06-01-2013, 12:06 PM
(05-01-2013, 08:56 PM)CityFarmer Wrote: [ -> ]I noticed that there are two major strategies been followed here, one strategy which keep cash reserve for opportunities arises (WB follower?). Another which does not keep cash reserve (Peter Lynch follower?)
For those fully invested will have better return during bull, but will expecte to suffer poorer return during bear. In longer term, performance should still be better than market average. As far as i aware, only KopiKat and me are belong to this group.
IMO, both strategies should work, and the performance will depend on individual execution.
Anyway, the reminder of hyom is valid. We should not become more "daring" after a good year. We should remains as "kiasi" if not more.
As for the cash inclusion. It is not an issue for me since i am always fully vested.
If comparing equity investment's return among us, we should include cash reserve of equity investment. Exclusion of other asset classes' investment and cash reserves should be reasonable.
Yes! I must admit I was greatly inspired by Peter Lynch after reading his book 'One Up on Wall Street'. I'd subsequently adopted modified versions of his approaches in identification, classifications, assets allocation... Do take note that most people whom I'd recommended to read this fantastic book had not found anything useful or inspirational...
After reading a few more investment books, I have also come to realise that what we called 'Peter Lynch' approach is actually what most successful fund managers are using. Go read 'Margin of Safety' by Seth Klarman (can find a PDF copy by googling as it's out-of-print) or 'A Thousand Miles from Wall Street' by Tony Gray (He's supposed to have broken Peter Lynch record in 1991 for Returns on a 10-Year investment).
Although the fundamental approach to stock selections and holding for long term is similar for Warren Buffett vs Fund Managers, one key difference is Berkshire Hathaway can afford to really hold their companies forever (especially the unlisted ones) as these are continuously generating FCF for Warren Buffett to invest at his own leisure ie. he can accumulate and hoard his cash and wait patiently to invest only when he finds something of good value at the price he's willing to pay.
In contrast, the Fund Managers are constrained by their FCF. If it's an open ended fund, then likely more cash inflow during bullish times and vice versa in bearish times. As such, even though their investment time frame is long term, they're still constantly reviewing their holdings to switch to stocks which they think will perform better. They also won't be holding too much cash in the interim as it'd pull down their fund performance and likely face mass redemptions... In the case of Seth Klarman, he'd even returned excess funds to investors when he couldn't find worthwhile investments...
So, yes, much as I'd like to practise Warren Buffett approach, I figured that the Fund Managers' approach is more suitable for me if I wish to survive on 'passive' income alone. If I were to follow WB and keep predominantly cash till market crashes, I'd have to eat into my Capital in the interim and may not have as much cash to invest when the crash finally does come along.... Perhaps when I reach the day when I'm able to generate passive income of a large multiple of my needs, I'll switch to Warren Buffett approach...
In the meantime, switch, switch, switch....
PS. Reading the books by / on successful Fund Managers has finally eradicated the guilt I'd always felt due to the high turnover of my holdings... ~3x for 2012... The term 'trade' is used often by these successful fund managers in their description of their switching strategies... It's no longer a 'dirty' term for a Value Investor, as far as I'm concerned...