"For the vast majority of investors a passive or index fund is a far better way to invest.
“…most active fund underperform the index. Most active fund managers are basically index-huggers.”
[We set up] "…a really active fund. Not in the sense of frenetic dealing but in the sense of differing from the index.
Never heard Terry Smith speak until now. Strikes me as a very reasonable and humble man. And he basically uttered a threnody for Jack Bogle there, +1 for that.
Ugh… if only I had the courage to invest with him…
@Julianek: so did I understand right, you figured out recently that your net nets strategy is too time-consuming and that’s why you will invest a bigger portion of your portfolio with Fundsmith? May I ask what is your current overall allocation?
It is mainly that lately the market had gotten so high that the number of available net nets is absolutely tiny. As these are usually mediocre companies, you could not find enough to diversify (net-nets work well as a basket, but are way riskier individually). They are usually less time consuming though: you know already that they are mediocre companies, so you don’t have to check again and again that they are good businesses (quality checking is more time consuming).
So i have currently the below allocation.
The cash is high but comes from a recent bonus.
As you see i am mainly invested in Smithson (the small/midcap version of Fundsmith, available on IB), which provides the base line of my portfolio for good returns/low volatility.
It is also the basis for my opportunity cost. Anything I add to the portfolio should improve my opportunity cost.
I am also considering opening an account at their SICAV for Fundsmith (as it is a mutual fund, non-UK investors have to go through the SICAV in Luxembourg).
Finally, i guess most people on the forum should discard the last line(individual stocks) and replace it by the fund of their choice as I guess they won’t go into individual businesses.
| Position | Percentage |
|---|---|
| Cash | 7% |
| Second Pillar | 9% |
| Smithson | 37% |
| 8 other companies | 47% |
What books and resources would you recommend to someone just starting with active investment to learn about all these topics?
If you don’t do point 2, but take e.g. VT - would you bother with / care about balancing out the small-mid-large cap “misalignment” which comes with overweighting small/mid with SSON?
If you don’t know accounting, you will have to learn it, one way or another. Accounting is the language of business, and you need to know how profitable a business is, how much capital it needs, and how much of its profitability you can expect to benefit you.
Any book will do, but as the topic is quite dry, for newbies i would recommend chapters 4 to 8 of The five rules for successful stock investing, by Pat Dorsey.
Berkshire Hathaway, letters to shareholders, 1965-2019. Buffett’s letters are famous for a reason, and i learned a lot about what makes a good business in them. The topics are a bit random every year, so if you want them more organized, Lawrence Cunningham ranked them by topic in his book The essays of Warren Buffett : Lessons for Corporate America
The blog and lectures of Sanjay Bakshi. Sanjay is an indian professor and successful practitioner of value investing. Over the years he has amassed a lot of wisdom that he shares freely on his lectures (they can be a bit messy, but full of treasures, especially the company analyses), as well as on his blog. In particular, this article is a masterpiece.
Quality Investing by Lawrence Cunningham will give you the building blocks of what are excellent businesses
You will need to be able to evaluate management. This might look like a vague and daunting task, but your priority is to know if they are good capital allocators. No better book has been written on the subject than The Outsiders, by William Thorndike
Well, there are so many books to read, but with those you should have an idea about where you want to go next…
Oh, and one more thing: don’t neglect the Sanjay Bakshi resources: they are really that good. Don’t be rebuffed by the Indian units he’s using, it is worth learning to understand his articles (1 lakh = 100’000, and 1 crore = 10’000’000).
If all the fund manager die in an accident, i would expect the company to liquidate the fund and return capital to shareholders. The value of the holdings would not move : the value of Microsoft does not change because a fund manager holding Microsoft passed away. Any other outcome would be an arbitrage opportunity.
I don’t know, I don’t think in terms of market exposure, but in term of opportunity cost. If my portfolio is expected to return 10% over the long term, then my opportunity cost is 10%. Every time i consider a new investment opportunity, i compare it to my portfolio opportunity cost. If I can reasonably think that I should expect 8%, then i don’t add it. If i have no clue (happens a lot), then i don’t do anything.
But the rules of the game is to try to increase the opportunity cost of my portfolio with sufficient margin of safety…
So to answer your question, with SSON i’d expect around 14-15% over the long term, same for FEF… VT would not make sense in this case.
If nobody (fit to run the company) is around anymore, someone else would be appointed liquidator.
