Retirees - model share portfolios

BuffettFan said:

Re NVT

I've only done very brief research and it does appear to be a great company. However, it has only a very short history as a listed company. I'm a bit reluctant to put money into something with less than ten years' track record.

The main problem is that I believe it is currently way over priced. Check the P/E and P/B ratios for a rough idea, and then do an intrinsic value calculation.

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Just because something is trades at high multiple it doesnt mean it's expensive and i'm not saying NVT is cheap but I have it like risk62 many year ago...can I get anything better than NVT if I was to sell it? probably not so better leave it alone

the key is you understand enough about the business to predict
with some certainty the business will continue to create sustainable
future profit and grow, from that it's pretty easy to work out its
intrinsic value.

then you pound when it trades lower than intrinsic values factor in
margin of safety.

Figures tell you one story but without understand the business you will get it wrong.

say I got 2 students who deliver me similar tops mark...which one do I pick?
one is natural smart and dont study much and the other study hard each day
anything new come up he take time to understand it and work at it and in the end it

achieve him the result...after looking at this background I pick student number 2 knowing anything new hit him, he has the patient and time to digest and get results.

Companies are the same, some are lazy and has fancy model but with luck it delivers them decent results..the other work on their business, manage their cost, capital structure etc..

when **** hit the fan I know the one that works hard on their business will prosper and I have a very good night sleep each day.

GFC hits I have very sound sleep only to get up every day to see what other bargain I can acquire

has JB hi-fi ever trades on the Cheap? has The Reject Shop has ever
trades on the cheap? has Dominos, Blackmore, Flight Centre, has WOW ever trades on the cheap?

I be missing out lot and lot of money if I wait for them to trade cheap.

but then when awesome business trades on the cheap people abandon them
like FLT or CCP citing various threats go figure!

I do both good companies when abandon by the mass and good company
trades higher than market multiples as long as I can come up with a ball park figure about their intrinsic values.

I have a stock I'm accumulating now that doesn't trades on a cheap.
in fact it only cheap on the year it listed, it price much higher than
when it was listed, do I think it's expensive ? hell no, because my
intrinsic values tell me it's trades 40% below its true value.

A few more years time with a few more double digit results, it will
get attentions.

like NVT gets now but no one know when it trades under a boring name
like IBT education

Picking stock is half art half science so you sometimes get it wrong
but with a strong frame work and discipline you got right a lot more time
than you got it wrong and you don't need to pick many.

sometimes it takes me 1 year to buy just one stock other times
I just dont buy anything new and add more to what I got when market panic
and trigger business I already know very very well selling really really cheap.

Discipline, margin of safety and conviction easy said, hard in practice.
and until you practice it you tend to get less than desirable results.

and you see that Warren Buffett buy GEICO when it has a short listed life after he identify it has a
supreme business model and he can predict with confident its earning due to its model

ROE,

Clearly you're completely sold on NVT, and I'm not trying to change your mind. I admire NVT - its a very strong business run by some smart operators. I really like its recent US expansion too, pretty smart if they can make it work considering the upside opportunity there and the risks facing its domestic business.

All I am saying is that:

1. Its very different to APOL. About the only thing they have in common is that they're both education businesses, but they use very different business models and operate in very different markets. So NVT might end up with a similar growth profile to APOL, but certainly not for the same reasons.

2. Despite its international expansion it remains highly exposed to the international student sector here in Australia, which is facing some pretty big risks right now due to India issues, changes to visa requirements and even capacity constraints at universities.

From NVT's report of 31 December:

"Up to 10 more new UP college agreements could be executed over the next 12 months
•
Negotiations are underway in Australia, the UK, Canada and the USA"

I think 5 new agreements have already been signed this year. To get into Massachusetts, the home of Harvard, is a staggering achievement in my view.

Since the float, to my knowledge, there has been no report that has not been better than the one previous.

And, as indicated above, it is my view that NVT's links with Universities of high repute have supported its reputation with students from all over the world. Student numbers just continue to grow.

A good read of that December report may be of interest to others.

Regards

Rick

Re: NVT
Obviously, I didn't explain my point very well.

For a retiree's model share portfolio, I believe that the best chance of success is to follow the Buffett approach, which is to use fundamental analysis in the following way:

Step 1: find companies with good fundamentals, good management etc in an industry that you understand ( many of the previous comments seem to agree that NVT falls into this category, and I see no reason to disagree).

Step 2: buy it when the price is below the intrinsic value (the difference is called the margin of safety). I believe that NVT fails this test at current prices. If you disagree, please post your intrinsic value calculation for the rest of us to review.

If a company doesn't pass both steps, find one that does.

BuffettFan said:

My experience at designing a model porfolio.


I created my own indexed fund in 1993 when I was too busy at work to devote the time to investing. I just bought the top 10 stocks and made their weighting in my portfolio proportional to their market capitalisation. I hardly ever sold anything, just rebalanced by buying when I added more money. It worked a treat, followed the All Ords closely enough and I could control the capital gains tax effect of sales. After taxes and fees, it beat most of the fund managers year in year out. I (modestly ) think it has to be the best return per hour of your time spent of all the investing techniques.

