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  #381  
Old 10.02.2021, 18:58
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Re: Equity Portfolio Advice

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I agree 18 months to 2 years isn't long enough but the last 2 years have already been pretty meh. That'd be 3 or 4 years of average performance.

I'd probably be rotating into SSON and FEET in any case, or at least something similar, not yet more BG. Its more that within the FS portfolio, the global equity portfolio is of lowest interest to me.
Up until very recently you would not have thought of investing in FEET, a dog over the previous 5 years! There was a thread last summer & I said it looked good value at a 17% discount, I don't think there were many takers. Half of the performance has come from the reduction in discount so won't repeat, however the larger discount could return.
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  #382  
Old 10.02.2021, 19:03
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Re: Equity Portfolio Advice

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I agree 18 months to 2 years isn't long enough but the last 2 years have already been pretty meh. That'd be 3 or 4 years of average performance.

I'd probably be rotating into SSON and FEET in any case, or at least something similar, not yet more BG. Its more that within the FS portfolio, the global equity portfolio is of lowest interest to me.
I’m a bit shocked by that statement. Fundsmith returned 25.6% in 2019 and 18.3% in 2020 and to date has averaged 17.8% annually. Honestly, if it returns 15% for me over the long term I will be ecstatic.
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  #383  
Old 10.02.2021, 19:09
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Re: Equity Portfolio Advice

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I’m a bit shocked by that statement. Fundsmith returned 25.6% in 2019 and 18.3% in 2020 and to date has a averaged 17.8% annually. Honestly, if it returns 15% for me over the long term I will be ecstatic.
People get greedy & want to get rich quickly, at the moment all sorts of crap that Fundsmith will not invest in prices have gone to the moon, it won't last, it never does. Getting rich slowly is the secret, FS has beaten the S&P500 over most periods, with lower volatility too. This is very unusual. Higher risk usually does not pay off, anyone investing in technology stocks in 1999 had to wait a very long time to get their money back, history may not repeat itself but will probably rhyme!

I am an executor of a will, some money needed to be invested. I suggested to the other executor who was a trader for many years at Goldman Sachs, that I thought an S&P 500 tracker was probably a suitable investment for the majority of the funds. His response:-

"The reason I think the S&P is a good choice is because of a piece of finance theory called the Capital Asset Pricing Model. What it tells you is that the only efficient way to create a portfolio of risky assets is for the portfolio to contain every investable asset weighted according to value. In other words, you own in microcosm exactly what the aggregate of all other investors own. Otherwise you will be taking on a unnecessarily large amount of risk to obtain a given return. Now of course it relies on a lot of assumptions that are questionable, most importantly that the market is efficient, but the overall conclusion is quite reasonable. The market is made up of lots of investors many of whom think they can beat the market. But of course in aggregate they can’t because the market just consists of a lot of people who are trying to beat the market! People can be lucky for a while, and tend to remember their successes longer than their mistakes, but the number of investors who consistently beat the market is very small. And it’s hard to be sure that even the ones who do haven’t just been lucky for longer.

So that, along with low fees, is the argument for investing in index trackers. Strictly speaking, you should invest in the index of all global risk markets in proportion to their capitalisation (equities, property, hedge funds, commodities…), but the S&P 500 is a decent enough proxy.

Actually I believe it is possible to find “alpha”, and not just have your returns determined by how much “beta” (ie how much exposure to the market portfolio) you want to take on. In fact I spent quite of bit of my time in trading attempting to extract alpha. If you research hard enough I think you can find risk-adjusted opportunities that are larger than the transaction costs you need to incur to exploit them. But it’s really not easy, and for this portfolio I think not appropriate.

So S&P 500 would be fine with me."

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  #384  
Old 10.02.2021, 20:56
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Re: Equity Portfolio Advice

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People get greedy & want to get rich quickly, at the moment all sorts of crap that Fundsmith will not invest in prices have gone to the moon, it won't last, it never does. Getting rich slowly is the secret, FS has beaten the S&P500 over most periods, with lower volatility too. This is very unusual. Higher risk usually does not pay off, anyone investing in technology stocks in 1999 had to wait a very long time to get their money back, history may not repeat itself but will probably rhyme!

