Do nothing and equities

[Oggy]

In the spirit of not tinkering if it ain't broke, I have been watching my (mainly US based) trackers gradually rise over the months. Mainly S&P 500 trackers, energy/tech biased S&P trackers, a few Vanguard global trackers - the exception being Fundsmith. All are in SIPPS with HL/Bell. I'm happy with the risk, fairly happy with performance and fairly happy with the low-ish fees and steady growth suits me fine....At the risk of complaints about crystal balls, how do we feel about this kind of approach for the future?

[Lootman]

In the spirit of not tinkering if it ain't broke, I have been watching my (mainly US based) trackers gradually rise over the months. Mainly S&P 500 trackers, energy/tech biased S&P trackers, a few Vanguard global trackers - the exception being Fundsmith. All are in SIPPS with HL/Bell. I'm happy with the risk, fairly happy with performance and fairly happy with the low-ish fees and steady growth suits me fine....At the risk of complaints about crystal balls, how do we feel about this kind of approach for the future?

As I said on another thread earlier today:

"Look at a long-term chart of the S&P 500 and you notice a few things. Up eight-fold in just over 15 years. Up 20-fold in the last 35 years. Up 32-fold since inception 40 years ago. And that is all without including dividends!"

I'd be fascinated to hear who here has done better than that.

[Oggy]

In the spirit of not tinkering if it ain't broke, I have been watching my (mainly US based) trackers gradually rise over the months. Mainly S&P 500 trackers, energy/tech biased S&P trackers, a few Vanguard global trackers - the exception being Fundsmith. All are in SIPPS with HL/Bell. I'm happy with the risk, fairly happy with performance and fairly happy with the low-ish fees and steady growth suits me fine....At the risk of complaints about crystal balls, how do we feel about this kind of approach for the future?

As I said on another thread earlier today:

"Look at a long-term chart of the S&P 500 and you notice a few things. Up eight-fold in just over 15 years. Up 20-fold in the last 35 years. Up 32-fold since inception 40 years ago. And that is all without including dividends!"

I'd be fascinated to hear who here has done better than that.

Yes - that is difficult to argue with for sure and also forms the basis of my thinking, but the danger is believing past performance is an indicator of future. About 40% of my portfolio is basically S&P - as per Mr Buffet's advice I feel.....I'm still not tempted by the UK despite the recent FTSE performance. I still think the US is essentially the place to be, plus I can't think of anything better with a comparable low-ish risk.

[Lootman]

As I said on another thread earlier today:

"Look at a long-term chart of the S&P 500 and you notice a few things. Up eight-fold in just over 15 years. Up 20-fold in the last 35 years. Up 32-fold since inception 40 years ago. And that is all without including dividends!"

I'd be fascinated to hear who here has done better than that.

Yes - that is difficult to argue with for sure and also forms the basis of my thinking, but the danger is believing past performance is an indicator of future. About 40% of my portfolio is basically S&P - as per Mr Buffet's advice I feel.....I'm still not tempted by the UK despite the recent FTSE performance. I still think the US is essentially the place to be, plus I can't think of anything better with a comparable low-ish risk.

North America is about 64% of global market cap right now and so you are significantly underweight in that area, which should make you feel more relaxed about any feared concentration risk.

But if like me you do not like Europe and the UK (15%) then I prefer the rest in developed Asia including Japan (10%) and Emerging Markets, also about 10%.

[SalvorHardin]

As I said on another thread earlier today:

"Look at a long-term chart of the S&P 500 and you notice a few things. Up eight-fold in just over 15 years. Up 20-fold in the last 35 years. Up 32-fold since inception 40 years ago. And that is all without including dividends!"

I'd be fascinated to hear who here has done better than that.

I'm up about 18 times since 1st Jan 2000. My best returns were were in 2000 to 2010 (over 600%) because of being heavily into small oil caps such as Soco International, Dragon Oil and Dana Petroleum.

There was a boom in this sector during most of this decade; many small explorers became ten baggers from 2000 until the 2008 financial crisis. The market consistently undervalued reserves and exploration results, compared to trade sales.

Quite a few of us on TMF made small fortunes in what is known as "drilling on Wall Street." Helped greatly by the collective experience on TMF's boards back then (including Petroleum geologists, engineers and the usual financial types). It was very much a case of "the wisdom of crowds".

