At the end of our Leadership Lunch last Friday that starred Peter Costello, David Murray, Kristina Keneally and AMP Capital’s CEO Stephen Dunne, one of our subscribers, who said he “loved the event” asked me why we cover certain stocks that seem at odds to what I and say, Paul Rickard, might recommend.
I explained to him that we have different sorts of subscribers. Some are long-term investors, who like to buy quality stocks, especially at good prices and hold them for a long time. These are generally nice dividend-paying stocks as well.
On the other hand, some full-time retirees love to invest as traders. Some might have taken my tip on Flight Centre last Monday and then sold it on Tuesday, when it reported and spiked 15%! Some investors love to accumulate small wins and try their best to minimise their losses. This is a hard job and not for the feint-hearted and shallow pocketed!
We have subscribers who play say 90% of their portfolio like Paul Rickard — 20 or so stocks, with exposure to a range of sectors and a heavy emphasis to dividends — while 10% of their shares in super could be for tradable stocks.
My worry is that some subscribers and generally DIY super trustees are not sure who they are — an investor or a trader — and, as a consequence, could get caught out when the stock market turns.
I have no illusions that these sorts of market players want the likes of me to warn them when the market looks scary, and I’ll endeavour to that, but history has shown that timing the market and getting big turning points right is not an easy ask.
Sure, I got the market upturn right but I started getting positive in December 2008 and it took to 9 March 2009 before I could breathe more easily!
In reality, those with a heavy leaning towards trading should be happy to be out even six months to a year early provided they have made good money.
It would mean that they could buy back in at the bottom but I’m not sure if many traders think like that.
Let me make a confession: I am a long-term investor but if I thought a big crash was coming, I’d liquidate my holdings. If I missed it, I’d buy a lot more at the bottom and would be drifting to a bigger cash holding, after I felt I’d done well out of this bull market.
Hopefully, the next crash will follow a period of rising interest rates, which means we’ll have the option to get less greedy and be able to put a decent chunk of our portfolio into term deposits. However, again hopefully, this is a conversation we’ll have in a few years’ time.
Right now, there are some interesting doomsday analyses out there, which I’ll look at on Saturday, but as long as interest rates are low and central banks are colluding to chase economic growth, I’m comfortable in stocks.
I have shared this guy’s investment strategy with you before but it’s worth repeating.
He was anti-property and pro-dividend-paying stocks, so when he retired, he had $5 million in stocks yielding 10%!
He bought quarterly, as his super contributions came in and bought at the top of the market and at the bottom.
I asked him how he did during the GFC. He said his capital fell from $5 million to $4 million, which would make many people sick, but his dividends in 2009 fell from $500,000 to only $480,000 and in 2010 they went back to $520,000!
And to rub more positive salt into the wound, in 2009, he and his wife spent nine months rather than their usual six in France on a higher Aussie dollar! He probably ended up in front.
Now that’s a retirement plan linked to a consistent, long-term investor strategy.
If you must trade, make sure you do it in concert with a great investment strategy, such as my friend’s.
One final example to emphasise how long-term investing can be rewarding. Imagine you took Charlie Aitken’s tip on Qantas before it fell below $1! You might have hated Charlie and Qantas and sold out at a small or big capital loss.
Others might have hated Charlie and Qantas but stuck solid. With the share price now at $2.89, you might love Charlie and Qantas.
If that were me, I’d be thinking about taking my money and running because the airline is a trading stock in my book but for some periods in the cycle, I’ll support these kinds of companies.
However, at the core of my retirement portfolio are great dividend payers and I especially like to greedily buy them when everyone is scared and is selling them. But hell, that’s me. What you need to do is know who you are and then invest or trade accordingly.
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