PUBLIC SERVICE ANNOUNCEMENT ?
I was really hoping that we’d put this topic to bed, especially after I’d said as much in my Message 24537.
However, considering the content of Jurgis’s ‘ANNOUNCEMENT’, I feel obliged to respond, seeing, amongst other things, that there’s very little doubt that I’m "the said person" he’s referring to.
Apart from his contention that "consistent 30-40% annualised returns have not been achieved in the investment history", he has ignored and/or overlooked two important aspects ...
(1) He has no knowledge of the contents or actual modus operandi of the investment strategy that we use. Yet he’s prepared to pronounce it incapable of producing consistent annual returns of 30% or more.
(2) There are several major differences in the stock selection and stock analysis strategy that we use when compared to what is generally used by other investors who utilise the principles of Fundamental Analysis.
Item (1) is, I believe, self evident so I won’t bore the reader any more than I have to !
However, item (2), I believe, requires more elaboration.
Yes, there may be some truth in Jurgis’s contention that "consistent 30-40% annualised returns have not been achieved in the investment history", and if that were the case, it wouldn’t surprise me, based on the investments strategy that the vast majority of folk tend to use. Because the vast majority, most especially Fund & Portfolio Managers, use the "multi-stock" portfolio approach, which can contain dozens and dozens of stocks.
It stands to reason that there will be very good performers amongst that list, but there will also be poorer performers as well. I suggest that, if you’re lucky, maybe 10% or 15% of a large stock portfolio will give you exceptional Capital Gain of, say, 80% per annum. For the rest you may only average about 10% Capital Gain, if Jurgis’s prediction of an investor getting 15% is one who "will be very successful" !!
In fact, based on a REALLY successful investor (according to Jurgis), we’d have :-
(80% x 15% of stocks) + (10% x 85% of stocks) = 20% Capital Gain, > 15%.
So as you can see, to satisfy Jurgis’s contention that earning 15%/annum, consistently, is about the best average you can expect, it appears that the vast majority of one’s multi-stock portfolio will return a modest annual Capital gain of +/- 10%.
Needless to say, you may not entirely agree with the "weighting" of my percentages, but the principle remains.
So why not, then, concentrate more of your efforts on the better Quality Stocks that indicate, via CLEARLY DEFINABLE criteria within their Financial Statements, that they are producing excellent ongoing profits and are providing excellent, ongoing value for their shareholders ?
And this, to a large extent, is what the 3-part Investment Strategy of my good friend, Dr,Posel, manages to achieve. Rest assured, only a relative handful of Industrial type companies will SIMULTANEOUSLY meet or exceed ALL of the stringent criteria. But those that do, are doing so for very good reason, which is why one can expect, and receive, above average Capital Gain, which will not be diluted by less exceptional stocks.
There will be those that will argue that holding only a few stocks is "risky". What happens if they fall through the floor ?
Well, exceptional companies, performing exceptionally well, tend to be managed by exceptional management, otherwise they’d hardly be making the profits they were making. And exceptional management tend to also manage for the unexpected and tend to be familiar with the principle of "contingency plans".
And by "CLEARLY DEFINABLE criteria" we don’t refer to ratios such as P/S, P/BK, P/CF etc ... (except P/E where we suggest you take E/O Items and once-off tax credits into account). By all means, it’s your choice to use them, but in our opinion you’ll get relatively minimal benefit from them. To really get an insight into how a company is performing, we believe you’ve got to dig deep into the "engine room" of an Income Statement and Balance Sheet in order to, firstly select, and secondly to determine whether or not an Industrial company is "firing on ALL Financial cylinders !!"
Contrary to Paul Senior’s opinion regarding my apparent "investing prowess", the above was an attempt to indicate, to those who may be interested, that there is another way (and probably several) of approaching one’s stock selection and investing strategy.
Anyway, that’s just OUR opinion. It is, after all, YOUR choice, and YOUR money ...
As a final adjunct to this topic, I’d like to include that excellent quote of Warren Buffett that Paul Senior brought to our attention ... "You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right." |
