how to split money between cash savings and investments?

Sam_J12

bowlhead99 wrote: »

Not to drag this thread off topic, but if it was a slam dunk purchase, wouldn't institutional investors have gone and slam dunk purchased it, resulting in an increase to is price? That is after all how markets work. How did you come up with your reasonable estimate of intrinsic value - reading their latest published accounts and guesstimates of what they will do for Q4? They're a big conglomerate whose market capitalisation is some positive multiple of book value, right? What's their "real" value per share?

In the words of Ben Graham, in the short term the markets are a voting machine and in the long term they are a weighing machine. In the long term the price will revert to the intrinsic value, at the moment it is a bargain. The markets have proven time and again not to be efficient - that is the very reason that Warren Buffet has been able to turn Berkshire Hathaway into such a giant. If what you say about investors instantly jumping onto any undervaluation and instantly "correctin" it then value investing would not exist. I´ve read estimates of intrinsic value from a number of sources that all concur fairly closely - one of the nice things about Berkshire Hathaway is that their philosophy of good corporate governance and transparency means it is fairly straightforward to work out the value from their annual report.

Sam_J12

Linton wrote: »

You have some money to invest in your small portfolio, you believe you are low on US and can only afford to buy one investment. You have the choice of Berkshire Hathaway or a broad fund, could be S&P500 tracker or perhaps a US Small Companies fund. Why go for the individual share?

Perhaps you have some knowledge that has escaped the rest of the market that B-H will outperform the S&P500. Seems unlikely. But who knows. What about risk? Well both the S&P500 and B-H will rise or fall with the economic situation. But B-H has extra risks. One obvious one is that Warren Buffett is 85 years old. He is likely to die in the next few years. What will happen to B-H's price in that eventuality? Why take the risk when the gains over the broader indexes are unclear?

Right now, I would go for Berkshire Hathaway every time over a S&P500 tracker! The S&P500 is clearly overvalued and BH is clearly undervalued. It is a no brainer for me. I don´t believe the death of WB will be a major deal as the value of BH is based on the earnings and strengths of the underlying companies. WB rarely intervenes in the running of those companies and the loss would really be in his insight into how to profitably spend future earnings, which does not affect the current intrinsic value.

Your assertion that I need some kind of special knowledge to be able to make this assertion is just incorrect. The markets have been shown time and again to not be efficient in the short term. Otherwise value investing would not work, and value investing has been demonstrated to work and be incredibly profitable, and is the very reason that Buffet was so successful.

atush

Sam_J12 wrote: »

I disagree with the other two posters - I think individual shares can be a useful addition to a portfolio. An intelligent and diligent amateur investor can be very successful with individual stocks.

As an example, can anyone say that Berkshire Hathaway is anything but a slam-dunk purchase right now? It is trading well below any reasonable estimate of its intrinsic value, is cash rich and has made its name on fostering excellent corporate governance.

I disagree with your analysis.

No one said to NEVER invest in single shares, and you yourself said as PART of or an ADDITION to a portfolio.

Whereas if you invest in single shares before you have a diversified portfolio, it is HIGH risk as is ALL in single shares.

Sam_J12

atush wrote: »

I disagree with your analysis.

No one said to NEVER invest in single shares, and you yourself said as PART of or an ADDITION to a portfolio.

Whereas if you invest in single shares before you have a diversified portfolio, it is HIGH risk as is ALL in single shares.

Er, you say you disagree with my analysis and then go on to repeat exactly what I said.

And it is perfectly possible to build a diversified portfolio with individual stocks. People here often have the erroneous idea that because it is important to have diversification that more diversification is always a good thing. It is often harmful to results.

grey_gym_sock

Sam_J12 wrote: »

The S&P500 is clearly overvalued and BH is clearly undervalued.

all those estimates of BH's fair value start by taking BH's portfolio of quoted shares at their market value. and most of those shares are in the S&P500.

and then they will presumably try to value BH's wholly-owned businesses by comparing them with the valuations of similar quoted companies. again, much of the comparison will be relative to the S&P500.

so if you think the S&P500 is overvalued, you can't take estimates of BH's valuation, which are partly based on the S&P500, at face value.

the only way you could get out of that would be if you claim that all the overvaluation of the S&P500 is in sectors which BH avoids (e.g. biotech).