(Since retirement I have leaned more towards the Buffett approach as it seems to beat the index over the long run.)

Has anyone else tried this?

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Hi BF

I'll think on your latest post but I tend to think I manage our super fund rather differently.

I am OK with trading regularly -- don't love it but do it.

If you have held the top 10 stocks since 1993 then clearly you have done well. No question.

At the same time if you had sold these in January 2008 and bought them back in March 2009 then perhaps you would have done even better and hold many more of the same shares.

I have essentially left the market 3 times and re-entered later. NVT is the only stock I have always held some of but I buy and sell this one too. It's a low volume trading stock and I watch the swings closely.

NVT floated at $1 in December 2004 and is now almost $5.

In comparison, as examples of much larger companies [which you may have included in your top 10] in that period:

BHP has gone from $20 - $40
CBA from $36 to $51
WES from $36 to $32
WOW from $15 to $27
TLS from $5 to $3
QBE from $15 to $24.

Someone [and they are out there] who retired in late 2007 and bought the top10 may not be a happy chappy at this moment in time.

But, at the end of the day, it is all a matter of personal preference. I'd be delighted to buy and hold but, right now, don't see sufficient advantage.

Thanks

Rick

BuffettFan said:

Re: NVT
Obviously, I didn't explain my point very well.

For a retiree's model share portfolio, I believe that the best chance of success is to follow the Buffett approach, which is to use fundamental analysis in the following way:

Step 1: find companies with good fundamentals, good management etc in an industry that you understand ( many of the previous comments seem to agree that NVT falls into this category, and I see no reason to disagree).

Step 2: buy it when the price is below the intrinsic value (the difference is called the margin of safety). I believe that NVT fails this test at current prices. If you disagree, please post your intrinsic value calculation for the rest of us to review.

If a company doesn't pass both steps, find one that does.

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I think this thread is getting out of hand of the retiree portfolio

it's probably my fault so I post for the last time on this and let
retiree continue their discussion

I'm 30 years away from retirement.

If you read my previous post I said at this price NVT isnt cheap and I doubt it get any cheaper if it continue delivers growth in the next couple of years

and then again it could reduce earning and price plummet, no idea where it is
heading and that the risk reward ratio of the market.

Everyone has reasons to sort out the best from the ordinary and
people can be in disagreement but doesnt mean either of them
right or wrong just different ways at looking at the same stock...

The reasons I hold NVT because there is little incentive for me to sell
or many good reasons to do so.

1. Right now the yield is very good with the initial purchase price

2. I sell it I get capital gain tax and I end up with a $4 stock
or under after tax is paid

3. NVT can go down to $4 and I can wear it easy and maybe increase
holding depending on how I see it then.
Selling now is the same as holding it hitting $4 or lower, so no benefits

4. There isnt many stock I can find now that i could put my NVT
money toward and I got enough dividend and income from other sources
keep pile up for me not to worry about selling NVT if i find
a compelling stock and need the money.

5. I will sell most of my stocks one day but not in the near future

6. I'm not a trader, I'm an investors in quality business and as long as the
business remains a quality business I'm remain a holder.

buy and hold doesnt apply any more and all sort of noise around it but I'm
a different beast

I do according to my rules not some newspaper/magazine rules.

I find that if i dont have strong framework to stand behind me I get
sleepless nights from the noise and my decision easily get distracted...

I dont always make the right decision but I stick with it thick and thin
and I have my own benchmark when I think I made a booboo
decision and withdraw and try to learn from the mistakes.

I dont think I ever stop learning, not now, not when I retire...

a decision hasn't been stella is CAB I bought a fair bit with average price
$5.50 some 8 months ago, it under-perform the benchmark in that time
but should I sell when it hits $6 no too sort of a timeframe for me to
judge....
In a few years I either learn to regret the decision or party with rewards.
Till then I collect 34 cents dividend a share, better than cash in the bank
and that is good enough for me right now till CAB sort out their mess :=)

Re NVT: my previous comments were aimed at someone purchasing for a retirement portfolio. Yes, I agree that if you already own the stock and you aren't retired (ie paying higher tax rates) the capital gains tax is a significant factor to take in account.

As my final comment for this thread, I repeat my major point: I believe it is vital to include some sort of intrinsic value calculation before buying (or selling) a stock - does anyone do it? If you do, I would like to learn more about the pros and cons of the various techniques.

BuffettFan said:

Re NVT: my previous comments were aimed at someone purchasing for a retirement portfolio. Yes, I agree that if you already own the stock and you aren't retired (ie paying higher tax rates) the capital gains tax is a significant factor to take in account.

As my final comment for this thread, I repeat my major point: I believe it is vital to include some sort of intrinsic value calculation before buying (or selling) a stock - does anyone do it? If you do, I would like to learn more about the pros and cons of the various techniques.

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Well BF, a brief response to your final comment on this thread:

I am retired, in the pension phase of our SMSF, and tax is not an issue.

