealth is most usually built by LTBH. If you are forever worried about risk reduction and balance then you will probably do well enough but if you want to shoot for more than that then LTBH is a better bet IMO. So depends on your priorities.

In fact, the whole principle behind LTBH is that you're clever enough to know what to buy and in what amounts, but you are somehow totally useless at selling. Can both be true at the same time?


There's nothing particularly clever about buying a basket of equities, selected from different sectors, in equal amounts. Equal precisely because you don't know which will do well.

And what about risk? If your portfolio ends up being heavily weighted in just a couple of names, how do you assess the extra risk that you are taking?


Risk of what? There is an assumption in your argument that this remains unchanged even if your portfolio grows. But this is unlikely to be the case, at least from the perspective of the investor. If I have £10m then my attitude to risk may be very different from when I had, say, £100,000. Losing half of a net wealth of £100,000 is far more likely to have a material affect on my quality of life than losing half of £10m.

I choose my initial investment portfolio on my attitude to risk for the capital amount that I'm investing. I may well be happy to have a much higher % invested in one share if my total wealth is much higher, especially if my wealth in the other shares is also much higher than my starting capital. So, in your Apple example, I may be OK with £9m in that company if I have £1m in others and started with £100k.

Context is important.

BofE

tjh290633
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Re: LTBH and soap

Postby tjh290633 » December 28th, 2016, 11:36 am

You could take the example of Marks & Spencer, Inherited from my mother in 1970, at tedh equivalent of 272p, they then started having scrip issues, 1 for 2, then 1 for 1 three times until 1984, by which time I had 12 times my original stake, now valued at 119p, over 5 times the original value at probate.

I switched my holding gradually into my PEP, limited by the amount I could subscribe. I added to the holding on 12 occasions, took cash from the B share issue in 2002, trimmed back once when overweight in 2009 at 265p, and my final addition was in November at 326p. The IRR since 1970 has been 10.95%, and had I just kept the original shares it would have been 11.64%. I see that I had received dividends equal to my original cost in 1985.

OK, MKS has had a few traumas in more recent times, and did reduce its final dividend in 2000, and again in 2009, but it has continued to pay out and the historic yield is 6.6%. My survivor shares include:

BAE Systems, the phoenix out of Marconi/GEC, IRR 12.47%;
AZN the relic of ICI, IRR 15.61%;
IMB, the sole survivor of Hanson, IRR 22.4%;
BP., IRR 13.0%;
BT.A, IRR 13.28%;
NG., which arose from Lattice demerging from British Gas and merging with NGG, IRR 15.06%;
and TATE, IRR 13.77%.

Many have been taken over and others sold because their yield became unacceptably low. 76 shares held altogether, currently holding 37.

There is nothing wrong with LTBH, but you must be prepared to do something when the occasion demands it.

TJH

BarrenWuffett
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Re: LTBH and soap

Postby BarrenWuffett » December 28th, 2016, 12:42 pm

OLTB wrote:
I came across the following saying recently - a new one to me, but not to many of you I'm sure:

’Your investment portfolio is like a bar of soap: The more you touch it, the smaller it gets.'

Sounds like sensible advice to me and links quite well with the Doris type of investors within HYP (apart from those tinkerers!) and is something I aim to follow as the Vanguard LifeStrategy 80 fund is a solution I think I've made my mind up on for my non-HYP pot.

Just wondered if anyone had chosen both routes - i.e. one pot they've just left to ride the markets and the other they've 'played' with - and ultimately which one came out on top?


I switched from income shares to Vanguard LS 60 two years back and have not been disappointed. The lure of shares is very seductive but I suspect for the average Joe, the low cost, globally diverse index fund which matches your risk profile will be far less tempting to tinker and in the long run will provide better returns.

Of course, the VLS funds may not be so attractive to those who believe they have the time, temperament and skill to outperform the market - I thought I could do that but after 3 yrs of trying eventually conceded defeat.

Lootman
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Re: LTBH and soap

Postby Lootman » December 28th, 2016, 2:28 pm

Bubblesofearth wrote:
Lootman wrote:
If there is a central reference library near you that has old copies of the FT, take a look at the share price pages from 30/40 years ago and notice how much has changed since then. Back then you would probably have bought Hanson, ICI, Coats Viyella, Cadburys, Marconi, GEC, Wellcome, Lucas and other names that have long gone. You will see no utilities or privatised entities, nor many tech or service names that are familiar to you now.

True but that doesn't mean money invested in those companies and left alone would now be worthless. Far from it when you consider, for example, the value of AZN which contains the Zeneca from ICI. Or the present value of those old Wellcome or Cadbury shares.

I wasn't suggesting that investments in those shares would have lost all value. But rather that LTBH is difficult in practice over decades because of corporate actions, cash flows, new issues, the emergence of new sectors and markets, and (at least in the past) nationalisations and privatisations.

Bubblesofearth wrote:Risk of what? There is an assumption in your argument that this remains unchanged even if your portfolio grows. But this is unlikely to be the case, at least from the perspective of the investor. If I have £10m then my attitude to risk may be very different from when I had, say, £100,000. Losing half of a net wealth of £100,000 is far more likely to have a material affect on my quality of life than losing half of £10m.

I agree that your financial status can inform your attitude towards risk. Although personally I'd rather lose 50K than 5 million!

I resolve the issue via a 80:20 approach. 80% is in a stable portfolio of shares and collectives. I would not characterise it as rigid LTBH so much as it is managed with the aim of a fairly low turnover.

The 20% is managed much more actively and is my "play money" if you like. If I lose that 20% it hurts, but won't change my financial independence. Having an account that I trade more frequently satisfies my urge to be active and involved in the markets, making it easier to leave the 80% alone, mostly anyway.

Hariseldon58
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Re: LTBH and soap

Postby Hariseldon58 » December 28th, 2016, 3:24 pm

I set up a portfolio for father in law in the late 90's , a mix of equities and bonds and subsequently left alone, reinvesting the bulk of income automatically. The return has been a shade unde 10% pa, interestingly the balance between equities and bonds is not dissimilar to the starting point.

My own investments have done nearer 12% compounded with a lot more activity and significant amounts of thinking about investment matters.....I suspect that had a low charging passive Vanguard Lifestategy been available the difference in performance would have been much closer.

My own approach is far more passive now with occasional strategic moves, the experience was enlightening !


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