Pension recovery performance 2020

itwasntme001

Deleted_User said:

Profit margin is a key measure for value investors. Apple turns a meaningful profit. It will show 20-30% profit margin on its revenue.  Apple is selling consumer products.   Amazon is only just keeping its head above water.  It generates a lot of cash but in percentage terms its close to zero. Anything below 10% is very low; not a profitable company in my opinion. Amazon is a pure growth company.  It can grow profit by selling more, but its a very competitive market. Raising margins is very hard for Amazon; could kill their growth. Eventually the growth will stop. Competition will move in.  Or the market becomes saturated. Or the government decides its a monopoly.  Then their shares will drop. Very fast. Because the profit levels are very low and there is no promise of future growth. 

I am a value investor at heart. Some growth companies will produce outsized returns but most will fail. People are buying promises when they are buying Tesla’s shares. I don’t trust promises. I trust profits. That’s my opinion. I do not act on this opinion because I can be wrong. Same as an advisor. He can be wrong. So I buy an index. Whether “value” or “growth” does well tomorrow, I do well either way. You don’t need to understand value to invest today. 

Doesn't your value investing idol Buffet also own Amazon via Berkshire?

Malthusian

jamesd said:

Deleted_User said:

When the profit is 3%, its not a profitable company. Tesla also turned a slight profit recently. Neither company is worth the multiples based on traditional measures. 

By traditional measure both are correctly valued because the efficient markets hypothesis claims that the price correctly expresses all that is known about a stock.

That assertion is intended as a joke.

Wirecard is an example of why. The market simply chose to ignore evidence of problems years earlier from the Financial Times, while regulatory capture reached the point that the regulator banned short selling instead of investigating. Meanwhile the company used legal threats to further suppress bad news.

The market got there in the end though. Efficient markets hypothesis doesn't say the market is always right, it says that the market price incorporates all available information plus a random element. Wirecard taking a while to collapse after its accounting problems became public knowledge is the random element.

Evidence of an accounting scandal does not constitute knowledge that the company is going to collapse and become worthless. Otherwise every hack at the Financial Times would now be rich after shorting Wirecard shares with every penny they could lay their hands on.

Linton

Deleted_User said:

Profit margin is a key measure for value investors. Apple turns a meaningful profit. It will show 20-30% profit margin on its revenue.  Apple is selling consumer products.   Amazon is only just keeping its head above water.  It generates a lot of cash but in percentage terms its close to zero. Anything below 10% is very low; not a profitable company in my opinion. Amazon is a pure growth company.  It can grow profit by selling more, but its a very competitive market. Raising margins is very hard for Amazon; could kill their growth. Eventually the growth will stop. Competition will move in.  Or the market becomes saturated. Or the government decides its a monopoly.  Then their shares will drop. Very fast. Because the profit levels are very low and there is no promise of future growth. 

I am a value investor at heart. Some growth companies will produce outsized returns but most will fail. People are buying promises when they are buying Tesla’s shares. I don’t trust promises. I trust profits. That’s my opinion. I do not act on this opinion because I can be wrong. Same as an advisor. He can be wrong. So I buy an index. Whether “value” or “growth” does well tomorrow, I do well either way. You don’t need to understand value to invest today. 

I agree with your sentiments in that Value justifies itself. Though of course the future is not guaranteed even with Value .  A level of Growth driven pricing has to be justified to encourage investment in future change.  However I feel that some Growth prices are way beyond any rational justification.  If Tesla was extremely successful, matured,  and replaced Toyota in the world car market would it, as a Value share, justify its current valuation? And it might not get there anyway.

But despite our concern the markets see things otherwise. So what to do?  One could take your view, shrug your shoulders and go with the flow.  The worst case outcome for yourself wont be as bad as for many others. Though I would have thought that an index investor would naturally take the view that the market is by definition right.

My view is that one can do better.  Growth cannot be ignored unless one is prepared to sacrifice significant short/medium term return, but what one can do is to keep the excesses under some level of control.  Also by increasing diversification one can spread the growth net wider by investing more in many less-hyped growth companies beyond the massive US techs.

So you dont need to predict the future to invest outside the index, and neither does an advisor.  The important thing is to get the strategy right.  You then have to let events take their course.