I remember hearing about some professional oil analysts being surprised by the quality of what was being put out on TMF. Several times people spotted TMFers analysis and comments appearing in brokers reports.

The S&P500 produced negative returns over the same period, as this article in Forbes explains:

"For the period of December 31, 1999 through December 31, 2009, the S&P 500 index had an annualized simple price return of -2.72%. When dividends are factored in, the results do not get much better as annualized total return for the S&P 500 index (with dividends reinvested back into the index) over the same timeframe was -0.95%."
https://www.forbes.com/sites/advisor/2010/09/13/its-not-really-a-lost-decade/

I am in the very fortunate position where I'm not bothered about beating the S&P500 nowadays. I haven't beaten the S&P 500 from 2010 to today, though I have beaten it in a few years.

If anyone is wondering why I don't sell up and put the lot in S&P 500 trackers, I'd lose a small fortune in CGT (about 10% of the portfolio). Also I like stockpicking as a hobby.

[tjh290633]

I have posted in the past about the way in which last year's winners are often this year's losers and vice versa, looking at my own portfolio. This, I think, supports the do nothing attitude. On the other hand, reacting when a particular holding becomes seriously overweight trumps doing nothing. I believe in setting a weight limit appropriate to one's number of holdings. Back in 1997 I set mine at 10%, with almost 20 holdings.currently I use 1.5 times the median holding value with 35 holdings. This is, of course, a reflection of having a nominally equal weighted portfolio. I consider that being seriously overweight in any one security is a potential hazard.

TJH

[vand]

Do nothing is a perfectly optimum default position from which to consider your investor behaviour - provided that your strategy is proven and sound; passive investing and long term buying and hold lend themselves ideally to this.

Most of us actively managed our portfolios, and a degree of tinkering is natural. Personally I have added pretty aggressively to my whole portfolio so far this year as well as reinvested all the income but have only actively turned over about 4-5% of it. Though somehow VOD has managed to survive the culling.

[GoSeigen]

I'd be fascinated to hear who here has done better than that.

Yeah, I bet he would, just like last time he made the same comment.

Problem is Lootman posts so damned often and about every topic under the sun that it would be a miracle if anyone realised that 15, 35 and 40 years ago some off-hand comment about the S&P and how it was going to outperform for the next generation or two was actually a serious investment prediction/recommendation that he would hold everyone to in 2024.

Did anyone notice Lootman ringing the bell for the S&P in 2009 (or 1984) and think "Hmm, that's a bold call but I'm going to ignore Lootman's S&P advice and invest in my own stuff and come back in 2024 and prove that I've actually done better than his recommendation"?

I thought not.

Well there was a Fool who, last time Lootman asked the same question, declared that that their portfolio -- short of the S&P most of the period since 2009 and invested largely in fixed interest -- had outperformed the S&P. And there's another Fool posting on this very thread who has also replied to Lootman in the past about how he's beaten the S&P with a different strategy -- but clearly these are not enough, Lootman needs further proof that there's more than one way to skin a cat.

Perhaps Lootman can take a clear stand here. Can he declare that his capital is all invested in the S&P, and that he will return in 15 years, 35 years and 40 years, not having altered his allocation and make an accounting to us of his returns? As that appears to be the standard he holds everyone else to.

GS

[GoSeigen]

I have posted in the past about the way in which last year's winners are often this year's losers and vice versa, looking at my own portfolio. This, I think, supports the do nothing attitude.

If the observation had any merit** it would actually not support doing nothing, quite the opposite in fact. The thing to do would be to sell last year's winners and buy last years losers.


GS
(**) As for whether it does in fact have merit, a few rhetorical questions arise... What is the underlying cause that results in last year's winners being this year's losers and vice versa? In particular why is the arbitrary assignment of the turn of the year to around ten days after the winter solstice the decisive factor in this observation? Does the same observation not work at the spring equinox, for example? Also, why would stocks move in a two-year cycle [since of course after another year the losers will again be winners as they were two years ago]? Finally what happens to stocks that approximately do nothing? i.e. Do we literally divide winners and losers at zero, or is there a band of level-peggers, and if so how do stocks enter that band and how do they leave, becoming a winner or loser?

