A dividend hounds approach to value investing.

[Basil]

Thanks for your excellent points KW.
For those that are interested.  My thoughts on those matters are:-

Point 1. Compound growth has been described as the eighth wonder of the world.  Never underestimate the power of it.  The earlier most working investors can start making meaningful contributions to a high growth Kiwisaver fund the better.  Dollar cost averaging works extremely well for high growth funds over a long period of time.  Young people would do well to find a high growth Kiwisaver fund and contribute more than the statutory minimum of 3%, suggest at least 5% of earnings.

2. Agree. Buying shares in a downtrend is a very, very dangerous game even if the fundamental's are compelling.  I only ever do it these days if the fundamentals are truly compelling, I am 110% sure of my conviction on a stock and even then, apply a very modest amount of capital gradually averaging into a new position.  Put simply, swimming against the tide is bloody hard work and swimming with it is almost always far more rewarding.

3. My approach outlined in the opening post of this thread is to find stocks which offer compelling value and generally, with very rare exceptions, only ever buy them in an uptrend.  The big gains I have made over the years are when something is a screaming bargain in terms of its fundamental's but also has started an uptrend.

4. Where KW who is a great and highly successful investor in her own right, and I differ is I will only keep buying in an uptrend while the fundamental's remain compelling.   KW more a momentum trader whereas I very rarely buy on momentum only, other than for the speculative part of my portfolio, (not more than 10%).  Very rare I buy shares with no fundamental's at all but I acknowledge some pure momentum traders have done extremely well over the years which brings me full circle to a point I made in the opening post of this thread.  There's more than one way to skin a cat.

[Otago K]

I guess in terms of the BUY in question to a trend, I try to hesitate chasing a train that seems to have left the station so to speak, certainly in a down trend I will await till things settle and consider to BUY at that time, always want a sense of fundamentals to justify as I always look towards holding a stock for a few years if not longer.
Tend to be willing to hold a lower quality stock than Basil would if I consider the value is sufficiently compelling while knowing it is what it is, and perhaps tend to have a longer term time frame allowance for it to rectify. Mid term I am aiming to get this category towards being free carried on my invested funding.
That said in recent times as I feel more financially comfortable I have noticed I have developed a tendency to BUY in initial uptrend while I take time to assess the fundamentals to justify investment, if I suspect Mr Market will give me a likely out at no loss, last time on BRW which I sold down to free carry a minimal holding a few weeks after taking an initial position. Not that I would consider BRW any sort of dividend holding, so example off topic somewhat.

[KW]

4. Where KW who is a great and highly successful investor in her own right, and I differ is I will only keep buying in an uptrend while the fundamental's remain compelling.  KW more a momentum trader whereas I very rarely buy on momentum only, other than for the speculative part of my portfolio, (not more than 10%).  Very rare I buy shares with no fundamental's at all but I acknowledge some pure momentum traders have done extremely well over the years which brings me full circle to a point I made in the opening post of this thread.  There's more than one way to skin a cat.

I was looking at the history of Broadcom this morning (AVGO) and it went from a market cap of $77B in 2015 to $1.5T as of today.  Would the fundamentals have justified buying it all the way up?  Most likely not - its on a current P/E of 84 lol.  But there is a lot of money to be made from continuously buying a stock like that.  It went from $13 to $375.  Stocks are like sports - winners keep winning (until they get old and retire, also like a stock)

My point is that dont let "valuation" keep you out of a stock, or stop you from buying more of it.  Big winners will always look expensive and over valued.  I remember a poor sod many years ago who insisted that ATM/A2M was worth 50c when it was about $2.50.  The stock ran to $20.  He really missed out on one of the very few big winners on the NZX as a result. 

PME is one of the big ASX winners, running from $2.30 in 2015 to $336 this year.  Everyone has always scoffed at how over priced it was.  Anyone could have jumped on that bullet train, and gotten on at any of the stations along the way.  Its stil ridiculously expensive, and still "over valued" (P/E of 274).  But the millionaires who rode that train wont be caring much lol

[Basil]

I was looking at the history of Broadcom this morning (AVGO) and it went from a market cap of $77B in 2015 to $1.5T as of today.  Would the fundamentals have justified buying it all the way up?  Most likely not - its on a current P/E of 84 lol.  But there is a lot of money to be made from continuously buying a stock like that.  It went from $13 to $375.  Stocks are like sports - winners keep winning (until they get old and retire, also like a stock)

As the thread title suggests, I'm a value investor so that doesn't fit my M.O.   Are we in tech bubble territory ?  I prefer not to speculate on the answer to that question or invest and take the risk the answer might be yes.  FWIW I'm getting a real year 2000 tech bubble sense from the US tech sector.  I feel zero sense of FOMO.

[teabag]

In the latest BRM annual report they have a chart showing total return from October 2006. Starts at $1, and today the total return including dividends is worth $3.

that's an annualised rate over 19 years of 5.95%

[Popeye]

I see no problem with buying in a downtrend provided that you understand very well what is behind the downtrend and are confident in your assessment of the (positive) fundamentals and prospects of the business, and are prepared to be patient ie. you have a long-term horizon  In the lightly traded domestic market I have seen numerous examples of stocks that somehow became unfashionable and drifted downwards from lack of investor interest.  Sometimes for good reason, sometimes not.  Oftentimes there was a majority consensus on chat boards like ST that they were dogs, it was a falling knife, they were heading to zero etc. With at least one besieged contrarian, who was occasionally right. So keep an open mind.

