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Credit deflation and the reflation cycle to come (part 2)


spunko

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Democorruptcy

Berenberg have put out a note moving BT to Buy from Hold with a target of £1.30

I thought this bit was interesting:

Quote

"With Openreach's capex/depreciation at circa 140%, its mean capital employed is growing (now £14.1bn but should be higher in a year) and with an ability to earn returns above weighted average cost of capital, we believe delivering mid-single-digit growth will strengthen investor belief that Openreach's valuation could approach £20bn, underpinning BT's valuation," it said.

 

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leonardratso
1 minute ago, Loki said:

Silver just hit over $25 again

 

yar, noticed PHAG spiked. Not to be confused with fags earlier of course.

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11 minutes ago, leonardratso said:

dont they? im able to sell units of vanguard and fundsmith, plus stuff like baglar/braahn from lloyds (rebadged halifax), so effectively top slicing them.

Do the same with vopzh and merian swerso [gold/silver], maybe your funds are different.

I think he/she has individual shares but not enough in each to warrant paying the fees to top slice.

Anyone holding the new Sibanye ADR since the rename, be warned, you'll need to call to sell on AJBell.

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reformed nice guy
1 hour ago, Castlevania said:

Some of those (e.g. ConocoPhillips) are below your buy price?

Doh!

Bought some today, its now at $33.5

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6 hours ago, Vendetta said:

I just do what Durham Born says! 😂😂😂

All jokes aside first and foremost I take a timing approach.

Obviously ....

”Buy on the 15-20% + market crashes”. 

Harder to do than to say it.

Bought my first shares since 97-00 in the last 2 weeks of March when everyone headed for the door (perfect tax timing for ISAs) as well. Missed out on 2007/8 crash - as all liquidity went into family home. 

Continues to ‘buy on the dips’ as @5min OCD speculator says - however must be in the right sectors. 

As @DurhamBorn says “in the key cyclical sectors.... oils, potash, telcos, GSMs” 

The key driver is how much cash I have. There is nothing worse than seeing a major correction and not having the ‘liquidity’ to take advantage.

(edited to add: or room left in your ISA tax shelters etc).

I think the NASDAQ is hugely overbought. It’s a ‘brave’ but more ‘foolish’ man that will buy now.
 

Who will be the ‘final fool’??

If it was not for the NASDAQ TECH bubble (and my lack of cash!)  I’d be adding to my POTs (potash, oil and Telcos) bought since March 20’-  which cyclically still look very good value.

However I think there will be a further low in the next 3 months (caused by a whole market sell off after the NAS bubble pops).

The POT sectors will take a discounted hit as well - by which time I will have more liquidity - and if/when the markets crashes I will pick up more POTs and a tranche of miners as well and may add to my gold and silver. 

I will continue to take profits on my higher risk investments - and with those profits continue to buy the big dividend paying companies (again P, O, T s for now) - so hopefully long term will have a dividend income that shields against inflation.

I think if I stick to companies that actually dig wealth out of the ground (P, O, Miners) or a Tech service that everyone uses (telcos) I cant go to far wrong? 

Last caveat - don’t take my advice. I have a huge amount to learn - and have learnt more off you and DB and the others here than I could imagine.

25 years ago I borrowed money off the bank to invest in Cambridge Antibody Technology and Gold miners (told them it was for a car!)  - it’s amazing when you are single and skint your appetite for risk is much greater. 


My goal:

To achieve 5%+ in capital growth (over inflation) per year plus an income from dividends each year for the next 30 years (to supplement a pension from 2030) I would be a very happy man. Is that realistic? 
 

I've based all my projections on 3% above inflation. If I got 5% or more I'd be very happy. I actually think 5% is very achievable if you manage things yourself and have some of the knowledge available on this thread. Anton Kreil reckons 10% per annum is easy with very little risk (but then he was a professional trader).

Have to say though, it may be a lot harder making profits year on year if we end up in a high inflation environment with significantly greater financial repression than at the moment - but if you understand the gist of what's going on then you should be ok.

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3 hours ago, Sugarlips said:

 

 

2 hours ago, Loki said:

 

 

@Sugarlips and @Loki

Thanks for these. I recommend. 