[Lootman]

I'd be fascinated to hear who here has done better than that.

Yeah, I bet he would, just like last time he made the same comment.

Problem is Lootman posts so damned often and about every topic under the sun that it would be a miracle if anyone realised that 15, 35 and 40 years ago some off-hand comment about the S&P and how it was going to outperform for the next generation or two was actually a serious investment prediction/recommendation that he would hold everyone to in 2024.

Did anyone notice Lootman ringing the bell for the S&P in 2009 (or 1984) and think "Hmm, that's a bold call but I'm going to ignore Lootman's S&P advice and invest in my own stuff and come back in 2024 and prove that I've actually done better than his recommendation"?

I thought not.

Well there was a Fool who, last time Lootman asked the same question, declared that that their portfolio -- short of the S&P most of the period since 2009 and invested largely in fixed interest -- had outperformed the S&P. And there's another Fool posting on this very thread who has also replied to Lootman in the past about how he's beaten the S&P with a different strategy -- but clearly these are not enough, Lootman needs further proof that there's more than one way to skin a cat.

Perhaps Lootman can take a clear stand here. Can he declare that his capital is all invested in the S&P, and that he will return in 15 years, 35 years and 40 years, not having altered his allocation and make an accounting to us of his returns? As that appears to be the standard he holds everyone else to.

The first thing any response as aggressive and personal as that tells me is that my analysis threatens your world view. And that is good because we should all be challenged here.

But for the record I do not recall any "Fool" (I think you meant "Lemon") claiming to have beaten the S&P 500 over the time periods I cited using bonds. None. Zero. Zip. Nada. SalvorHardin responded saying that he did beat that index, but due to some shrewd energy investments and not through fixed income. Good for him. But your premise there stands unvalidated and, frankly, a little too convenient.

So my "clear stand" remains the same. If you could have returned over 15% annually over the last 15 years through an active portfolio in non-growth securities then show us some proof. But as is it's just not credible, especially given that bonds have been a disaster since 2020. In fact I even recall you bizarrely claiming that you beat the S&P 500 by shorting it and by holding UK banks! Can you see how implausible that is?

But I will give you a chance. Show us your detailed portfolio, with trades, so that we can see that you actually returned more than 15% since 2009. As things stand right now I quite frankly do not believe you.

As for whether I was 100% in such an index fund, that is moot. Like everyone else here I have a financial situation that is more complex than holding just one security. But I will say that a S&P 500 index fund is far and away my largest holding and has been for many years. And that I recognised that the US would out-perform back in the 1990s. So I do eat my own cooking.

And my approach is easy. You buy it, sit back and do nothing. Tax efficient as well. I am not trading in and out of bonds trying to second guess bigger players than me. Even if your pre-tax returns are similar, and they are not based on your previous claims, your after-tax returns will not be. And your approach is not repeatable nor scalable. Hell, you cannot even describe it.

So, challenge accepted? I suspect not.

[Lootman]

I have posted in the past about the way in which last year's winners are often this year's losers and vice versa, looking at my own portfolio. This, I think, supports the do nothing attitude.

If the observation had any merit** it would actually not support doing nothing, quite the opposite in fact. The thing to do would be to sell last year's winners and buy last years losers.

The most well known implementation of that strategy is the so-called Dogs of the Dow (DOTD) strategy. There are records of that going back many years and there is a US mutual fund that invests that way, although I cannot recall the ticker right now and cannot be bothered to look for it.

Insofar as it works it is because it draws from a limited pool of shares (just 30 although they do change from time to time) and because these are the most established companies and so unlikely to go to zero. And that matters because buying more of a share that is falling can lead you all the way to zero.

I have also only seen that approach applied to dividend paying shares and, indeed, DOTD selects this year's shares based on the highest yields. I struggle to see how it would work with the companies that have driven most of the accretion of wealth in markets in recent years e.g. Apple, MicroSoft, Nvidia, Amazon, Google and so on. A "buy the losers and sell the winners" investor would have sold them off decades and trillions ago.

So a DOTD approach can only work well with a limited universe of dividend-paying shares, in my opinion.

[tjh290633]

I have posted in the past about the way in which last year's winners are often this year's losers and vice versa, looking at my own portfolio. This, I think, supports the do nothing attitude.

