Aren't you almost equally better off just investing in an index tracker then? Or else you're basically saying you're able to pick out the better performing half of the companies. Wouldn't you be better than any fund manager out there if you can do that?marksmeets302 wrote:By owning pieces of many, many different companies the law of large numbers sets in. You will own shares in companies that committed fraud, but also in companies that have positive surprises. It all evens out.
Had I invested all my money at once 32 years ago in the FTSE100, I'd have got on about 6.5% a year. If I had invested 20 years ago, I'd have only got only a year 3%. If I had built up my position slowly, I'd have got even less. Not hugely attractive to me for the risk involved.
Sorry, let me reclarify. Last time, I promise. I'd be looking for the best investment ideas for:andyfuller wrote:I would say it sounds like you want long term investing not automation and/or sitting at the computer all day. Both of those sound very short term and high risk - the opposite of what you think they currently are.xitian wrote: I suppose I'm not necessarily looking for automated. I'd just be looking for relatively hands-off or unmanaged. Basically I don't want to have to be on the button ready to sell within seconds if some kind of news breaks which I need to react to. However I'd still like to have a sizeable portfolio (in value regardless of what it's formed of) with close to zero risk.
I think the only way to achieve low risk but maintain any sort of return is to either: have massive diversification (i.e. stat arb) with automation, or be manually trading and sitting at the computer all day.
- Relatively hands-off - i.e. mostly passive investment
- Good risk adjusted return - e.g. whether this be low risk with medium return or medium risk with high return
- Something which is scalable
Now let me cover where I think several options we've discussed already fall:
- My sports trading (automated) - mostly unmanaged, low risk, high return, pretty unscalable (or at least you quickly hit the limit and grow faster than you can invest)
- Medium frequency manual trading - actively managed, low to medium risk, medium to high return, high scalability
- Long term investing - debatable about how managed/unmanaged it can be, risk is relatively low if you can build a diversified portfolio so let's say low to medium, returns are also debatable (i.e. depends on your picks) let's say low to medium, very high scalability
- Activist investing - a lot of work initially, but then mostly unmanaged, medium risk (because you could lose big and you're unlikely to have loads of different investments), returns potentially very high, very scalable
That's quite generalised of course, but perhaps what I need to do is pick out sub-categories, or specific ways of doing things in the above categories to achieve that slightly better risk/return. Does the way I'm framing the problem make sense though?
Perhaps it's one of those things where if there were a clear answer then everyone would be doing it. In which case, perhaps I should add another criteria which is - possible to be learnt through hard work, reading and practice. For example, long term investing could fit my requirements if I manage to achieve low risk, medium return and relatively hands-off, but the big question is can you really learn to be a good long term investor? Or is the fact that it takes 20-30 years for an investment too long to allow for learning by practice? You won't know whether you're good or bad until it's too late already because it takes you most of a life-time for one attempt.
I do get that. Trying to second guess everything every day when you have a long term goal is definitely going to be detrimental, let alone considering the transaction and spread costs. However, isn't long term investing basically fundamental value investing? So you're looking for something which is intrinsically cheap, and hope that over the long term you get good value for your money (people will see its value after you). Now should that value change for some reason if new information comes to light - VW cheating on their manufacturing, Tescos cooking their books, etc... Don't you have to re-evaluate your original decision about what value those shares hold? Sure you don't hold a position in shares or your trade on a horse, if you think the value isn't there any more because the situation has changed. In which case don't you have to continually re-evaluate your holding/bets even if they are long term?andyfuller wrote:Long term investing is the least risky imo. I would suggest the opposite of watching the portfolio carefully for long term investing - the idea is to buy and hold not buy and constantly be checking and reacting to every bit of news. Doing that is likely to damage your portfolio very badly over the long term.
Does pretty much sound like private equity to me? Not sure what the difference is. Perhaps the scale?andyfuller wrote:Are activist investors good or bad for the firms they target? They hunt down companies they think are underperforming. They buy a stake in the business, then lobby for change. Critics say activists want to make a fast buck and then head for the exit. But you could regard these investors as doing a valuable service - challenging poorly performing company boards and making more profit for shareholders.