[AMA] I Invest for a Living

I primarily invest in shares for a living. I have been investing for over 30 years. I am self taught and have minimal formal training in investment management. I used to rely on a full service broker until I realised most of the recommendations were conflicted with the brokers other commitments. Whilst the results were just OK I realised that I was taking too much risk for the reward.

I prefer shares to other investments because the transaction action costs are minimal and the liquidity is very good.
- I have invested in real estate previously and did OK but only because of the leverage with debt. There was a lot of work (tenants, R&M, agents, irregular cashflow) etc) which I was not keen on and the leverage was a concern because it works both ways Over the last 5 years
- I have also looked at bonds and hybrids but nah, the returns are lower and the risk is only slightly better.
- I have used LICs/LITs/ETFs previously the but returns are equal to or just below AVERAGE (Caps intended). Having said this I have recommended this type of investment to relatives and friends who are not interested or are time poor.

I spend about 20 hours per week on reading and research. I never buy a stock unless I have spent at least 1 hour researching the business (and I use a wide range of paid for services that save me lots of time). I usually invest in stocks with forceable growth, predictable income and low debt. However I will occasionally allocate up to 10% of my portfolio into 2 or 3 riskier stocks with good medium and long term momentum.

I am sure these comments will come up so I will pre-empt the reply.
- There is no investment that is not without risk to capital except for deposits in Australian banks that enjoy a Government guarantee up to $250K.
- You can lose lots of money (leaving it on the table) by not investing)
- When investing the risk of capital loss is best ameliorated by diversifying investments. I use 25 stocks with 50% exposed to Australia and 50% international.
- Never ever invest in businesses that you do not understand how they make their income.
- The only IPOs a broker will offer you are the ones not to invest in. The good deals are reserved for their best clients who pay them thousands in fees.

closed Comments

  • +3 votes

    Where do you live? What's your lifestyle like?

  • +2 votes

    Hiya,

    Congrats on your success thus far, my questions would be:

    What’s the best resources you would recommend to investors

    Based on your understanding of the Australian landscape, what trends do you believe are going to be profitable to invest in now? (Don’t expect an answer for this one)

    • +5 votes

      My goto resources are MarcusToday and Stockopedia. I follow Livewire, Market Index and Motley Fool for possible prospects. I check HotCopper just to see what they are chatting about. Occasionally they will raise a red flag that resonates with me but the information is conflicted so I do not treat it as a reliable source.

      •  

        Good on you. I'm a financial adviser.

        I enjoy reading Marcus Padley articles. I'm skeptical about Motley Fool.

        •  

          I agree with your thoughts on Motley Fool. But every 2 months or so it puts a new stock on my radard. I would never buy a stock just on a MF recommendation.

  • +10 votes

    Do you draw a regular income from this? If so, how much?

  • +10 votes

    Invest in an enter key

  • +1 vote

    Is the stock market about to crash?

    •  

      No. Having a correction now. Can't predict a crash mate if I could it would have crashed already.

      •  

        Actually, I'd like to get the OP's opinion on this question.

        Because the way the market has reacted from the 2008 crash, and the way its progressed, it seems like we are due for a bigger crash in 2019/2020/2021. I wonder which "stocks" benefit when this happens, since the wealth does trickle/pool into other avenues.

        •  

          I do not agree with your expectation of a crash. The circumstances are very different. Besides the world economies are in the best shape for years. The current issue is loss of confidence due to trade argy bargy.

          But assuming you are right, stocks in the consumer staples hold up well and even excell. Telcos do OK plus companies with long term contracts like HSN.

  • +2 votes

    As someone who has a little invested in shares (<$10k) I'd like to know a few things.

    1) What platform to you recommend to buy shares?
    2) What shares would you purchase at this moment?
    3) What is the minimum investment you would consider worthwhile for buying shares?

    •  
      1. SelfWealth. $10 brokerage for any trade size can't be beaten!
    •  

      I have a niece in a similar situation and I advised her to invest with RAIZ with an aggressive style.
      I personally use Nabtrade because it saves me a lot of time with the paperwork for share registries.The shares I am currently invested in are those with a reliable income ( Telcos, Utilities, Mining contract service providers with a growing order book, gold miners with low cost of production.
      This really depends on how long you intend to hold the stock. Eg an LIC that you intend to hold for 5 plus years, as low as $3K would be OK but generally $10K min per stock.

  • +2 votes

    What in your portfolio?
    What your top performing sector or share ?
    Do you use COMESEC/ANZ ?
    Which website do you read from ? Money Magazine/Montley Fool?