Hey, just wanted to thank you for giving these resources, which are valuable as a primer on the topic.
Also, I wholeheartedly agree one should some (at least sometimes) try to think outside of the box and look not limit one’s horizon to US and, maybe, British sources, literature and research.It’s easy to become biased towards them for the simple fact that the biggest exchanges and financial firms are located are in these countries - and the language, obviously.
E.g., not discount resources because they originate from a supposedly “less developed” region or market in the world.Be that in more broader terms of “human development”, or in a narrower sense of less developed equity markets.
I assume the majority on this forum has a “buy and hold” strategy. But has anyone tried to sell out of the money, short maturity, call options on their underlying holdings?
Say one has a long 1000 shares position on company/fund XYZ at an average price of 4.00 $/share (i.e. total amount invested to date $4k). Let’s assume current price is maybe lower, say around 3.50 $/share, and a 4.00$/share call option with maturity 20th of May will be 0.05-0.25 bid-offer. What if you can sell 1 call option for say 0.15 $/share, then you can receive 15$ in premium. If the option will expire worthless (say price will be <=4.00 $/share at maturity) then you cash 15$ and your long position remains unchanged. If on the other hand the option expires in the money (i.e. price at maturity is >4$/share) then you’ll have to sell 100 shares of XYZ to the option buyer at 4 $/share. You still realized the 15$ profit but you lose the opportunity to gain more by selling the 100 shares at higher market price. In this case, the adjusted portfolio will be 900 long shares @ same average price of 4$/share + 415$ in cash. This of course works if you have a view that on 20th of May the price for this share won’t settle higher than 4 $/share.
Any thoughts?
It’s obviously a legitimate strategy and since Switzerland has no capital gain taxes, it costs you almost nothing to sell and buy again, unless of course you have to buy again at a higher price. This is a good strategy for a market moving mostly sideways. The taxman may find it questionable though.
As an alternative for buy and hold investors, a better idea may be to sell puts. I mean, you know when and what amount you want to buy. You can cash in the option premium as you go. Either your option expires but you keep the premium, or you get the shares you wanted to buy anyway, at a price you wanted to pay.
For non-professional private investors. Selling options may endanger that status for you.
This is also what I thought. Once a month, so it’s not a big deal for the tax office
1 options contract is for 100 shares so at todays price of VT, that would be 6800 CHF a month. A bit too rich for me 
ahah well right. Every 2 months then. I wonder how much you might make. 20-30 chf?
I am not an expert in options at all, but don’t you loose 85 CHF if the price goes to 5 for example, or 35 CHF if the price goes to 4.5 ? I understand you are earning the money your are loosing, but that is still a loss.
Let’s take my example with VT and assume you’re already long 1000 VT shares bought at an weighted average price of say 65 $/share (assuming you started investing more than 3 years ago). Here’s today’s options schedule:
But, as I mentioned before, this makes sense in case you have a market view that the prices for VT may go down in the near future (say there are some really bad news coming up after economies are slowly restarting, maybe 2nd wave of infections etc.). Again, it involves taking a market view, it’s not passive investing (so that’s why I’m discussing about it in this thread).
Thanks for your explanation, but I don’t see the 0.60.
Also you’ll have more success in showing a sale of a PUT since most of the people here are for the long term, so we prefer to buy rather than sell.
Well, the 0.60 is a price in between the 0.50-0.80 bid-ask spread highlighted in the screenshot, skewed towards the bid price (one wouldn’t want to pay exactly the quoted bid, at least I wouldn’t - I almost always use limit orders). But you can use the 0.50 bid price if you just want to trade at market price…
And as I said before, this strategy is mainly used for generating some extra cash from your portfolio that takes a beating during a downturn.
Nonetheless, I do agree that selling puts makes more sense for “buy and hold” long term investors. This just dawned on me, but I think it’s actually even a better strategy than the DCA or, especially, VCA if you have a big amount that you don’t want to invest it all in one go (which, btw, might be the best thing to do as it was intensively argued and discussed on this forum).
I don’t like active funds either, but I like to actively invest myself a part of my net worth in companies I like believe have big upside.
The advantage of an individual investor is agility. You can buy 10k in a company and the price won’t move. Funds have more trouble to outperform in part because they buy/sell large amounts and move considerably the price by doing so.
Anyone knows a good online forum like this one, that is more focused on stock picking?