If the observation had any merit** it would actually not support doing nothing, quite the opposite in fact. The thing to do would be to sell last year's winners and buy last years losers.


GS
(**) As for whether it does in fact have merit, a few rhetorical questions arise... What is the underlying cause that results in last year's winners being this year's losers and vice versa? In particular why is the arbitrary assignment of the turn of the year to around ten days after the winter solstice the decisive factor in this observation? Does the same observation not work at the spring equinox, for example? Also, why would stocks move in a two-year cycle [since of course after another year the losers will again be winners as they were two years ago]? Finally what happens to stocks that approximately do nothing? i.e. Do we literally divide winners and losers at zero, or is there a band of level-peggers, and if so how do stocks enter that band and how do they leave, becoming a winner or loser?

Just for information, here is the record of the top and bottom five holdings, from 2015-2023. Also records for a few of the holdings.

Year       S32       BLT/BHP   PSON      IMI       RDSB/SHEL   FTSE100   Year    TJH           
    2015   -49.52%   -45.26%   -38.15%   -31.79%     -30.90%    -4.93%    2015    4.46%        
    2016   207.62%    71.91%    11.21%    20.72%      52.56%    14.43%    2016   13.13%        
    2017    25.54%    16.52%   -10.18%    28.71%       6.56%     7.63%    2017    9.10%        
    2018    -9.25%    -8.48%    27.50%   -29.18%      -6.72%   -12.48%    2018   -9.71%        
    2019   -23.37%     7.58%   -32.12%    24.89%      -4.29%    12.10%    2019   19.85%        
    2020    -0.01%     8.34%     6.81%    -1.19%     -43.76%   -14.34%    2020   -6.38%        
    2021    55.69%    14.26%    -9.81%    49.01%      28.82%    14.30%    2021   20.79%        
    2022     4.38%    16.84%    53.16%   -25.81%      43.37%     0.91%    2022    2.40%        
    2023   -21.50%     4.65%     2.66%    30.75%      10.55%     3.78%    2023    7.50%        
                                                                                               
Bottom 6      2015      2016      2017      2018        2019      2020    2021     2022    2023
      31   RDSB      BLND      IMB       VOD       BP.         BT.A      RKT     ADM      IMB- 
      32   IMI       CLLN @    SSE       KGF       MKS         MKS       IGG@    BT.A     WDS  
      33   PSON      BT.A      GSK       SMDS      BT.A        MARS-     VOD     TW.      VOD  
      34   PFL       MKS       MARS      BATS      IMB         LLOY      PSON-   MARS*    S32  
      35   BLT       TW.-      BT.A      WMH       S32         RDSB      ULVR    MKS-     DGE  
      36   S32 @     WMH       CLLN      CLLN*     PSON-       BP.       RIO-    SGRO-    BATS 
                                                                                               
Top6          2015      2016      2017      2018        2019      2020    2021     2022    2023
       1   TW.       S32+      INDV      PSON      SGRO        WMH*      MKS+    BA.      TW.+ 
       2   REX       BLT+      TW.       AZN       TW.         ADM       S32     PSON+    IMI  
       3   IMT       PFL *+    DGE       GSK+      MARS        KGF       SGRO    BP.      BA.  
       4   INDV      INDV      IMI       BHP       TSCO        RIO       IMI     SHEL     TSCO 
       5   ADM       RDSB+     SGRO      CPG       SSE         BHP       DGE     AZN      ADM+ 
       6   SMDS      BP.       SMDS      DGE       LGEN        PSON+     LLOY    IMB      SGRO+

The annotations are:
@ bought that year
* sold that year
+ was in Bottom 5 last year
-was in top 5 last year.

Make of that what you will.

TJH

[Bubblesofearth]

I have posted in the past about the way in which last year's winners are often this year's losers and vice versa, looking at my own portfolio. This, I think, supports the do nothing attitude. On the other hand, reacting when a particular holding becomes seriously overweight trumps doing nothing. I believe in setting a weight limit appropriate to one's number of holdings. Back in 1997 I set mine at 10%, with almost 20 holdings.currently I use 1.5 times the median holding value with 35 holdings. This is, of course, a reflection of having a nominally equal weighted portfolio. I consider that being seriously overweight in any one security is a potential hazard.