All else the same, the recommendation never to buy in a down-trend and only buy in an up-trend has some logic, as you avoid fighting gravity in the short-term.  But a good business getting sold down due to temporary negative sentiment will always be a good buy, even if you have to wait, as market insanity can last years.

HP's comments on the behavioral psychology of wanting to buy on the cheap and reluctance to buy in after a run are very good.  Personally I do not watch my investments day-to-day, or keep front of mind what I bought in at.  I generally just check in when it comes time to buy or sell, and make the optimal call at that time based on whatever the market tells me my shares are worth today.  It seems to me that frequent agonising over stock prices makes you more wedded to individual picks than is healthy, so unless and until you have a buy or sell decision to make, you may as well save yourself the mental anguish of a hundred ups and downs and put your energy into something more rewarding.  Speaking as an investor anyway.

Disclosure, I have had success and failure buying in both down trends and up trends, cutting losses and letting stocks run.  The most success has been with least emotional or snap decisions, so dont discount that factor.

[LaserEyeKiwi]

Likewise I have had great success with buying good companies on sale due to some market freakout that had nothing to do with underlying company fundamentals. Inevitably if it's a good company with good fundamentals trading at an abnormally low valuation multiple then you are going to be rewarded most of the time if you have patience.

[KW]

All else the same, the recommendation never to buy in a down-trend and only buy in an up-trend have some logic, as you avoid fighting gravity in the short-term.  But a good business getting sold down due to temporary negative sentiment will always be a good buy, even if you have to wait, as market insanity can last years.

The problem is that time is your enemy with beaten down stocks.  Sure, the stock might bounce back and return 50%.  Great, you say.  "See buying in a downtrend works"  But if it takes 10 years to get that 50% then you only got 4.14% per annum before inflation - you could have done better putting your money in the bank. 

Meanwhile, I'm sure you could have found a dozen stocks that delivered 10% plus gains each year, in that 10 years.  And if and when that beaten down stock returned to the land of the living and delivered that 50% return, you could have just bought it when it started to go up.  Skip the years in the middle. 

[KW]

if it's a good company with good fundamentals trading at an abnormally low valuation multiple then you are going to be rewarded most of the time if you have patience.

With the exception of the bottom of a bear market, a good company with good fundamentals will never be trading at an abnormally low valuation.  If its doing that, it means that there is something seriously wrong with it.  Look at all the people who got burnt on Ryman and Spark thinking it was "a good company trading cheap"

If it is the bottom of the bear market, then indeed, buy everything.  But in a bull market, good companies go up in price.  Bad ones fall. 

[Popeye]

The problem is that time is your enemy with beaten down stocks.  Sure, the stock might bounce back and return 50%.  Great, you say.  "See buying in a downtrend works"  But if it takes 10 years to get that 50% then you only got 4.14% per annum before inflation - you could have done better putting your money in the bank.

Meanwhile, I'm sure you could have found a dozen stocks that delivered 10% plus gains each year, in that 10 years.  And if and when that beaten down stock returned to the land of the living and delivered that 50% return, you could have just bought it when it started to go up.  Skip the years in the middle.

That is a valid point.  Sometimes the market is very slow to change its mind, whether on the upside or on the downside.  I remember mistertea arguing long and persuasively that the market had got SKT wrong, in the end even he lost patience and waved the white flag (he should have had more patience!).  There were a few in 2020 that tanked and turned around very quickly, so there are short and sharp turnarounds when people lose their sanity then recover in short order....

[KW]

As the thread title suggests, I'm a value investor so that doesn't fit my M.O.  Are we in tech bubble territory ?  I prefer not to speculate on the answer to that question or invest and take the risk the answer might be yes.  FWIW I'm getting a real year 2000 tech bubble sense from the US tech sector.  I feel zero sense of FOMO.

Dont' be this guy.  He though NVDA stock was in a bubble in Feb 2018.  When it was $5.80 (the stock split adjusted price)
https://www.investopedia.com/news/nvidia/

That illustrates my point.  People get some valuation idea in their heads, and it keeps them out of the very best stocks in the market.  Instead they buy some dog of a stock that looks cheap, which then loses a further 90% of its value or goes to zero.

[LaserEyeKiwi]

With the exception of the bottom of a bear market, a good company with good fundamentals will never be trading at an abnormally low valuation.  If its doing that, it means that there is something seriously wrong with it.  Look at all the people who got burnt on Ryman and Spark thinking it was "a good company trading cheap"

If it is the bottom of the bear market, then indeed, buy everything.  But in a bull market, good companies go up in price.  Bad ones fall.

That is simply not true - good companies trade at abnormally low valuations often.

[HAWKDOG]

The problem is that time is your enemy with beaten down stocks.  Sure, the stock might bounce back and return 50%.  Great, you say.  "See buying in a downtrend works"  But if it takes 10 years to get that 50% then you only got 4.14% per annum before inflation - you could have done better putting your money in the bank.



I think might have missed Laser's point in his comment.  Stocks do go on sale outside of bear markets.  Liberation day is classic example.  Skellerup for example dipped below 4 bucks in April and has bounced back over $5.   I think apple stock dipped recently as well due to lawsuit - but they won and the stock went back up. 

As you pointed out the market can be irrational and over react both up and down - good stocks go on sale when investors over react to the downside.

Be good to start another thread on investing strategies as this thread was originally for dividend stock discussions.

[KW]

Liberation Day was the bottom of a bear market, which started in Jan/Feb and ended in April. 
(Note: market going up = bull, market going down = bear.  % moves are irrelevant, only direction)

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[Basil]

Some good stuff in here to try and wrap your head around.
https://www.sloww.co/psychology-of-money-book/