    What your thoughts on Medibank, Telstra, Santos, BHP ?

    • +10 votes

      I am holding about 30% cash but was fully invest 3 months ago. Current stocks are EML, GNG, HIG, HSN, MLD, MNY, MSB, MUA, MYX, NWH, PGC, PLS, VTG, STM.
      I recent years lithium, and mining service providers.
      I used to use Commsec but their accounting system was not live and it was giving me problems.
      For websites see above.
      Medibank has too much risk because low customer satisfaction surrounding healthcare system in general. I sold Telstra at around $5.80 but at $3 and in a market lacking confidence I would now consider it. I have not followed Santos and at current prices I think BHP is fully priced

  • +1 vote

    Did you know that the 250K guarantee is not as secure as we are led to believe? It has to be 'activated' in an emergency and that power was given to APRA last February (sneakily). I know this because I looked into it when looking for safe investments for our nest egg (I'm fairly conservative).

    Which broker do you use and how often do you trade?

    What is your take on RGI? :)

    Do you think the market is overdue for a BIG correction sometime soon> The U.S. NFP has been over 3% for a while now which is usually in indicator of inflation meaning interest rates will go up?

    What percentage of cash do you keep in the bank for buying opportunities?

    If you like liquidity, have you looked into FX trading?

    Cheers.

    •  

      The $250K guarantee makes people feel safe. If things got really bad, could the Government afford to honour it. I don't think so.
      Nabtrade. I have not traded for 2 months, but average 25 trades per annum.
      I had to look up what RGI was. Enough said!
      Re the outlook, please see the previous comments.
      30% cash at the moment.
      I do not trade investments that require monitoring during the day, so CFDs, options, commodities futures and FX are off my list.

      •  

        Talking about apocalyptic scenarios, do you ever think, after I'm financially stable I'm going to become a doomsday prepper?

        I've met a couple people who are going that route, thinking the government and their neighbour is out to rob them, and I could see some logic in it if I am to be frank.

      •  

        What do you mainly do when you are not trading?

  •  

    What is your performance for this calendar year given that the market benchmarks are all down compared to where they were at the start of the year?

    Do you focus on large , mid or small caps? Is there a preference?

    •  

      After the recent market pull back I am up about 5% for the year. My investment returns for the previous two years were 16% and 18%.
      I don't focus and any particular index. But in the past 18 months I have only been able to find value in the small and mid caps.

  • +2 votes

    Do you keep any of your wealth outside of shares (cash, gold, property)?

    • +1 vote

      30% is in cash or equivalents, no physical gold and I sold investment properties several years ago

      •  

        Have you tried any cryptocurrencies?
        And what do you think about it, will they survive, will they thrive, is it the next gold/standard ?

        • +4 votes

          I have not been interested because there are no assets behind it, there is no income, there is no market maker nor guarantor.

          The fact that it is the currency of choice for hackers, thieves, con-artists, extortionists and drug dealers further elevates the risk.
          IF (caps intended) if I were to invest in crypto's the amount I would allocate due to the risk would be tiny and any possible returns would not be worth the effort. I think could survive but their best days are have gone.

  • +1 vote

    Thanks for doing this
    Questions
    1. Do you invest own capital only (or for others)?
    2. What is your average return
    3. What is your worst draw down? (How did you cope)
    4. Were you always profitable (outperforming market) to begin with? If not how long did it take you to achieve this?
    5. Any recommended reading re tax implications of investing in overseas (esp US stocks)?
    6. Do you use leverage?

    Hopefully you don't mind the million questions!? Sorry
    Thanks.

    • +2 votes

      1 Only my family capital.
      2. Since I have been managing the investments for the last 3 years, the average return has been ~12%. Prior to that when we used a full service broker, the results were more erratic and averaged around 6%.
      3. Over 30% loss during the GFC. Alcohol, melatonin and discuss it with others in a similar. Now I accept that losses are part of investing.
      4. See above. I only started to out perform when I took control of the investments. But before doing this I spent a week learning how to read financial statements, interpret the information and create a mental picture of how the business makes it's money.
      5. I find tax and overseas investments to be a huge burden. So I use some LICs for that type of investing. I have not included them in the portfolio above because I do not make the investment decisions.
      6 No leverage because most stocks already carry debt. Debt on debt is too much risk for my appetite.

      •  

        Thanks for sharing.
        Will read up on LIC.
        I would love be to invest in US stocks one day but tax implications have scared me away for now. (I do my own tax return)

        • +1 vote

          When you invest in an LIC you are dealing with an Australian entity so there are no tax complications. The LIC takes care of the taxes overseas.