Really useful.

I am going to continue to sell and take profits on a regular 2 week basis into this market ‘melt up’ - keep taking cash out onto the sidelines.

Day by day I become more convinced there has to be major corrections in the bubble in equities and silver. Such massive volatility.

My perfect scenario on the ‘second shoe falling off’ and becoming the  ‘mother of all crashes’ would be it occurring sometime between Oct - Dec 20’..... the later the better. 

Thereby allowing me to allocate a hefty amount back into ‘MPOTS’ sectors - before the new financial year in April and then again throughout 2021....

Is it just possible though..... that we never get the deflationary bust - and we go straight to inflation? 
 

I think not myself. 
 

 

 

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2 minutes ago, Vendetta said:

Is it just possible though..... that we never get the deflationary bust - and we go straight to inflation? 

I've got a feeling I asked our own @DurhamBorn this and he said while possible it was very unlikely.  

14 minutes ago, leonardratso said:

hmm golds over $2000

My recent silver CFDs look a bit happier now.  Green shoots!

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Bricks & Mortar
36 minutes ago, AWW said:

Gold price spike could be due to this?

 

Personally, I think it's more about news that stimulus talks in US Congress have been 'productive', and the prospect of another couple of trillions being dished out to US voters.

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7 minutes ago, AWW said:

Apparently that explosion was a fireworks warehouse, not the act of war it looked like.

Someone got a bit excited by the gold price?

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leonardratso
8 minutes ago, AWW said:

Apparently that explosion was a fireworks warehouse, not the act of war it looked like.

hell of a bang.

Must have been those illegal chinese fireworks that blow your hand off and have a 0.5 second fuse.

 

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On 03/08/2020 at 10:01, Loki said:

@Vendetta here's my holdings as of today.  Nothing there too unexpected to the credit deflationistas xD

I'm sure there's a very clever formula for working it out but basically I try and have a good mix without spreading my funds too thin.

holdings.PNG

Thank you Loki - that's an interesting question to me as a complete beginner. I only really started buying in April, and when, last weekend, I came to review what I'd bought, I had some sobering observations, some of which relate to what you ask.

To begin with, I'm basically flat, even in this rising market, so I would have been a minor disaster if I had put my foot in at the start of the year. So, first observation is that I'm not good at this. I also resent having to be a gambler, and although overall I've been flat +/- 5%, that covers some wild swings in individual stocks, which would be an absolute white-knuckle ride if I didn't have some diversification (and I only have some). As I said, I hate being forced to be a gambler, but having seen the political actions over the last few months, I'm convinced that keeping cash is itself a gamble, and one with the odds stacked against me. Second, it's really hard to resist the temptation to adjust things, even though I know that I would be a catastrophe as a trader (I don't have the psychology for it). So, I have decided that I will only buy, never sell (with the exception that I plan to sell 75% of any PM miners if silver ever hits $200). So far, I have never sold a stock. Even so, I'm worrying enough about what I should add! HL seemed to give good general advice though, which I think I can summarise as: (1) Diversify; (2) Don't fiddle, and (3) Let time and compounding do their work.

Anyway, enough of my whining, you raise a good question, and I'm going to make a simple observation from my basic knowledge of stats, which I guess most people know already.

I don't understand the volatility of stocks, but let's keep it super-simple (and completely unrealistic - sorry), and suppose that they jump around in value, over some percentage range around a baseline price. If I just buy one company, then I'm in for a wild psychological ride, and I'm not going to get much sleep. However, if I buy several, and (in the best case) I have been really good and chosen stocks that jump around independently of each other, then if I hold 4, the swings in my portfolio price will be roughly half what they would be if I only held one. Similarly, a portfolio of 100 will reduce the size of the fluctuations by a factor of 10 compared to holding one stock. However, that only applies if I hold equal amounts of those 100 shares, which in general I won't. Instead, I hold a range of percentages of different stocks in my portfolio (which all add up to 100%). I might, for example, have 99% of my holding being RDSB, and 1% Google, then I'm not much better off (fluctuation wise) than holding just one stock.