I am an executor of a will, some money needed to be invested. I suggested to the other executor who was a trader for many years at Goldman Sachs, that I thought an S&P 500 tracker was probably a suitable investment for the majority of the funds. His response:-

"The reason I think the S&P is a good choice is because of a piece of finance theory called the Capital Asset Pricing Model. What it tells you is that the only efficient way to create a portfolio of risky assets is for the portfolio to contain every investable asset weighted according to value. In other words, you own in microcosm exactly what the aggregate of all other investors own. Otherwise you will be taking on a unnecessarily large amount of risk to obtain a given return. Now of course it relies on a lot of assumptions that are questionable, most importantly that the market is efficient, but the overall conclusion is quite reasonable. The market is made up of lots of investors many of whom think they can beat the market. But of course in aggregate they can’t because the market just consists of a lot of people who are trying to beat the market! People can be lucky for a while, and tend to remember their successes longer than their mistakes, but the number of investors who consistently beat the market is very small. And it’s hard to be sure that even the ones who do haven’t just been lucky for longer.

So that, along with low fees, is the argument for investing in index trackers. Strictly speaking, you should invest in the index of all global risk markets in proportion to their capitalisation (equities, property, hedge funds, commodities…), but the S&P 500 is a decent enough proxy.

Actually I believe it is possible to find “alpha”, and not just have your returns determined by how much “beta” (ie how much exposure to the market portfolio) you want to take on. In fact I spent quite of bit of my time in trading attempting to extract alpha. If you research hard enough I think you can find risk-adjusted opportunities that are larger than the transaction costs you need to incur to exploit them. But it’s really not easy, and for this portfolio I think not appropriate.

So S&P 500 would be fine with me."
So now we’ve come back to index funds. I was a bit surprised when you mentioned S&P 500 as an alternative to Berkshire a few comments back. I thought the point is to only own good businesses. When I started the thread I mentioned I was invested in a number of index ETFs and this was critiqued by a number of posters (I think yourself included). Can you help clarify why you recommended S&P 500 in this particular case and not Fundsmith?
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  #385  
Old 10.02.2021, 21:01
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Re: Equity Portfolio Advice

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So now we’ve come back to index funds. I was a bit surprised when you mentioned S&P 500 as an alternative to Berkshire a few comments back. I thought the point is to only own good businesses. When I started the thread I mentioned I was invested in a number of index ETFs and this was critiqued by a number of posters (I think yourself included). Can you help clarify why you recommended S&P 500 in this particular case and not Fundsmith?
The person had been investing with a stockbroker for 25 years, annual gains ca 1% compound, after fees totally diversified for safety. I had to find a subtle way to sack the incumbent manager knowing that it was not my decision, so I had to work out the best acceptable way going forward, hence the S&P 500 which very few have beaten on a 20 year plus view & nobody could argue with. It's not my money, I have a duty of care to a family. Nobody ever got sacked saying buy IBM computers....... Not the stock!
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  #386  
Old 10.02.2021, 21:16
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Re: Equity Portfolio Advice

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The person had been investing with a stockbroker for 25 years, annual gains ca 1% compound, after fees totally diversified for safety. I had to find a subtle way to sack the incumbent manager knowing that it was not my decision, so I had to work out the best acceptable way going forward, hence the S&P 500 which very few have beaten on a 20 year plus view & nobody could argue with. It's not my money, I have a duty of care to a family. Nobody ever got sacked saying buy IBM computers....... Not the stock!
Crystal clear, thanks.
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  #387  
Old 10.02.2021, 21:26
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Re: Equity Portfolio Advice

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Crystal clear, thanks.
It was also Warren Buffets advise for his wife after his death (She died in 2004, He had an open marriage & shared a bed with a friend of his wife's! they sent Christmas cards as 3!).
S&P 500 is a long term investment that will beat 90% of everything else on a long term view & should never be sniffed at.
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  #388  
Old 10.02.2021, 21:50
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It was also Warren Buffets advise for his wife after his death (She died in 2004, He had an open marriage & shared a bed with a friend of his wife's! they sent Christmas cards as 3!).
S&P 500 is a long term investment that will beat 90% of everything else on a long term view & should never be sniffed at.
His advice I am aware of but not the open marriage!

