Forum Topics Buy Berkshire, SolPats & Nasdaq - Then Go Fishing???
thunderhead
Added 3 years ago

I am not sure about the three securities mentioned alone. I personally like to be more diversified and tamp down on the volatility, even at the cost of giving up some return.

However, the tilt towards allocating a lion's share of your capital to passive strategies makes a TON of sense, and this is coming from someone who for a long time was firmly in the stock picking camp, and has still a majority of capital allocated to individual stocks.

It just offers a great effort to reward ratio, which is very difficult to beat except for those with the time, enthusiasm, skill and actual results to justify being more active.

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BigStrawbs70
Added 3 years ago

I was at a BBQ with friends on Friday night, and as it does, the topic of investing came up.

In a nutshell, the very high-level summary of the conversation between the three of us went something like this:

  • One person is an active trader who holds a large number of companies and is constantly day trading.
  • One person (me) has 21 holdings in my SMSF, salary sacrifices the maximum amount, generally buys each month via a dollar cost average approach, and hardly ever sells. I have a mixture of large and small caps across Australia and the US, in addition to a number of ETFs.
  • One person also has an SMSF but only holds Berkshire, SolPats, and the Nasdaq. Their super contributions go in monthly, and every three months she jumps in to ‘have a look’ and allocate funds. Other than that, she doesn’t check her balance.

I think person one, almost by definition, is underperforming the market, and even if they are in front, it seems like way too much effort and my approach, in the long-term, has been doing pretty well. However, I can’t help but wonder why I shouldn’t follow my other friend and keep things very simple. A search on the share price over any long period shows Berkshire, SolPats, and the Nasdaq outperforming the ASX and S&P500 by a wide margin, so this approach provides market-beating performances with very little to no effort and a small(er) risk profile.

This approach, or something very similar, has come and gone in my mind a few times. Of course, this approach is not going to get the possibly larger returns that small caps can provide when they come off, but there is something about the simplicity and relative performance that is ringing a bell for me.

Surely my (2nd) friend and I must be missing something… any thoughts on what that is?

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Bear77
Added 3 years ago

Good post @BigStrawbs70 - what two of you - and myself as well - could be missing:

  1. The value of time. Your person 3 (P3) is clearly not one of us who thoroughly enjoys the hunt; the search for the 100-bagger, and even the 10-baggers, but would prefer to go with the odds and spend her time on other things, and/or
  2. The acceptance of the fact that very few active fund managers, let alone personal investors who manage their own money, do actually consistently beat the market, mostly because, by definition, they ARE the market, and/or
  3. The fact that many of us tend to over-estimate our own ability to outperform the market on a consistent basis. It's not too hard to do it for a few years in a row, but a lot harder to do it over decades - consistently, so if you have a medium to longer term view, index investing, or investing in proven fund managers like Buffett and Munger (Berkshire Hathaway) or the Millner Family and their investment team (Soul Patts), or a combination of those approaches, will USUALLY provide superior returns. Of course that depends on what index you choose to invest in - i.e. which ETF(s) - and while many may be cyclical in their performance, it's reasonable to predict that the NASDAQ is likely to continue to perform well over decent time periods mostly because of the nature of their constituents.


I guess, in summary, beating the market consistently requires a lot of time and skill, and if you lack either of those, you'd be better off with the P3 approach for sure. Some would argue that you also need luck to outperform the market, and I would agree with that, because you can get everything right based on what you know, the facts available to you, and then something that nobody was predicting can come out of left field and shatter the whole investment thesis, so you also definitely need the right temperament, i.e. the ability to accept losses as part of the process.

I'm one who loves the process, but I also use some managed funds in my SMSF as well, so I don't rely just on my own opinions in terms of what I should be invested in, because I know I sometimes get it wrong, both through left field stuff occuring, and through my own mistakes or misjudgements.

All three approaches you have outlined can work, so it really gets back to horses for courses. Everybody has to choose the method that best suits them and their own skill set and interests (and available time that they are prepared to allocate to their investments).

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lyndonator
Added 3 years ago

It could be that you are missing:

  1. A lack of hubris (i.e you both have an over-confidence you skills can beat the market or a simpler strategy)
  2. A lack of an addiction (you both love gambling too much to quit)
  3. Something better to do with your time


But in seriousness, this is something I consider a lot - how long will I let the market beat me in stock picking before I just give up, switch to using an index fund, and take up golf. Currently I track myself against the Vanguard ASX fund (VAS). Every time I add money to my brokerage account I use a spreadsheet to "buy" the same amount of VAS (I know tools like Sharesight would do this for me - but I like the step of doing it manually). Currently my spreadsheet portfolio of VAS is beating my real returns by 20%...

I'm prepared to give a a few more years - 5 max. IF I can't convince myself I am better than the index - time to move on.


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Solvetheriddle
Added 3 years ago

@BigStrawbs70 ill do person 3 when i "retire"

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