TJH

Mean reversion as a major driver of market returns flies in the face of the evidence I've seen and my own experience. This evidence points more to the bulk of returns coming from a relative small number of very big winners. For example, take out the performance of the 'magnificent seven' from the US market over recent years and returns are anaemic.

I know your own portfolio has done pretty well over the years but this is not necessarily due to trimming winners and topping up losers, i.e. trying to capitalise from mean reversion. IIRC you don't have records of how your portfolio would have done if left alone? Equal weighting on purchase and focussing only on FTSE100 mega-caps will also have been factors influencing performance relative to that of the whole market.

If market returns are indeed driven by a handful of big winners then trimming shares when they do well is IMO not a good strategy. Incurs costs as well.

BoE

[tjh290633]

I know your own portfolio has done pretty well over the years but this is not necessarily due to trimming winners and topping up losers, i.e. trying to capitalise from mean reversion. IIRC you don't have records of how your portfolio would have done if left alone? Equal weighting on purchase and focussing only on FTSE100 mega-caps will also have been factors influencing performance relative to that of the whole market.

If market returns are indeed driven by a handful of big winners then trimming shares when they do well is IMO not a good strategy. Incurs costs as well.

BoE

It's not possible to work out how my portfolio would have done if left alone. There have been too many corporate actions along the way. Very few of the holdings have been bought in a single tranche and then left alone. Also it was not bought in a single operation in but in many from 1987 onwards. What about my original 3 purchases? British Oxygen, Cadbury Schweppes and Hanson Trust? Whither ICI, Pilkington and GEC? Do I consider BP from when first bought at privatisation in more than one offer? You have to live in the real world.

I have some shares where cash returns have led to its cost being negative. Some have been taken private. What do you do with them? Median holding value has changed considerably over the years. Doing nothing has never been an option. Over short periods it can be, but suddenly you get involved in takeovers or demergers. Currently we have SMDS as the subject of a takeover, BHP making a takeover offer and NG. having a rights issue. Sticking your fingers in your ears, hands over your eyes and pulling the bedsheets over your head gets you nowhere.

TJH

[Bubblesofearth]

It's not possible to work out how my portfolio would have done if left alone. There have been too many corporate actions along the way. Very few of the holdings have been bought in a single tranche and then left alone. Also it was not bought in a single operation in but in many from 1987 onwards. What about my original 3 purchases? British Oxygen, Cadbury Schweppes and Hanson Trust? Whither ICI, Pilkington and GEC? Do I consider BP from when first bought at privatisation in more than one offer? You have to live in the real world.

I have some shares where cash returns have led to its cost being negative. Some have been taken private. What do you do with them? Median holding value has changed considerably over the years. Doing nothing has never been an option. Over short periods it can be, but suddenly you get involved in takeovers or demergers. Currently we have SMDS as the subject of a takeover, BHP making a takeover offer and NG. having a rights issue. Sticking your fingers in your ears, hands over your eyes and pulling the bedsheets over your head gets you nowhere.

TJH

You are conflating two things. Of course there will be corporate actions that force decisions. That's a given and entirely different from trimming winners as a strategy. Surely you know this?

BoE

[tjh290633]

It's not possible to work out how my portfolio would have done if left alone. There have been too many corporate actions along the way. Very few of the holdings have been bought in a single tranche and then left alone. Also it was not bought in a single operation in but in many from 1987 onwards. What about my original 3 purchases? British Oxygen, Cadbury Schweppes and Hanson Trust? Whither ICI, Pilkington and GEC? Do I consider BP from when first bought at privatisation in more than one offer? You have to live in the real world.

I have some shares where cash returns have led to its cost being negative. Some have been taken private. What do you do with them? Median holding value has changed considerably over the years. Doing nothing has never been an option. Over short periods it can be, but suddenly you get involved in takeovers or demergers. Currently we have SMDS as the subject of a takeover, BHP making a takeover offer and NG. having a rights issue. Sticking your fingers in your ears, hands over your eyes and pulling the bedsheets over your head gets you nowhere.

TJH

You are conflating two things. Of course there will be corporate actions that force decisions. That's a given and entirely different from trimming winners as a strategy. Surely you know this?