Just to be clear though, we are almost certain here that Fundsmith and Smithson are in the 10% I understand?! I can’t start doubting the decision to exit all my index positions now!
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Old 10.02.2021, 22:31
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Re: Equity Portfolio Advice

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His advice I am aware of but not the open marriage!

Just to be clear though, we are almost certain here that Fundsmith and Smithson are in the 10% I understand?! I can’t start doubting the decision to exit all my index positions now!
FS & Smithson are undoubtedly in the top 10%.

This was the second AGM of Fundsmith about the time I seriously started investing. (full run time with Q&A was 1.5 hours at the time) He clearly says he does not expect the fund to always outperform & was surprised how well the fund did in a rising market
https://www.youtube.com/watch?v=sw5GGZsWTfw
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Old 10.02.2021, 22:46
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Re: Equity Portfolio Advice

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Up until very recently you would not have thought of investing in FEET, a dog over the previous 5 years! There was a thread last summer & I said it looked good value at a 17% discount, I don't think there were many takers. Half of the performance has come from the reduction in discount so won't repeat, however the larger discount could return.
I invested in the late summer, August or September. I've added a bit more when the discount was about 9% - november time to my wife's account.

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  #391  
Old 10.02.2021, 22:59
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Re: Equity Portfolio Advice

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I’m a bit shocked by that statement. Fundsmith returned 25.6% in 2019 and 18.3% in 2020 and to date has averaged 17.8% annually. Honestly, if it returns 15% for me over the long term I will be ecstatic.
Sure but it's opportunity cost. Is there a good reason not to move into sson which has done better still and would be expected to do better?
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  #392  
Old 11.02.2021, 10:21
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Re: Equity Portfolio Advice

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People get greedy & want to get rich quickly, at the moment all sorts of crap that Fundsmith will not invest in prices have gone to the moon, it won't last, it never does. Getting rich slowly is the secret, FS has beaten the S&P500 over most periods, with lower volatility too. This is very unusual. Higher risk usually does not pay off, anyone investing in technology stocks in 1999 had to wait a very long time to get their money back, history may not repeat itself but will probably rhyme!

I am an executor of a will, some money needed to be invested. I suggested to the other executor who was a trader for many years at Goldman Sachs, that I thought an S&P 500 tracker was probably a suitable investment for the majority of the funds. His response:-

"The reason I think the S&P is a good choice is because of a piece of finance theory called the Capital Asset Pricing Model. What it tells you is that the only efficient way to create a portfolio of risky assets is for the portfolio to contain every investable asset weighted according to value. In other words, you own in microcosm exactly what the aggregate of all other investors own. Otherwise you will be taking on a unnecessarily large amount of risk to obtain a given return. Now of course it relies on a lot of assumptions that are questionable, most importantly that the market is efficient, but the overall conclusion is quite reasonable. The market is made up of lots of investors many of whom think they can beat the market. But of course in aggregate they can’t because the market just consists of a lot of people who are trying to beat the market! People can be lucky for a while, and tend to remember their successes longer than their mistakes, but the number of investors who consistently beat the market is very small. And it’s hard to be sure that even the ones who do haven’t just been lucky for longer.

So that, along with low fees, is the argument for investing in index trackers. Strictly speaking, you should invest in the index of all global risk markets in proportion to their capitalisation (equities, property, hedge funds, commodities…), but the S&P 500 is a decent enough proxy.

Actually I believe it is possible to find “alpha”, and not just have your returns determined by how much “beta” (ie how much exposure to the market portfolio) you want to take on. In fact I spent quite of bit of my time in trading attempting to extract alpha. If you research hard enough I think you can find risk-adjusted opportunities that are larger than the transaction costs you need to incur to exploit them. But it’s really not easy, and for this portfolio I think not appropriate.

