I’ve been meaning to write this hopefully fairly short Blog for a while but I keep getting distracted onto other things and we actually discussed this on a recent TPI Podcast so I wasn’t feeling a huge need to get it written. Having said that, we didn’t go into a comprehensive coverage of the issues and there is always a sense I have that I should try to cover as many topics as I can within my Blog Archive, so that WD Readers can revisit it in the future if they want to know about something. Maybe new Readers might find it useful also as the whole WD thing should really be to help Newbies as its main Sultana d’Etre (should that be ‘Raisin’?).
The essence of the ‘problem’ with my Income Portfolio is that my original theory behind it was to generate an Income Stream from the Dividends that was at least 5% a year based on the starting position each year. Apart from other aspects such as low activity and low risk and the diversification benefits, part of my thinking was that at some point in time in the future, I might have grown the Income Portfolio enough so that it would be throwing off Dividends that might amount to maybe £6,000 a year or so and that with other Income sources I have, I could get to a position where my Yearly Spending needs on food and rent and stuff are covered without me having to sell any Shares or make any money on Spreadbets etc. It is simply easier to just take Dividend Cash out of an Account than to have to think about which Shares to sell and all the timing issues and suchlike.
I am sure I have mentioned a few times before how I really struggle with this idea of ‘Growth Stocks’ and ‘Value Stocks’ and my whole beef is really around the idea that a Growth Stock doesn’t need to encompass the concept of Value and that Value Stocks really seems to be lazily used to describe Stocks with a large Dividend Yield. Of course the idea that all Stocks with chunky Yields represent value is silly because they could just as easily be flagging a big problem and actually be a ‘Value Trap’.
‘Value Trap, utter Cr*p.’
I was thinking that had a bit of a rhyme to it and then I remembered a joke from the comedian Tony Hawks (he’s on Radio 4 a bit but most people probably won’t know him – apart from the book ‘Round Ireland with a Fridge’ which is very good), where he talks about when he had a minor hit record as ‘Morris Major & the Minors’ probably in the late 1980s and it was called ‘Stutter Rap’. Anyway, he was on about reviews it had got and some wag in a Music Paper of the time had the written the headline; ‘Stutter Rap, Utter Cr*p’.
If you haven’t read Part 1 yet it is probably a good idea to do so and you can find it here:
When that Part finished I was going through the reasons why I am thinking that a proper full-on Bubble has become more likely, and here are a load more:
Technical ‘Breakouts’ on Major Indexes
If you keep up with my Weekly ‘Stocks & Markets’ Blogs which usually come out late on a Sunday Night, then you will probably have seen me mentioning the strength in the Indexes and how many have either recently ‘Broken-out’ to new All Time Highs (the US Markets) or they are very near such Break-outs and I expect to see them soon (German DAX, CAC40, FTSE100) and such Price Action is extremely Bullish and supportive of the start of a Bubble if that is how things are going to play out. It is pretty remarkable that after 11 years of the Longest Bull Market ever, we still have such strength and demand for Stocks.
In a recent TPI Podcast we talked at length about a potential Stockmarket Bubble and I also wrote a bit in a Weekend Charts Blog. Both times I think I promised to write a more detailed Blog specifically on the subject and in theory as I start writing, this Blog is intended to fulfil that commitment. You can find the Podcast here by the way:
First off I must make it very clear that I am not saying a Bubble is definitely going to happen; nobody can foresee the future (least of all me !!) and all we can realistically do is to assign probabilities to possible future outcomes. Using such an approach, I would guesstimate that perhaps a year or more ago, I would have said that a Bubble was a very low likelihood, perhaps something like 5 to 10%. The fact is that Stockmarket Bubbles are very rare and hence a low probability is appropriate, but with the various factors that I will get onto shortly, I would now say that the probability has risen to perhaps 15 to 20%.
Needless to say if you have not read Part 1 yet then it probably makes sense to go back to that one first before you start on this one. You can find it here:
Anyway, I was going through various Bullet Points around the subject matter concerned and here are the next bunch:
I am bashing out this blog as a result of a conversation with a mate which was along the lines that he finds it hard to hold things for the long-term and tends to bottle it at some point and end up selling when a decent Profit has built up; but often this might not be the best approach. Even a bit of a numbskull can figure out that if you continually sell Stocks after making perhaps 40% Profit, you will never ever get gains of 200%, 300%, etc., which are the ones that really transform your overall Returns.
Buying high quality Stocks and then holding them for long time periods has many advantages and of course many drawbacks. The benefits are really around ease of execution and low activity; which of course can lead to lower Dealing Fees and costs, and effort around selecting Stocks and general Portfolio Management activity.
I often think of subject matter that is way too short to justify its own blog, yet at the same time far too long to just send out via a Tweet and also I would like to store such stuff in the Website Archives so it can be retrieved by anyone who wants it; and of course with Tweets they tend to be quite ephemeral and soon lost in the River Twitter. On the basis of that, I am envisaging that this blog will cover a few possibly unrelated subjects but at least they get captured in ‘black and white’ electron imagery for the future.
Stay in control of your Position Sizes
This is something I see so often and I know I have fallen into this trap many times myself in the past. It’s a very simple concept where we buy into a Stock, and we quite like it, and we give it perhaps 4% of our Portfolio and then we leave it to do its stuff. Then it turns out that this one is a real beauty and it keeps steadily pushing higher and after a period of time we find that it has grown to be much larger and could even be up to 12% or our Portfolio or more. If we have a very focused Portfolio with maybe just 10 Holdings or something, then a Stock like this could easily grow to be 20% or more.
I am extremely grateful to Michael for providing this Guest Blog and making my life easier this week, which has also enabled me to make very good progress on the Stock blog I am working on. I am sure most Readers will already know of Michael as these days he is a huge celebrity in the Private Investing and Trading world with regular articles in Investors Chronicle and SharePad etc.
Michael has a Website and if you go to the ‘Weekly Performance’ page on WD1 you should find an image of his FREE eBook and if you click on that you will be taken to his site. The book is well worth reading and of course I am biased because I was involved in the latter stages of proof-reading and tweaking it. You can find him on Twitter as @shiftingshares.
So big THANKS to Michael for letting me share this with WD Readers and I hope you all enjoy it.
A few months ago I produced a series of Checklists to be used when Buying particular kinds of Stocks and then some while later it hit me that I ought to produce one for those very high risk, often loss-making, start-up type businesses on AIM that I avoid on the whole but occasionally I will buy into one. Before getting stuck into this particular one, here are Links to the other ones I produced – in fact this is the final one but it has Links to the others:
In the Investors Chronicle dated 17th to 23rd May 2019 with ‘The Activist Effect’ as the main headline on the front cover, on page 32 there is an article called ‘Fund Managers are human after all – that’s the problem’, which makes a very good read although it is perhaps a bit ‘academic’. I guess that is where I come in and if I am doing my ‘job’ correctly then I hope I can convert what seems academic into something that normal people can digest.
It was written by Nilushi Karunaratne and the high level summary would be that Portfolio Managers make good Buying Decisions but make poor Selling Decisions – and the interesting bit is that some of the conclusions are perhaps worth taking onboard ourselves as Private Investors (assuming you are not a Portfolio Manager reading this !!) because, contrary to what many people think, institutional investors are often no better than we are (and many are worse). And the simple fact is that human psychological biases apply whoever you are. Later in my Conclusion bit I will address what we can learn.
Welcome to my Educational Blog Page - I have another 'Stocks & Markets' Blog Page which you can access via a Button on the top of the Homepage.
Please see the Full Range of Book Ideas in Wheelie's Bookshop.