I am an investor who chooses to use professional support to select stocks for investment. As I lean significantly more towards technical analysis I use the services of a professional chartist. For intrinsic value I seek the views of an experienced investor who understands this area far better than me. Neither is a financial planner or broker.

As for an actual calculation of intrinsic worth the following website might be of interest to some others. And it might not.

http://www.moneychimp.com/articles/valuation/buffett_calc.htm

In terms of a model portfolio in this currently shakey period my personal view is that cash holds the highest intrinsic value. This and NVT constitute our SMSF. [NVT has its own thread and need not be investigated here any further unless others continue the discussion].

I will re-enter the market when advised that the timing is right and when advised which stocks represent best value.

As I have tried to say - this is the approach that best suits me and of course others elect different paths. I am certainly not saying that my way is any better than those chosen by others.

Regards

Rick

BuffettFan said:

Re: NVT
Obviously, I didn't explain my point very well.

For a retiree's model share portfolio, I believe that the best chance of success is to follow the Buffett approach, which is to use fundamental analysis in the following way:

Step 1: find companies with good fundamentals, good management etc in an industry that you understand ( many of the previous comments seem to agree that NVT falls into this category, and I see no reason to disagree).

Step 2: buy it when the price is below the intrinsic value (the difference is called the margin of safety). I believe that NVT fails this test at current prices. If you disagree, please post your intrinsic value calculation for the rest of us to review.

If a company doesn't pass both steps, find one that does.

Click to expand...

I don't really see why a retiree's p/f should be particularly different from a p/f at any other stage of life, apart from keeping at least three years' income in cash at all times. And always having as a priority the preservation of capital in any significant downturn.

Assuming the retiree to be self funded, you need to keep the invested capital growing to cover inflation and the increasing costs of getting older.

I appreciate that many people favour the intrinsic valuation approach.
Personally, I prefer to follow the price action, buying into uptrends and selling when they are exhausted.

Rick has explained why he is so happy with NVT. The SP has grown so he has made a good profit. There really doesn't have to be anything more to it than that.

You can own companies with the greatest fundamentals in the world, but if market sentiment isn't with them, you are simply not going to make money.

Nice summary / encapsulation Julia. Thank you.

Just fillling a few quiet moments with a bit of basic research. I was trying to identify stocks that have shown growth of 10% or more AND a reasonable
[4%+ say] ff dividend since January of this year.

There is probably a simple way to do this [and if you know of one then please advise ] but I came up with 4 such stocks.

These were

CTX
NVT
ANZ [just] and
LYL.

The first 3 of these I hold. LYL I sold and wish I had not.....

I'd be interested in any additions others may be able to include in such a list..

Rick

Muschu said:

Just fillling a few quiet moments with a bit of basic research. I was trying to identify stocks that have shown growth of 10% or more AND a reasonable
[4%+ say] ff dividend since January of this year.

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Growth as in share price growth or do you mean revenue or profit?

So_Cynical said:

Growth as in share price growth or do you mean revenue or profit?

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Sorry SC - I meant SP growth.

Muschu said:

Sorry SC - I meant SP growth.

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Ok so in that case then you can probably add HDF to your list, average SP in Jan was about 1.17 and now 1.37 and pays a 3 cent divi 4 times a year....Also VRL would prob qualify, average SP in Jan was about 2.15 and now 2.46 paying FF divis twice a year.

Should also disclose that i hold both and have done since mid/late 09...and while were at it, on the smaller cap front i hold another that qualifies, SND was around 38 cents in Jan and now is 43 cents, pays 2x ff divis...also SIV - Silver Chef, would easily qualify. (don't hold)

here are some that appear to meet your stated criteria.

( >10% SP rise in last 3 months & Div > 4% @100% FF )

cna... one that got away

fri, rhl, smx, ahe, sev, vrl, boq, abc

Thanks for the replies - gives me some research to do.

SMX is another one I had and let go -- pity.

Muschu said:

SMX is another one I had and let go -- pity.

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Rick, I did the same.

Julia said:

Rick, I did the same.

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The wisdom of hindsight Julia... But we can't win 'em all can we?

LYL is the one I really wish I'd held. The chart seems solid but just going sideways now.

[I don't mean to suggest that dividends "rule" our portfolio by the way. Most of the stocks we presently hold pay no dividends at all. But if you can get dividends + SP growth in retirement (when no other income is regularly received) then that is "nice".... although expectations need to be reasonable - with time left for other interests or an afternoon nap....]

R

awg said:

here are some that appear to meet your stated criteria.

( >10% SP rise in last 3 months & Div > 4% @100% FF )

cna... one that got away

fri, rhl, smx, ahe, sev, vrl, boq, abc

Click to expand...

FRI in particular looks interesting. Seems to be near an all time high and spiked in April after an announcement. Housing construction in mining areas is an appealing sector. There's also a gap in the chart. If this became available under $1.15 I'd be attracted to it.

Thanks again.

Intersted to know how SMSF holders are responding to this latest correction in the equities market. I imagine some have been quick enough to lighten up before the fall. Are others still considering selling further? Or is this buy time?