Thrugelmir

jamesd said:

Deleted_User said:

When the profit is 3%, its not a profitable company. Tesla also turned a slight profit recently. Neither company is worth the multiples based on traditional measures. 

Wirecard is an example of why. The market simply chose to ignore evidence of problems years earlier from the Financial Times, while regulatory capture reached the point that the regulator banned short selling instead of investigating. Meanwhile the company used legal threats to further suppress bad news.

Due to the company's market capitalisation passive index tracking funds would have continued to buy the stock.  As was the case with Maxwell Publishing, unravelling fraud can be extremely complex. With transactions going through a myriad of companies in different countries. If the auditors didn't spot the fraud. The German national regulators would have absolutely no chance. 

[Deleted User]

Linton said:

Deleted_User said:

Profit margin is a key measure for value investors. Apple turns a meaningful profit. It will show 20-30% profit margin on its revenue.  Apple is selling consumer products.   Amazon is only just keeping its head above water.  It generates a lot of cash but in percentage terms its close to zero. Anything below 10% is very low; not a profitable company in my opinion. Amazon is a pure growth company.  It can grow profit by selling more, but its a very competitive market. Raising margins is very hard for Amazon; could kill their growth. Eventually the growth will stop. Competition will move in.  Or the market becomes saturated. Or the government decides its a monopoly.  Then their shares will drop. Very fast. Because the profit levels are very low and there is no promise of future growth. 

I am a value investor at heart. Some growth companies will produce outsized returns but most will fail. People are buying promises when they are buying Tesla’s shares. I don’t trust promises. I trust profits. That’s my opinion. I do not act on this opinion because I can be wrong. Same as an advisor. He can be wrong. So I buy an index. Whether “value” or “growth” does well tomorrow, I do well either way. You don’t need to understand value to invest today. 

I agree with your sentiments in that Value justifies itself. Though of course the future is not guaranteed even with Value .  A level of Growth driven pricing has to be justified to encourage investment in future change.  However I feel that some Growth prices are way beyond any rational justification.  If Tesla was extremely successful, matured,  and replaced Toyota in the world car market would it, as a Value share, justify its current valuation? And it might not get there anyway.

But despite our concern the markets see things otherwise. So what to do?  One could take your view, shrug your shoulders and go with the flow.  The worst case outcome for yourself wont be as bad as for many others. Though I would have thought that an index investor would naturally take the view that the market is by definition right.

My view is that one can do better.  Growth cannot be ignored unless one is prepared to sacrifice significant short/medium term return, but what one can do is to keep the excesses under some level of control.  Also by increasing diversification one can spread the growth net wider by investing more in many less-hyped growth companies beyond the massive US techs.

So you dont need to predict the future to invest outside the index, and neither does an advisor.  The important thing is to get the strategy right.  You then have to let events take their course.

I think the markets are very efficient, at least in the developed world. Its not an absolute notion.  If I see 100 quid on the road, it means there was an inefficiency. Nobody picked it up. It does not mean its representative of what I see when I take a walk.   That does not mean that the market cannot be beaten.  The Market uses the best information we have today. To evaluate value fully, we have to predict the future. The future is a probability, an event tree of various scenarios which impact the price.  At any given moment probabilities can change, sometimes dramatically. That means the market was “wrong” yesterday but does not mean it was inefficient.   A dedicated investor can read the statements. Some (like Buffett) can talk to the management. Or they may access inside information. As a result they can take a different view on probabilities from Mr Market. And they could be proven right. I can do it too but it means increasing my risks by betting against probability estimated by the Market. Its hard and time consuming to do this consistently over a long period of time. My time horizon is long. And its next to impossible to beat the market long term if your are burdened by several layers of fees.  

Who am I to call the market wrong on Tesla? The fundamentals look very bad by historic standards but things change. I did not interview the management team. Maybe they are brilliant. I have not studied the small-print on their statements. I do not really know what next quarter’s profit will be like. I do not know what is the next wonderful product they are about to announce. Employees and their families may have an  inkling. Insider trading helps to keep markets efficient, legal or not. Perhaps some researchers know something I don’t too. I am happy to be proven wrong. Let the others do the work for me by either doing lots of research, learning insider information or by taking active bets.  Good luck to them.  And its not IFAs doing this work. Its professional Harvard educated managers running billions on the Wall Street and in the City.  They are all trained in the same concepts. They are fighting it out between themselves. Robinhooders are just noise, impacting an odd stock here or there. They are the ones dropping 100 quid bills but its small scale. 