So S&P 500 would be fine with me."
I respectfully disagree. The s&p 500 is a large portion, but by far not the entire market, not even the US market. Companies get into the S&P 500 and get kicked off the S&P 500. and that is were you lose. S&P 500 buys these high and sells them low.
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  #393  
Old 11.02.2021, 12:06
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Re: Equity Portfolio Advice

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I respectfully disagree. The s&p 500 is a large portion, but by far not the entire market, not even the US market. Companies get into the S&P 500 and get kicked off the S&P 500. and that is were you lose. S&P 500 buys these high and sells them low.
Well $1000 invested in 1950 is worth over $2,000,000 today, so buying high & selling low has worked quite well compounding at 11.35% for 70 years.

Average family income was $3,300 in 1950, so a 1k investment was definitely plausible.
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Old 11.02.2021, 12:11
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Re: Equity Portfolio Advice

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Well $1000 invested in 1950 is worth over $2,000,000 today, so buying high & selling low has worked quite well compounding at 11.35% for 70 years.

Average family income was $3,300 in 1950, so a 1k investment was definitely plausible.
I imagine it lags the Russell 2000 though?
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Old 11.02.2021, 12:22
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Sure but it's opportunity cost. Is there a good reason not to move into sson which has done better still and would be expected to do better?
Yes, the reasons for me are expected lower volatility, added diversification and the fact that with Fundsmith you can always redeem at NAV.
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  #396  
Old 11.02.2021, 12:33
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Re: Equity Portfolio Advice

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I imagine it lags the Russell 2000 though?
Russel 2000 started in 1979, overall quite similar performance, just not at the same time! Clearly there is something in combining FS with Smithson.

https://www.cmegroup.com/education/f...sandp-500.html

1979-1983: the Russell 2000 outperformed the S&P 500 by 80% during a period of extreme economic turbulence in the stock market, with double-digit inflation, double-digit interest rates and back-to-back recessions in January-June 1980 and August 1981-December 1982. At the time, investors judged that smaller companies navigated the environment more nimbly than larger ones.

1983-1990: during the long economic expansion in the 1980s, large caps rebounded, leaving small caps in the dust. During this period of increased economic certainty, the S&P 500 outperformed the Russell 2000 by 91%, more than recovering its 1979-83 period of underperformance.

1990-1994: during the 1990-91 recession and its immediate aftermath, small caps again outperformed the S&P 500 by nearly 50%.

1994-1999: during the strongest phase of the 1990s expansion, the S&P 500 large caps again outperformed the Russell 2000 small caps just as they had during the 1980s boom. This time the S&P 500 outperformed the Russell 2000 by 93% over five years.

1999-2014: in a new era of turbulence (tech wreck, 9/11, Afghanistan and Iraq wars, subprime bubble, economic meltdown and quantitative easing, small caps swiftly outperformed large caps once again, with the Russell 2000 drubbing the S&P 500 by 114%.

Since 2014: large cap stocks generally outperformed during the later stages of the 2010s expansion, much as they had during the later stages of expansion during the 1980s and 1990s and even as they did during the final stages of the 2003-2007 period of growth. Much of the recent outperformance of large caps has to do with their larger weighting to technology stocks and the spectacular performance of a handful of the very largest tech firms. The Covid-19 pandemic hit small caps especially hard. Few among them are online delivery services or other entities that have proven to be relatively insulated from the crisis. Small caps stocks have shown a much stronger reaction to news regarding lockdowns or the possible lifting of lockdowns that have large caps. Since early 2014, the S&P 500 has outperformed Russell 2000 by 56% as of mid-April 2020.
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Old 11.02.2021, 13:52
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Yes, the reasons for me are expected lower volatility, added diversification and the fact that with Fundsmith you can always redeem at NAV.
Lets say plausibly SSON could go to -20% vs NAV. Over the very long term that becomes an increasingly irrelevant factor that should be outweighed by performance. Particularly as we've just gone through a period of large-cap overperformance as explained by FMF.

Additionally, SSON is pretty low volatility already. I'd say low enough for our age cohort.

