New Sunday Times Feature - Diary of a Private Investor

Not into cars myself but my mate bought a tesla last year and got invite to factory in tilburg . Still raving about it. !
 
Well done Colm. I’ve really enjoyed this discussion and the openness you have offered about the shares.
 
Thanks bb.
I thought I'd share with AAM contributors an exchange with a contributor on another forum, who asked if there was a different timeframe for short positions than for long positions. Here was my answer:
"You raise an interesting question about timeframes, which are very different for shorts than for long positions. If I have a long position in a company, I'm happy to keep it open forever; in fact, some of my long positions are over a year old. Dividends paid in the meantime are credited to the account. Generally, dividends are higher than the cost of the "borrowing" on the long position, so even if the price goes nowhere, you're winning. With shorts, you have to plan when to get out. The cost of keeping a short position open isn't high (at least not for the shorts I've initiated to date), but any dividends paid on the stock are debited to your account (needless to say, there's no risk of that with Tesla!). There is also the risk of a takeover, which could cause a massive increase in price, potentially wiping you out. That's a theoretical risk with Tesla, but most unlikely, IMO. One must be suitably humble however and remember that the market price of a stock represents the accumulated wisdom of experts, some of whom think it's undervalued, others that it's overvalued, so it doesn't pay to be too dogmatic in one's views!"
I should add that I didn't mean to imply that a year is close to "forever" for holding a long position open! I should have clarified that I've been active in the spread bet market for not much more than a year, and it took me a while to find the right strategy, which is "buy and hold" for long positions. I have no intention of closing out the vast majority of my long positions any time soon. A final comment of course is that spread bets, be they long or (more particularly) shorts, are definitely NOT for widows and orphans. I had almost twenty years' experience of investing before I ventured seriously into these instruments. I'm still learning by the day. Hopefully none of my future lessons will be catastrophically expensive.
 
Colm Fagan said:
Thanks bb.
I thought I'd share with AAM contributors an exchange with a contributor on another forum, who asked if there was a different timeframe for short positions than for long positions. Here was my answer:
"You raise an interesting question about timeframes, which are very different for shorts than for long positions. If I have a long position in a company, I'm happy to keep it open forever; in fact, some of my long positions are over a year old. Dividends paid in the meantime are credited to the account. Generally, dividends are higher than the cost of the "borrowing" on the long position, so even if the price goes nowhere, you're winning. With shorts, you have to plan when to get out. The cost of keeping a short position open isn't high (at least not for the shorts I've initiated to date), but any dividends paid on the stock are debited to your account (needless to say, there's no risk of that with Tesla!). There is also the risk of a takeover, which could cause a massive increase in price, potentially wiping you out. That's a theoretical risk with Tesla, but most unlikely, IMO. One must be suitably humble however and remember that the market price of a stock represents the accumulated wisdom of experts, some of whom think it's undervalued, others that it's overvalued, so it doesn't pay to be too dogmatic in one's views!"
I should add that I didn't mean to imply that a year is close to "forever" for holding a long position open! I should have clarified that I've been active in the spread bet market for not much more than a year, and it took me a while to find the right strategy, which is "buy and hold" for long positions. I have no intention of closing out the vast majority of my long positions any time soon. A final comment of course is that spread bets, be they long or (more particularly) shorts, are definitely NOT for widows and orphans. I had almost twenty years' experience of investing before I ventured seriously into these instruments. I'm still learning by the day. Hopefully none of my future lessons will be catastrophically expensive.
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It's great to see someone so knowledgeable who so aware of their strategies' limitations. Such self awareness is so often missing in the madness of crowds.
 
mtk said:
It's great to see someone so knowledgeable
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I don't feel knowledgeable at the moment, having decided not to close the Tesla short at the end of last month, when the share price was down to $266. It would cost me almost $30 more a share to close it today, but I plan to leave the position open, at least until the results for 2017 are published early next month.
I feel even less knowledgeable as I prepare for my next update, which (on current plans) will discuss a share that has turned out to be a disaster for me. All will be revealed in a few weeks!
 
I once read an article in a local freshet, not the place you might expect original advice. It made the point that if you identify a share which is underpriced by the market, you must ask yourself, can you foresee a reason why the market will change its view and revalue the share. If the market undervalues the share today it may well still undervalue it next year as well.

Tesla is be overvalued on traditional metrics, may face a cashflow crunch, but that does not mean the market will abandon it.

There are a number of potential game changers that may alter Teslas position. Some deus ex macina may fund its cash needs for the next 5 years. Elon Musk may announce that he has developed a transformative battery. Tesla's value is built on hope. Not a wise thing to short in my opinion.
 
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moneymakeover said:
There is the small matter of profits.