Lucys_Da

I am in my mid 40’s so have taken a fairly aggressive approach over the past couple of years that has served me incredibly well. YTD excluding fees and contribution my pension has risen by 57%!!! I focused purely on on an American funds and a UK Smaller Co fund for a good portion of that time and have recently rebalanced a little bit obviously given those gains need to rebalance some more. Back in Feb/Mar I was sweating on a 30% reduction but the upside has been nothing short of incredible since then. I have an ISA too which thanks to a large amount of SMT and PCT has also done very well, probably even better than that figure!! But definitely a time to rebalance across all my investments!! 

Secret2ndAccount

Deleted_User said:

I am a value investor at heart.

Really?  We would never have guessed

... So I buy an index. 

The problem is that when Dotcom Fail 2 comes along, everything will take a hit. Indices did not go unharmed in 2001. And your investment principle requires that you sit back and watch it happen. I don't think it's wrong if people choose to take some risk and try to capture some of the excessive gains on the way up.

When the fall comes some people who are unlucky or stupid, or not paying attention will lose their shirt or part of it. That's money on the table to be captured by those who are willing to take some risk. You are saying you aren't willing to fight for that money because you don't want to be the one who loses his shirt. That's a very valid position to take but I don't think it's wrong if others want to take more risk. It is possible for them to come out ahead with shirt intact, and I don't call someone lucky if they approach it with an understanding and a plan.

[Deleted User]

Secret2ndAccount said

... So I buy an index. 

When the fall comes some people who are unlucky or stupid, or not paying attention will lose their shirt or part of it. That's money on the table to be captured by those who are willing to take some risk. You are saying you aren't willing to fight for that money because you don't want to be the one who loses his shirt. That's a very valid position to take but I don't think it's wrong if others want to take more risk. It is possible for them to come out ahead with shirt intact, and I don't call someone lucky if they approach it with an understanding and a plan.

This is a game which is won by not losing.  

You do not need long term 30% annualized returns to have wealthy retirement.  You’ll get nothing if you try. Once you have enough, once you won the game - stop playing.  Why should I risk my shirt?  The same applies to most older folks.  

Younger people... OK, there could be an argument for them taking on more risk. They have lots of time to recover even if they do lose their shirts.  But its a tough game. Lots of people pick active funds. Most lose out. A few gain lots. The latter brag in chatrooms. Some folks will read this thread and follow in their steps. At some point everyone and his dog will go for tech/growth. Thats when the crash happens.  An easier way for youngsters to take on more risk is to borrow and invest in plain vanilla indices. 

It really isn’t about “getting lucky”. 

randompenitent

The problem with profit as a measure is that it is very manipulable.  Amazon chooses to make a small profit, or so I have read,  it could reduce investment and make a big one at a cost to its fairly spectacular growth. So to suggest that it’s small profit margins indicate it is just scraping along on the verge of bankruptcy is absurd. You can argue with the valuation, but that’s a different matter.
I read that Tesla is roughly cash flow positive now, so it too may have a sustainable business. And it’s producing a product that colleagues who are customers rave about. So what’s it worth? The market has taken a view and doubtless will have a different one tomorrow.

As others have said, this isn’t like dot coms in 1999. Amazon and Tesla are real companies with real products and real customers. Valuations are extraordinary, but with interest rates at zero or less and central banks printing money, where’s the money going to go? Bitcoin? Gold? Some, sure, but not all.  And not mine ;-)

Thrugelmir

randompenitent said:

The problem with profit as a measure is that it is very manipulable. 

Cash is and will always remain King. Hence why dividends are regarded as something tangible. Company financial statements can be dressed up in so many ways. Valuations may well become problematic. For no other reason than some companies will disappoint. As investors don't really understand the business or the market the Company operates in. Americans in particular are often oblivious to what's happening in the rest of the world.