BoE

No I am not. For example, do I take up a rights issue that would make a share overweight? What share should replace one taken over? Should I do as HYP1 did and put all the proceeds from a takeover into a single share at that weight, rather than buy at median weight and top up other holdings?

In my view, imposing a weight limit reduces risk. You are advocating increased risk.

TJH

[Bubblesofearth]

No I am not. For example, do I take up a rights issue that would make a share overweight? What share should replace one taken over? Should I do as HYP1 did and put all the proceeds from a takeover into a single share at that weight, rather than buy at median weight and top up other holdings?

You are not just responding to corporate actions. You have an active strategy that involves trimming winners.

In my view, imposing a weight limit reduces risk. You are advocating increased risk.

TJH

Risk of what? Risk that your portfolio might benefit fully from shares that out-perform? Risk that you might end up with more money than if you had cut back winners? I'm happy to take that risk.

BoE

[MuddyBoots]

In the spirit of not tinkering if it ain't broke, I have been watching my (mainly US based) trackers gradually rise over the months. Mainly S&P 500 trackers, energy/tech biased S&P trackers, a few Vanguard global trackers - the exception being Fundsmith. All are in SIPPS with HL/Bell. I'm happy with the risk, fairly happy with performance and fairly happy with the low-ish fees and steady growth suits me fine....At the risk of complaints about crystal balls, how do we feel about this kind of approach for the future?

When I first started investing about 25 years ago, I came across the p/e ratio as a measure of whether shares are cheap or not, and a rule of thumb that below 10 is cheap, above 20 is expensive. The S&P index has been above 20 for about 10 years now which makes me a bit twitchy as I also have most of my money in global trackers. But I don't know how useful it is as an indicator: UK's FTSE 100 p/e ratio looks cheaper over time but the index hasn't performed so well as an investment afaik. Perhaps I need a more sophisticated rule of thumb because countries perform differently and they aren't directly comparable - there's usually a good reason why some are cheap. So in general I buy-and-hold rather than try to chase growth around the world.

https://www.macrotrends.net/2577/sp-500 ... ings-chart

https://www.ceicdata.com/en/indicator/u ... m/pe-ratio

[Lootman]

In the spirit of not tinkering if it ain't broke, I have been watching my (mainly US based) trackers gradually rise over the months. Mainly S&P 500 trackers, energy/tech biased S&P trackers, a few Vanguard global trackers - the exception being Fundsmith. All are in SIPPS with HL/Bell. I'm happy with the risk, fairly happy with performance and fairly happy with the low-ish fees and steady growth suits me fine....At the risk of complaints about crystal balls, how do we feel about this kind of approach for the future?

When I first started investing about 25 years ago, I came across the p/e ratio as a measure of whether shares are cheap or not, and a rule of thumb that below 10 is cheap, above 20 is expensive. The S&P index has been above 20 for about 10 years now which makes me a bit twitchy as I also have most of my money in global trackers. But I don't know how useful it is as an indicator: UK's FTSE 100 p/e ratio looks cheaper over time but the index hasn't performed so well as an investment afaik. Perhaps I need a more sophisticated rule of thumb because countries perform differently and they aren't directly comparable - there's usually a good reason why some are cheap. So in general I buy-and-hold rather than try to chase growth around the world.

https://www.macrotrends.net/2577/sp-500 ... ings-chart

https://www.ceicdata.com/en/indicator/u ... m/pe-ratio

P/E ratios are generally only useful within a sector. Some sectors have high PEs and some have low.

It is the seductive low PEs of finance shares that have led a few Fools and Lemons to over-weight them for years, with tragic results.

On the other hand Amazon had a PE of over 100 a few years ago, and has quintupled since.

[Bubblesofearth]

P/E ratios are generally only useful within a sector. Some sectors have high PEs and some have low.

It is the seductive low PEs of finance shares that have led a few Fools and Lemons to over-weight them for years, with tragic results.

On the other hand Amazon had a PE of over 100 a few years ago, and has quintupled since.

The P/E for the market includes all sectors so comparisons with time are valid. Probably a better measure is Shiller CAPE which is currently 34 compared to a long run average of 16;

https://www.gurufocus.com/economic_indi ... the-sp-500

BoE