        •  

          The Wilson LIC's are highly regarded and pass the 'I can sleep at night' test. (WAM WMI WGB etc)

          •  

            @EightImmortals: Wilson does a good job, just don't pay too much of premium above NTA because the shareprice LICs do revert to the mean eventually.

            The LICs I like are FGG, FGX, FOR, (also FOR unlisted international) MFF and QVE.

      • +1 vote
        1. Since I have been managing the investments for the last 3 years, the average return has been ~12%.

        Not sure if you already answered it somewhere else, but what's your benchmark? If you exclude october 2018 … s&p 500 has been >12%/year for the past 3 years… even if you include october 2018, it's still up around 10%/year (not sure whether your 12% performance includes/excludes october)

      • -1 vote

        What is the size of your trading capital?

  • +1 vote

    I am interested in how you use those 20 hours of research and what determines where you choose to look

    •  

      Refer to the above for the sources. I often invest in themes by imagining what people are going to be buying next year and the year after. Alternatively I look for stocks where the market has over-reacted to bad news.

  • +2 votes

    Where do you recommend a beginner should start when looking to invest in shares?

    •  

      I would recommend reading at least 3 hours per week for 4 to 6 months before making the first investment. I find MarcusToday to be very good but it is $660 per year. It has plenty of excellent information for newbies.

      If you are not prepared to commit at least 2 hours per day to investing I believe 95% of people would be better of in LICs or ETFs.

  • +2 votes

    When you say research a business for 1 hour? what are you looking for and what is a good sign for some examples of the things you look for.

    • +2 votes

      My checklist runs to 50 items so it is too much for here. But generally I am looking for them being in a good business sector, growth, ROE over 10%, debt to equity of less than 30% or a clear plan to get there. Cashflow and how it corresponds with EPS. I am very wary of "paper" profits and losses. There are another 20 metrics I also look at. What the insiders are doing. Announcements to the ASX over the past 12 months, the last 3 annual reports comparing the outlook statement to what was achieved. I have a quick look at HotCopper to see what the fanz and Spivs are chattering about.

      •  

        Thank you

      • +2 votes

        It isn't too much for here, just cut n paste the checklist.

        •  

          My checklist items are half a page of one word items. It would run to over 25 pages of explanation so it would be meaningful to others and that would be too time consuming. There a plenty of checklists around, mine is a hybrid of those.

  • +5 votes

    Bad timing by the OP … post and run …

  • +12 votes

    I think the smartest investment is to put a webcam outside Warren Buffet's house and short Berkshire Hathaway stock when an ambulance arrives.

    Not. Even. Kidding.

    • +1 vote

      You think?

      TBH - everyone knows its coming and it's probably already priced in. The company and it's board have been planning it for years. BRK has a pretty a deep bench. I would actually argue that you'll see the price bounce up in the days/weeks/months after wazza kicks it - just due to the increased media attention and people discovering that the sky hasn't fallen.

    • +1 vote

      It's not Warren to be worried about, it is Charlie Munger. Charlie has a bigger say than many people realise and if you read the Berkshire letter to shareholders WB says how important Charlie is. Unfortunately, I think Charlie is older than Warren.

  • +5 votes

    Do you feel like a contributing member of society?

    • +6 votes

      Want to start a business? Have a good plan? Need capital?

      Capitalists contribute to society by selecting and financing productive and innovative businesses.

      • +2 votes

        There's no judgement in my question, it's just that with something like share trading, the contribution isn't as material as say sheep herding. People usually need to feel like what they're doing helps society in some way. With no clear line of consequence, people are free to be a little more creative in their justifications, which makes for much more interesting answers :D

    • +6 votes

      An excellent question. I will answer this in a general sense. Does the stock market functions contribute to society?

      Secondary markets like the stock exchange provide provide liquidity and mobility for at risk capital without the need to sell the underlying assets. Without stock exchanges banks, insurance companies, manufacturing, public utilities, technology etc etc would not exist as we know it today. Government ability to raise taxes, and pay for education, healthcare, roads, social welfare, sanitation etc would be severely curtailed. Life expectancy would be shortened and mortality rates higher. If it were not for stock markets most of the world population (including Australians) would still live in mud or thatch huts.

      • +2 votes

        See, now that was very interesting answer!

        So how does it feel, knowing that you are making lots of money with little effort AND are performing perhaps the most important and least appreciated role in society?

