Global Mining Investing $69.95, 2 Volume e-Book Set. Buy here.
Author, Andrew Sheldon

Global Mining Investing is a reference eBook to teach investors how to think and act as investors with a underlying theme of managing risk. The book touches on a huge amount of content which heavily relies on knowledge that can only be obtained through experience...The text was engaging, as I knew the valuable outcome was to be a better thinker and investor.

While some books (such as Coulson’s An Insider’s Guide to the Mining Sector) focus on one particular commodity this book (Global Mining Investing) attempts (and does well) to cover all types of mining and commodities.

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Saturday, October 08, 2016

The 'Buy & hold' strategy

A popular strategy supported by a great deal of financial advisors is the "buy and hold" strategy. There are times when this strategy makes sense, but it isn't because of the veracity of the strategy so much as:
1. The merits of a specific stock
2. The commitment of specific companies to a winning strategy. Some strategies can endure for decades before they fail. In other cases, corporate teams prove themselves adept at changing strategy.

I don't take much interest in my father's investment activities. For years he was telling me that he's not looking for capital growth but rather regular incomes. He was of course trying to avoid taxes by nor selling. In Australia this logic makes less sense with a 'generous' 50% capital gains tax concession after one year. He bought  QBE Insurance at  $9.00, watched them rise to $35.00, only to tolerate a fall back to $10.00.
Why did he persist with this stock as its capital gain eroded? Until the very end, when he finally asked me if he should keep QBE, he said to me "Should I keep QBE, it pays a good dividend"?

People's psychology is the greatest obstacle to their success. My father manages his own wealth but he has a broker who recommends stocks to him.
Despite being a mining analyst, he scantily trusts the stock's I buy. "Too risky" according to him.  Yet I can diversify risk. More importantly, these are small stocks with a single project that are relatively easy to understand. But it is a different world. It's an analytical world compared to the purely empirical foundation for valuing blue chip stocks. Just my father didn't see the capacity to mislead investors with empirical evidence. He lacked analytical insight which would have undermined his confidence in this particular stock.

Why was my father seduced by this stock? Why did he retain it in the face of a falling share price. Well there are several reasons:
1. Strong dividend: The company could payout more dividends from the strong share premium reserve.
2. Share price volatility: This would give him confidence at times because it fell before and rallied.
3. Historic legacy: It was a growth stock before so it will remain so.
4. Long term investor, who is seemingly oblivious to significant marker swings. Ask yourself who benefits from that strategy - his opponents - professional fund managers vying for the opportunity to manage his money. One cannot tolerate large swings in share price. Draw a line in the sand and forgo only so much money. We are all capable of being wrong and stocks are conditionally good or bad.

I don't buy blue chip stocks. In fact, I have no interest in investors like my father. My interest is in investors with a desire to make capital gains or early investments in great stocks before they become low growth "yield propositions". These types of stocks make even less sense today. It was a forgivable strategy in the 1990s until 2007. I warned my father. In any case, I'm interested in engaging 10 to 35 year old investors who want to take the time to develop intellectual, technical and commercial efficacy, which will aid their capacity to make money in the market or in business. There is utility in one's entire life. Am analytical thinker ought to be open to evidence. My father was compartmentalized. He diminished the importance of certain information that didn't reconcile with his narrative. This can be lucrative until it's wrong: then it's expensive due to the systemic risk.

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