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Which one do you use? Technical or fundamental analysis?

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Re: Which one do you use? Technical or fundamental analysis

Also I think a lot of people have misplaced fears of downside risk. Strong companies can deteriorate, but if you did your research right and picked a truly good business, even if the business deteriorates, you will still be able to get out well before it goes to complete ****. For example if an investor bought Woolworths (WOW) at the float price of around $2.50 in the 1993 float, even if you sell out now based on the fundamentals because you accept the business is not as good as it once was (its losing ground to Aldi and Coles) its $22 now. Sure a few years ago you could have sold out for over $35. But selling at $22 is still around a 10% p.a. rate of capital growth since you bought it. If you include dividends, especially if you reinvested the dividends in more shares than your return would have very handily outperformed the overall market. As Phillip Fisher pointed out leading companies tend to come off their stilts so slowly that you have plenty of time to sell (yes after the share price has peaked but sill much higher than when you bought).

Another good example is Reckon (RKN). Its been arguably losing ground to Xero for a few years now and the share price is down. The long term investor who bought in the mid 2000s when the company started to become profitable has received good dividends and could still sell out for a profit today, accepting that the fundamentals of the company have deteriorated over the past few years.
 
Re: Which one do you use? Technical or fundamental analysis

A concentrated portfolio has the potential to provide higher returns.
 
Re: Which one do you use? Technical or fundamental analysis

Value Hunter said:
A concentrated portfolio has the potential to provide higher returns.
Click to expand...

Wow! That's profound!

A spin of the roulette wheel has the potential to land on black! So would that mean that red and green are wasted bets?!
 
Re: Which one do you use? Technical or fundamental analysis

Value Hunter said:
A concentrated portfolio has the potential to provide higher returns.
Click to expand...

exactly matched with its potential to provide lower returns.

You had better know what you are doing before you widen the range of potential outcomes otherwise luck alone might just land you on the wrong side of the distribution.
 
Re: Which one do you use? Technical or fundamental analysis

craft said:
exactly matched with its potential to provide lower returns.

You had better know what you are doing before you widen the range of potential outcomes otherwise luck alone might just land you on the wrong side of the distribution.
Click to expand...

I agree with you 100% Craft. I will note that academic studies have shown that the top five share holdings of fund managers on average outperform the market and provide better returns than the balance of their portfolio. Academic studies also show that on average concentrated portfolios outperform diversified portfolios. It seems that on balance to a reasonably intelligent investor who is capable of performing a reasonable level of research and analysis is on average better off having a concentrated portfolio. But yes the potential distribution of outcomes is wider and so is the risk in some cases


In some cases a concentrated portfolio can have lower risk. For example in Australia where banks and miners (both notoriously risky industries) represent somewhere close to half the share-market an investor with 5 to 10 stocks that does not own banks or miners and owns a collection of good business such as Dominoes Pizza, Cochlear, CSL, Credit Corp, etc arguably has a safer portfolio that is less likely to suffer from a nose-dive in earnings and dividends than an index fund. The Australian share-market unlike say the U.S. share-market is full of many rubbish companies.
 
Re: Which one do you use? Technical or fundamental analysis

In Australia lets look at the top twenty stocks and look at earnings per share growth/decline over the past ten years:

AMP - bad
ANZ - good
BHP - bad
Brambles - bad
CBA - good
CSL - good
Insurance Australia Group - bad
Macquarie Group - bad
NAB - bad
QBE - bad
RIO - bad
Scentre Group - bad (not ten years of history since spun off but if you look at WDC before the break up bad)
Suncorp Group - bad
Transurban - I'm not sure I think good
Telstra - bad
Westpac - good
Wesfarmers - bad
Westfield - bad
Woodside - bad

So out of the current top twenty companies only 5 have done a reasonable job of increasing earnings per share over the past ten years. On average Australian "blue chip" companies are rubbish compared to U.S. or U.K. blue chip companies.

You look at that list and tell me how many companies on the list do you think will produce reasonable earnings per share growth over the next ten years? I doubt it will be more than 5 (not necessarily the same 5 and the index list will likely change over that period). Investing the S&P 500 is a completely different thing the ASX 200 or even the All Ordinaries index.

Most of the large "blue chip" companies in Australia are managed by Muppets, in addition to the fact that they operate in a small mature market and are not globally competitive.

Is it any wonder why the S&P 500 and the DAX the FTSE, etc are well above their pre-GFC highs while our index either the ASX 200 or the All Ordinaries (the price index not the accumulation index) are well below the pre-GFC high?
 