  • +8 votes

    Would you recommend investing in an AMA which is still not giving any returns 3 and a half hours later?

  • +3 votes

    What do you think of the ASX 200 lagging behind the world not beating its previous record of 6700 points. ie (lost decade)

    What do you think of the Shiller PE of the SP 500 hitting a high of 33 in 2018 ? Are we at the euphoria stage yet? ( Dot-com stage roughly PE=44)

    Do you believe our stock markets are being propped up for the last 30 years due to the lifting of the gold standard in 1971? Do you think we will revert back to the gold standard or will another country get reserve currency status? (RMB?)

    How long do you think it will take the ASX to recover if our world-beating mortgage debt popped?

    Do you see history repeating itself? the past from 1890 fell for 60 years. (https://www.macrobusiness.com.au/2018/06/australias-mortgage...)

    Do you think Australia is different from other countries when it comes to property? (Japanese property bubble. Nikkei 225 index reached roughly 40,000 (1990) currently at 22,000 lost 28 years nearly 3 decades)

    Do you undertake a combination of technical and fundamental analysis when stock picking? or are you a purist in one or the other?

    With the popularity of ETF index-investing, some people believe there is an ETF bubble. While I believe ETFs are a vehicle for investment, it is hard to not see index ETF's propping up stock markets all over the world. This distorts real fundamental value, which will eventually revert to mean, however in the meantime momentum will prevail. Do you still recommend your friends to invest in ETF knowing they will be investing into an downturn in the near future?

    Do you pick tops and bottom using FA or TA?

    What is the best advise you could give someone who is 30 and paid off the mortgage and wants to begin investing in shares?

    •  

      I think it is two issues. Loss of industry in Australia and we have the wrong type of industries. If you look at the US without the FANGS and the ilk they have not done any better than Australia.
      I don't spend much time on the macro stuff because it is of little importance to me. If I was a manager of a very large portfolio that runs into diversification and liquidity issues that would be of interest to me. Barring a black swan event, there has been lots of discussion about how high the market can go for 18 months and this has subdued enthusiasm. If you look at t he big crashes they were all preceded by be a huge increase in stock prices and that has not happened. If anything I think we could experience a withering decline. Countering this, inflation is low, interest rates are low, the economy is growing and there is nearly 100B in new superannuation funds each year that needs to find a home where 2% return just wont cut it.
      Re gold standard it is not something I have thought about.
      More macro stuff, I have not thought about it.
      When evaluating a purchase I look at fundamental to decide if I like the business, then technical (medium term focus) and momentum to time the purchase.

  •  
    1. Could we have a breakdown of your portfolio's performance over the last 30 years?
    2. How much leverage do you use?
    3. Do you take any short positions?
    4. Do you invest in options or any other financial instruments?
    •  
      1. No, I really only had the time to manage the portfolio properly for the last 3 years.
        2 I dont use leverage.
      2. I don't short stocks because it requires too much effort monitoring the market.
      3. No options or derivatives
  •  

    Would you stuck in doldrums when getting a home loan or investment loan? Perhaps just anything need assess credit or borrowings from banks?

  • +1 vote

    What kind of jobs did you do previously?

    • +2 votes

      For most of my working life I was an insurance broker (Commercial general insurance). In later years I owned a small manufacturing business, which was one of my big regrets.

      •  

        Why the regret?

        • +3 votes

          Hi overheads, cyclical income, chasing money and red tape. When we were busy we made good money but really haemorrhaged cash it was quiet. When I sold it I was spending 2 days per week just on red tape and that grinds your energy levels down to the point where you just want to get out.

      • +1 vote

        what were you manufacturing?

  •  

    Can you eloborate more on your risk management? Position sizing? Entry/exits? How long is your average holding? Any shell play?

    •  

      Portfolio allocation varies from 20% of portfolio down to 1%. Primary consideration is what is the risk of losing all of the investment. Entry and exit is based on themes and the outlook. Holding average 18 months. I also monitor peer groups for my investments. Eg I owned SHM, HVN announced that whitegoods sales were down 3% earlier this year. I sold immediately at $1.30. The current price of SHM is now around $0.60. QED

  •  

    Also when your start investing full-time, how much was your starting capital? Did you start with part time and eventually move on to full time?

    • +1 vote

      I wont tell you what my starting capital was but if you are thinking about doing it I would work on 12% return. Therefore to earn $100K pa, you would need $850K in capital.
      Before I took control of the portfolio, I created a model portfolio and traded that for 6 months to prove what I wanted to do was reasonable.

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