N1AK

user1168934 wrote: »

Basically I am looking for a savings and investment strategy to follow for the next 5-10 years. Any ideas and suggestions are much appreciated.

Investments are for life, not just 5-10 years

The ftse 100 was valued the same in 1998 as it is now, but in that 17 years my age has more than doubled and house prices have trebled!

My point isn't that you shouldn't buy equities (I do) or that you should invest in a BTL empire (I haven't) but that shares are risky, especially if you're likely to need the money in the next 0-20 years.

Long term investing in your early 30s probably should seem like a pretty dull and thankless task. You're putting a decent chunk of your money into a pot you shouldn't be touching for another 20-30 years then watching it roller-coaster. The benefit is that when you're in your 50s and your friends are wondering how to finally pay off that mortgage or how they're going to keep working until something like 75 to get the state pension you've got it covered

user1168934

N1AK wrote: »

Investments are for life, not just 5-10 years

The ftse 100 was valued the same in 1998 as it is now, but in that 17 years my age has more than doubled and house prices have trebled!

My point isn't that you shouldn't buy equities (I do) or that you should invest in a BTL empire (I haven't) but that shares are risky, especially if you're likely to need the money in the next 0-20 years.

Long term investing in your early 30s probably should seem like a pretty dull and thankless task. You're putting a decent chunk of your money into a pot you shouldn't be touching for another 20-30 years then watching it roller-coaster. The benefit is that when you're in your 50s and your friends are wondering how to finally pay off that mortgage or how they're going to keep working until something like 75 to get the state pension you've got it covered

The only way your age can more than double in 17 years is if you were 17 or less 17 years ago so are you 34 (or less) now or are you in your 50's? I am confused :cool:

N1AK

user1168934 wrote: »

The only way your age can more than double in 17 years is if you were 17 or less 17 years ago so are you 34 (or less) now or are you in your 50's? I am confused :cool:

31, which I hope means my perspective is similar enough to yours (early 30s) to be helpful. I got serious about managing our money soon after university, though aside from pensions I didn't start investing in S&S until we'd got enough saved for a decent deposit, and a bit spare, on our first house which was around 2009.

Linton

N1AK wrote: »

Investments are for life, not just 5-10 years

The ftse 100 was valued the same in 1998 as it is now, but in that 17 years my age has more than doubled and house prices have trebled!

My point isn't that you shouldn't buy equities (I do) or that you should invest in a BTL empire (I haven't) but that shares are risky, especially if you're likely to need the money in the next 0-20 years.

Long term investing in your early 30s probably should seem like a pretty dull and thankless task. You're putting a decent chunk of your money into a pot you shouldn't be touching for another 20-30 years then watching it roller-coaster. The benefit is that when you're in your 50s and your friends are wondering how to finally pay off that mortgage or how they're going to keep working until something like 75 to get the state pension you've got it covered

You are right to warn of investment price volatility but I fear your example of the FTSE100 would unnecessarily frighten off newbie investors.

If you had made the mistake of investing solely in the FTSE100 in 1998 you would have received 3% approx dividends each year which should have been reinvested. Taking these into account your pot size would have more than doubled with an average annual return of about 4.5%. And this includes two crashes of more than 40% in the meantime.

The FTSE100 is a poor index for investment, The FTSE AllShare would have given you an extra 20-30% overall return.

user1168934

N1AK wrote: »

31, which I hope means my perspective is similar enough to yours (early 30s) to be helpful. I got serious about managing our money soon after university, though aside from pensions I didn't start investing in S&S until we'd got enough saved for a decent deposit, and a bit spare, on our first house which was around 2009.

Thanks mate, I think I have a lot to learn from you.
I have always been serious about money as far as I can remember but my journey was slightly different to yours. Out of university started saving for a deposit, had a decent deposit by 2009 (which I thought was safe) but lost the whole thing. Started the deposit pot again but after saving enough cash for "safety net" I invested all in stock and shares buying and selling as I saw fit. Luckily it paid off and I was able to buy a property in 2014 and here I am now not really knowing where to take it from here. Any advice for me?