If I was FMF I would probably do something pretty similar to what he is doing - but we are 25-30 years younger and should tolerate more risk.

In his 40s from what I can work out most of his portfolio was in a single stock!

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Old 11.02.2021, 14:25
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Lets say plausibly SSON could go to -20% vs NAV. Over the very long term that becomes an increasingly irrelevant factor that should be outweighed by performance.

Additionally, SSON is pretty low volatility already. I'd say low enough for our age cohort.

If I was FMF I would probably do something pretty similar to what he is doing - but we are 25-30 years younger and should tolerate more risk.

In his 40s from what I can work out most of his portfolio was in a single stock!
Should be outweighed by performance, yes. However, as has been said already, performance comes like ketchup out of a bottle. Fundsmith and Smithson are two different bottles. I don't think the discount will ever be that large for a sustained period as Smithson has the possibility of 15% gearing that I think would be utilised in such cases to buy back shares (someone please correct me if I'm mistaken).

I mention my age in the very first post of this thread and at no point was my investment in Fundsmith criticised due to this fact. I welcome further inputs on this point.

I am looking for the efficient frontier. Also, I am investing my net worth right up to to the hilt in equities (I don't think you are). The only other thing I have of value is a modest wine collection. These wines are also investments for the future but they will not be sold to pay the bills. You can count on them being liquidated for my pleasure though
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Old 11.02.2021, 14:31
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Lets say plausibly SSON could go to -20% vs NAV. Over the very long term that becomes an increasingly irrelevant factor that should be outweighed by performance. Particularly as we've just gone through a period of large-cap overperformance as explained by FMF.

Additionally, SSON is pretty low volatility already. I'd say low enough for our age cohort.

If I was FMF I would probably do something pretty similar to what he is doing - but we are 25-30 years younger and should tolerate more risk.

In his 40s from what I can work out most of his portfolio was in a single stock!
If Smithson has above 10% discount to NAV for any length of time it will be proposed at a general meeting to be wound up, I can't remember the exact details but I believe it's 4th anniversary is a key date in this respect.

I still hold by value more in FS than the day I retired, so I have 1 large fund that could be sold instantly at NAV.

In my 40's I generally held around 12-15 stocks (possibly 2 trusts) & for about 1 year on 2 separate occasions I had more than 50% in just 1 holding. Today 2 holdings make up over 90%, I am not looking for income, Smithson currently pays ZERO dividend.

Last edited by fatmanfilms; 11.02.2021 at 15:36. Reason: added discount to
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Old 11.02.2021, 14:32
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Should be outweighed by performance, yes. However, as has been said already, performance comes like ketchup out of a bottle. Fundsmith and Smithson are two different bottles. I don't think the discount will ever be that large for a sustained period as Smithson has the possibility of 15% gearing that I think would be utilised in such cases to buy back shares (someone please correct me if I'm mistaken).

I mention my age in the very first post of this thread and at no point was my investment in Fundsmith criticised due to this fact. I welcome further inputs on this point.

I am looking for the efficient frontier. Also, I am investing my net worth right up to to the hilt in equities (I don't think you are). The only other thing I have of value is a modest wine collection. These wines are also investments for the future but they will not be sold to pay the bills. You can count on them being liquidated for my pleasure though
Unfortunately not at present. My wife and I each owned a London property before we met, so we have two. One in Putney and one in Canary Wharf / Westferry area. Largely unmortgaged (sum of the outstanding mortgages is about £100K). My wife also owns a flat in Beijing outright. We are probably c. 50% in equities. But that figure has risen sharply over the past year as I've piled money in and performance has been strong. I certainly have aspirations to be 80% plus.

We will probably sell one of the London flats in 2021. The other at some point down the line. I will probably buy a cheapy big house in rural Aargau for say 800K-1M CHF after selling one of the flats, but otherwise be fully invested. I agree that the house would not be a great investment, but it isn't dreadful, and I want the kids to have somewhere they call home. I wouldn't pay the mortgage off.

As you can see, I have a lot of rebalancing to do!

Last edited by HickvonFrick; 11.02.2021 at 14:57.
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