If a company makes them the share price goes up regardless of opinion.
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My observation is has been that an unfashionable company can remain undervalued for an extended period of time. Equally a fashionable company can remain overvalued longer than seems reasonable. "The market can stay irrational longer than you can stay solvent."
 
Slightly off topic but a friend who is retiring is asking me how to invest her ARF. I am reluctant to say mainly equities as I think we could be in a QE induced bubble. Is advising a drip feed into the market over say three years to reduce timing risk good advice or just a cop out?
 
Well if you keep your own money in prize bonds, why would you advise your friend to invest in equities.
 
cremeegg said:
Well if you keep your own money in prize bonds, why would you advise your friend to invest in equities.
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A very good point. I am extremely risk averse, currently in Nice Airport getting tanked up for my flight.:oops:
I suppose the fact that I have an adequate DB pension rather perversely means I don't need to take risks with my humble savings pot.
Being asked to advise friends on these matters illustrates the huge difficulties leading me to believe there is no such thing as the correct advice just the pointing out of the pros and cons of all the options.
 
Duke of Marmalade said:
Being asked to advise friends on these matters illustrates the huge difficulties leading me to believe there is no such thing as the correct advice
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Duke. You're right about the huge difficulties, but I do think there is a solution. Managing my own DC pension pot for the last 20 years and chairing a company-sponsored DC scheme for the last 6 years have given me a good understanding of the huge challenges facing members of DC schemes, both before and after retirement. Even though I consider myself fairly knowledgeable on financial matters, I too feel lost at times on how to address the trade-off between risk and return (and it is a real trade-off; there's no getting away from it). God knows how people without a financial/ risk background can be expected to address the problem. AAM readers will know my solution: invest 100% (or more!) in equities. I recognise that others won't share my risk appetite, yet their best hope by far of receiving an adequate income throughout their (hopefully) long years of retirement is to invest the absolute maximum possible in real assets - equities, property, and other assets with similar characteristics. My recent paper to the Society of Actuaries, which I plan to reprise (with revisions to my thinking) to the Institute of Pensions Managers and to the IAPF over the next few weeks, proposes a resolution to the conundrum, to allow people with high levels of risk aversion to enjoy the long-term pay-offs from high levels of investment in real assets. I published the proposals on the the AAM Pensions Forum for comment. Any further comments will be appreciated.
 
Colm Fagan said:
I recognise that others won't share my risk appetite, yet their best hope by far of receiving an adequate income throughout their (hopefully) long years of retirement is to invest the absolute maximum possible in real assets - equities, property, and other assets with similar characteristics.
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Colm,

In terms of income drawdown in retirement, if you have any evidence to support this statement, I'd love (and be amazed :D) to see it.

In the U.S., others like Wade Pfau and M.McClung have produced very detailed research to the exact contrary.
 
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Duke of Marmalade said:
Colm, what about drip feed to reduce timing risk?
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First of all, Duke, glad you survived the flight. Another case of risk aversion overcome! I'm a great believer in the adage "It's not timing the market that counts, it's time in the market." Being out of the market is costly. Having said that, I'm sure you can demonstrate that there's less risk by drip feeding. It must be true. As a stock-picker, my version of drip feeding is to put money into stocks that I expect will have low correlations in terms of exposure to specific markets, economic conditions, etc.
elacsaplau said:
In terms of income drawdown in retirement, if you have any evidence to support this statement, I'd love (and be amazed :D) to see it.
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My evidence is my own research for the paper mentioned above. Importantly, my approach in its purest form involves pooling across generations and across market peaks and troughs (through smoothing), with a constant flow of new money and exits, although some limited analysis indicated that it also worked for single cohort entries. The presentation, and the results of the analysis, are on the Society of Actuaries website.

elacsaplau said:
In the U.S., others like Wade Pfau and M.McClung have produced very detailed research to the exact contrary.
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I am not aware of the research you mention. I'll try to get round to studying it sometime; won't be able to for a few weeks. A key aspect of my conclusion is the assumption (realistic) that the withdrawals are taking place over many years (I assumed 5% per annum withdrawals from an initial investment) and that money is taken monthly (also realistic). I don't know what time period (and time intervals between withdrawals) the researchers you quote looked at.
 
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Well Colm I think my approach to fear of flying can be supported by rational argument. I was running a 1 in a million chance of departing this mortal coil in that 2 hour flight. When I multiply the utility at risk by 10^-6 I still get a very large number:rolleyes:, but hey let's not get off topic.

My question on the drip feed is serious and I now recognise in myself that well worn criticism of financial advisors that they like to minimise their own risks of being seen to give bad advice. If I advise "drip feed" then I I'm on a win-win situation - if markets go up, the client is happy that she didn't put it all in cash and if they fall they see the wisdom of not plunging day one into equities.
 
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