Re: Which one do you use? Technical or fundamental analysis

Value Hunter said:
In Australia lets look at the top twenty stocks and look at earnings per share growth/decline over the past ten years:

Telstra - bad
Click to expand...

And right there is a perfect example of everything that is wrong with hanging on to stocks for ten years.
In the last ten years you have had the 2008 and 2011 declines.

Why would anyone with a functioning brain hang on to stocks such as TLS while you watch them halve in value and then ten years later blame the stock !

I am familiar with TLS, it has been an absolute splendid performer since mid 2011 up to the end of 2014, over 50% increase in value (without leveridge or dividends) unless you were silly enough to ride it down then you only got back to where you were in 2007.

It has numerous warrants, pays a good dividend (multiply x 3 with instalment warrants ) and I get a 15% tax credit in my SMSF.

Have a good listen to what Craft is telling you elsewhere on here, you seem to be in the same position on the learning curve where TLS was in 2011 on that "squiggly" stuff.

Rather than taking the easy way out and blaming the stocks because you didn't take the time to manage them - do some work.
They are your employees, when they stop working you sack them !
I reckon that if I went through the rest of those stocks on your list and thought of them as employees then I would find the same failures in your argument and I would have made them redundant at some point rather than criticising them because I didn't do my job properly.

I find that the harder I work the luckier I get - try it.
 
Re: Which one do you use? Technical or fundamental analysis


You completely missed my point Bogo. I was rebutting Crafts point that a concentrated portfolio is necessarily riskier than a
A diversified portfolio. For example if you hold an index fund representing the ASX 200 it will be full of rubbish and it may therefore be less risky for you owning shares in a handful of quality businesses. That was my point. I never said people should buy and hold the top 20 stocks!
 
Re: Which one do you use? Technical or fundamental analysis

I should add that over the very, very long term (since 1900) the Australian sharemarket and the U.S. sharemarket have posted a virtually identical inflation adjusted return. Does that invalidate ,y argument about our indexa being full of rubbish or has the quality of our index detiorated or the quality of the U.S. index increased over time? Or is it merely a cyclical phenomenon?

In reregards to returns since 1900 here is the link: http://cuffelinks.com.au/wins-australians-investing-us-shares/
 
Re: Which one do you use? Technical or fundamental analysis


I forgot to add Woolworths to that list. As we all know its doing badly in terms of earnings these days.

Interestingly if you look at the top twenty list all of those companies except for BHP and Rio and Woodside which are currently facing cyclical headwinds should have in theory done well goven the underlying structural/iindustry tailwinds. If you look at superannuation growth and consumer credit growth and retail sales growth over the past ten years the figures have been respectable.Given that is the case the financial and consumer stocks should have all done well given their dominant market positions in oligopoly type markets. Yet bungled or overpriced acquisitions, ill fated overseas expansions and diworseifications into unrelated business lines caused poor earnings performance for most of these companies. I therefore conclude that bad management at our largest corporations is the primary cause of mediocre sharemarket index returns over the past ten years in Australia compared to other markets e.g. Germany, U.S. U.K.

Are Australian management teams greedier/more self servimg or dumber than other countries on average or am I missing something?
 
Re: Which one do you use? Technical or fundamental analysis

Value Hunter said:
A concentrated portfolio has the potential to provide higher returns.
Click to expand...

A large portfolio of many stocks provides larger exposure to positive things, discounted SSPs, rights issues, spinoffs, capital returns, takeovers and mergers etc.
 
Re: Which one do you use? Technical or fundamental analysis


I will add this link also as believe both links should be read to give a full picture.

http://cuffelinks.com.au/wins-australian-versus-us-investors-local-shares/
 
Re: Which one do you use? Technical or fundamental analysis

Value Hunter said:
...
Is it any wonder why the S&P 500 and the DAX the FTSE, etc are well above their pre-GFC highs while our index either the ASX 200 or the All Ordinaries (the price index not the accumulation index) are well below the pre-GFC high?
Click to expand...
Yes! No mystery at all !

QE, ZIRP and in some locales NIRP!

I never realised that those "muppets", to whom you refer, were able to exert such influence over international monetary policy!
 
Re: Which one do you use? Technical or fundamental analysis


Nothing at all wrong in holding stocks for ten years+. Two ways to potentially outperform. Timing or selection. No amount of disaster examples that you often put up negates the potential of outperforming by selection. I also suspect that a 10 year hold on TLS has out performed the mathematically possible average of those actively attempting to outperform the market.