So, what is the "equivalent" number of stocks I hold, in the sense of what number of equal holdings would reduce the fluctuations to the same level? It turns out this is really easy to calculate in the fluctuation model above, just using high-school stats: You turn the percentages into the fractions of your portfolio (so a stock with a weighting of 50% has a fraction of a half). You then sum up the squares of the fractions, and the "equivalent" number of shares is one over this value. Here's the calculation for your portfolio. So, although you have 19 shares, the "equivalent" number (in terms of averaging out fluctuations in price) is actually 12.

I don't know if that's useful. Stocks obviously do much more than fluctuate around a baseline (to the point where that is a meaningless statement), and their fluctuations have long tails, and correlations exist within and between sectors. However, I'm going to use this simple "equivalent number" measure as one way to keep an eye on the diversity of my holdings, and make sure I don't end up in the 99% RDSB / 1% Google scenario.

 

 

Untitled.jpg

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Just wanted to add this slide from BP today as it shows the level of buybacks of shares at Brent prices.At $60 a barrel Brent they expect to be buying back around 5% a year of stock.A $10 uplift in price almost doubles the stock buy back,actually up about 80%.So say 8% a year of stock (at todays price).I think oil will average over $100 a barrel over the cycle,so we might get an average of 15% of stock bought back a year over the cycle.Plus 5% dividends,BP MIGHT deliver 20%pa compounding over the cycle.

bp-2q-2020-results-strategy-presentation-47-638.jpg

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@BurntBread  Superb post, I enjoyed the thought exercise and following your thought process.  It must have some value as a rough and ready indicator - I suppose you could try it with sectors/industries rather than individual stocks?  

Could the VIX be any help I wonder, if tied in to the sheet somehow.  

I think you put yourself down far too much in that post!

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Noallegiance

I can't stay away with all this shit going on.

Gold through $2k like it wasn't even there.

The biggest explosion (fireworks?! Seriously?!) since the last really big explosion.

More printy printy.

Revolting peasants with dwindling job supply.

Sovereign states on the brink.

Heck of a time.

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3 hours ago, BurntBread said:

Thank you Loki - that's an interesting question to me as a complete beginner. I only really started buying in April, and when, last weekend, I came to review what I'd bought, I had some sobering observations, some of which relate to what you ask.

To begin with, I'm basically flat, even in this rising market, so I would have been a minor disaster if I had put my foot in at the start of the year. So, first observation is that I'm not good at this. I also resent having to be a gambler, and although overall I've been flat +/- 5%, that covers some wild swings in individual stocks, which would be an absolute white-knuckle ride if I didn't have some diversification (and I only have some). As I said, I hate being forced to be a gambler, but having seen the political actions over the last few months, I'm convinced that keeping cash is itself a gamble, and one with the odds stacked against me. Second, it's really hard to resist the temptation to adjust things, even though I know that I would be a catastrophe as a trader (I don't have the psychology for it).

You sound a lot like me.. My portfolio management skills are atrocious.. I'm barely above flat in my ISA too, despite it being full of all the right stuff ad the excellent guidance here. Tinkering and selling too early did me in.

Doesn't mean you'd be a bad trader though.. it's an entirely different kettle of fish, and depending on the style, can benefit from constant tinkering, adjustment and early profit taking.  That's basically what I do all day with the options, 5-10 trades and day, and it's making a steady 50% plus with very little volatility.

Bit of a hiccup in Feb/Mar as I went into covid-prepper mode and stopped "tinkering", making daily adjustments. I knew my system worked, so let the mechanics and odds play out and recovered pretty quickly, but my account suffered for lack of constant adjustments.

You can see where I optimised things a bit after this, reducing risk by taking profits even earlier reducing time in the market.. expecting to make less but with less volatility.  Turns out volatility reduced, but my monthly return actually improved a little.. which was a lesson in itself..

1981286224_Screenshot2020-08-04at22_19_44.png.f3230265c95000724b03ac1aaf4581e0.png

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Well I sold HOC at the wrong time xD

Balancing caution and greed is definitely the key when taking profits though, so no regrets. It was still up 55%.

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