Ps all I was trying to tell VH was that he didn't need to attack other methods based on a lack of understanding. He seems to be mending his ways and making much more interesting contributions.
 
Re: Which one do you use? Technical or fundamental analysis

Craft I know it sounds ridiculous to say the performance of the top twenty has been poor necause of bad management but if you actually examine my thesis im detail by looking at each of the top twenty stocks on a bottom up basis you will realise what I am talking about. For examplw:
-Telstra: David Thodie is the first sensible CEO of Telstra in a very very long time. If you examine the damage to the company Sol Trujillo and most of the others did to the company it is clear. Now kets look at the telco sector. Internet usage and mobile phone grew strongly over the past ten years. Smaller companies like TPG telecom, iinet, Amaysim, Vocus, M2 telecommunixatiins, etc all did very well by eating Telstras lunch.
-NAB: even though the other big banks have done phenomwnally well NAB has suffered due to poor acquisitions and unsuccessful dicersification into the U.K. amongst other reasons.
-IAG and QBE: basically same reasoning as NAB dumb acquistions and ill fated overseas expansion caused them indegestion.
-Wesfarmers: Paid too much for Coles Geouo then did any emergency capital raising durimg the GFC aftwr the share price nosediced thereby heavily diluting e.p.s. they have also badly mismanaged Target (K-mart is doing well and Target is doing badly therefore its not an industry or macro problem.


I could go on and on but my point is if you look at the top twenty stocks which have performed badly most of the wounds were self infli ted rather than caused by ezternall circumstances. Also do to high dividend payout ratios in Australia due to franking credits d also self managed super, Australian companies have higher payout ratios than most other countries thus retaining less for growth. The result has been less earnings per share growth than other markets.
 
Re: Which one do you use? Technical or fundamental analysis

cynic said:
Yes! No mystery at all !

QE, ZIRP and in some locales NIRP!

I never realised that those "muppets", to whom you refer, were able to exert such influence over international monetary policy!
Click to expand...

Are you postulating that in the U.S. and Europe zirp and other such policies have been 100% responsible for differences in earnings per share growth of different country stock market indexs? If that is the case then how come in Europe different stock markets within the Euro currency have performed differently in terms of earnings per share growth and total shareholder returns? How come Japanese companies have done poorly in terms of increasing their earnings per share despite more than 20 years of low interest rates? Your argument does not stand up to scrutiny.

In fact much has been written or said by international value investors such as Hunter Hall, Platinum Asset Management and others about Japanese management culture (albeit slowly improving now) being the cause of persistent low returns on equity of large Japanese corporations.
 
Re: Which one do you use? Technical or fundamental analysis

Value Hunter said:
Are Australian management teams greedier/more self servimg or dumber than other countries on average or am I missing something?
Click to expand...

My opinion is based purely on anecdotal evidence, it's not something I've seriously studied, but it seems that in a lot of cases there's a definite "follow the herd" tendency in Australian management culture with a big problem there being that the "herd" referred to is limited to other Australian companies (not global).

So one big company does something and a lot of others seem to follow a similar approach.

Even the public service has elements of doing that. Obviously the PS isn't in the business of takeovers and so on but the overall management approach still has a lot of "follow the herd" about it and there's a crossover between private enterprise and the PS in terms of how that works.

Work in a large company for a while and you'll go through the cycle of the various buzzwords and corporate objectives. Get yourself a job in the PS and in due course you'll go through the cycle of the exact same buzzwords and most of the same objectives apart from things like takeovers which obviously don't apply with government.

Headcount, KPI's, cost to serve, increasing revenue, being more competitive, staff retention, staff reduction, expanding into new markets, getting back to core operations, whatever. It's all a cycle and it seems to be pretty much the same in any large business and also government.

Whether or not it's the same overseas I've no idea.
 
Re: Which one do you use? Technical or fundamental analysis


VH

I'm not debating your point, don't need to - your doing a good job of that yourself as all I did was point out that the link you posted pointed to a different driver of current underperformance.

And there is also a bit of a contradiction in this post in bemoaning both the high payout ratio and the failed attempt to invest. If a company can't deploy its incremental capital to economic advantage then they should return it.
 
Re: Which one do you use? Technical or fundamental analysis

I think one cause of poor management performance in Australia compared to the U.S. and other markets is the lack of activist investors. We dont really have as many activists (for example Carl Icahn in the U.S.) in Australia to keep companies on track.
 
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