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Strange way to prove a point- let's 'assume for the sake of arguement' (why not, we can make any rules up this way!) that only one is successful and two fail - if you've invested in all three you have a return, if you just invested in one there's a 2/3rds chance your investment has gone! Unless of course you have a crystal ball that you're not sharing with the rest of us!Quote:
Originally Posted by christopher leigh
If you really want to cack yourself read the Robert Prechter book Conquer The Crash.
He was a little early (2002) but he predicted the failure of Fannie Mae and Freddie mac in the US and said major banks that nobody would think of would go bankrupt.
He is a follower of the Elliot Wave theory and says we were at the top of the fifth and final wave of an economic super cycle that began in the 1930s and an even bigger super cycle that began in the 1800s. We are now correcting and the downside will be worse than the great depression lows.
Fascinating debate. Thanks TheHeathens for your perserverance with an informed viewpoint...I'm kinda glad my pension fund (pathetic though it is) is managed by sele**ia.
Interesting point about Prechter, Bladerunner. I wikied him and found:
While Prechter has his admirers, he has been criticised by media and pundits. For example, the Wall Street Journal ran a page one article in August 1993 with the headline, "Robert Prechter sees his 3600 on the Dow--But 6 years late," in reference to Prechter's 1987 forecast for the Dow Jones Industrial Average.[15] Technical analyst David Aronson wrote:
The Elliott Wave Principle, as popularly practiced, is not a legitimate theory, but a story, and a compelling one that is eloquently told by Robert Prechter. The account is especially persuasive because EWP has the seemingly remarkable ability to fit any segment of market history down to its most minute fluctuations. I contend this is made possible by the method's loosely defined rules and the ability to postulate a large number of nested waves of varying magnitude. This gives the Elliott analyst the same freedom and flexibility that allowed pre-Copernican astronomers to explain all observed planet movements even though their underlying theory of an Earth-centered universe was wrong.[16]Recently, Prechter has missed the latest portions of the rally in gold and oil. In July 2006 he asserted that gold had reached its peak and that oil, then around $70 bbl, also had peaked in price. His analysis was clearly flawed, as oil in late May 2008 reached $135 bbl and gold was at $925/ounce. [17]
So maybe we don't have to cack too hard?? Whats your view Heathens?
Ha ha, I'm not getting involved in this one - I've got too much work to do today! I'll give you a few of my predictions over the next 12-18 months though:Quote:
Originally Posted by Wheeze
Oil : Will stabilise at roughly the price it is now; the demand will drop due to world recession, and OPEC won't (can't??) increase output.
Gold : Will rise over the next 12-18 months. Adjusting for inflation, the last peak in 1980 is worth about $2220 / oz. We're currently just under $1000 / oz. Plus, we have diminishing output, extra demand from india and China, a weak dollar, and struggling financial markets.
Good choice in pension provider by the way! They often look more expensive than other providers because they disclose more fees than most others, but they're one of the cheapest in the market.
Ah Wheeze I see you've done the rather basic Wikpedia search and just decided to copy the critisism part? Read the book and tell me what you think. I said he was early, 5 years early, but he's now being proven right. He also called the bottom of the Dow in the early 80s and has been more right than wrong, particularly and most importantly on major turning points.
This is a major downturn that has already started and unfortunately whatever the central banks do can not change the eventual outcome. This boom has been built mostly on credit and any economy built on credit grinds to a halt when that credit is removed from the system. We are now starting a massive deleveraging that can not be stopped. When the BOE reduces interest rates it won't be passed on to consumers as all banks will do is rebuild their balance sheets as they do not want to lend. The banks are so scared they won't even lend to each other, the London Inter Bank market has been dead for a year now and the BOE is filling the role. Thats why Northern Rock, Bradford and Bingley and HBOS are all technically bankrupt. There are at least 4 other financial insstitutions that are only surviving because major banks are funding them at the request of the Treasury. Make no mistake this is very serious.
Consumers won't be able to obtain more credit (look at mortgage rates, how many new loan flyers are you getting through the post v a year ago?) those that can afford to will have to pay down their credit card debts, the rest will be declared bankrupt. In the meantime a recession will hit, unemployment will rise, there'll be more and more defaults on mortgages and we will spiral downwards.
Sorry to sound so downbeat but thats the truth of the matter.
But, apart from that, everything's OK.
Mustn't grumble.
Right so if it's improving the odds it's a gamble, which is exactly what I've been saying. If you knew the number 5 was going to land on the next spin, you wouldn't put your money on 5,6,7,8 and 9. So diversification is a tool of impotence and ignorance.Quote:
Originally Posted by Stolly
Besides betting on black doesn't give better odds in the long run. In the long run the person betting on black(diversifying) will lose exactly the same amount of money as the person betting on zero(not diversifying). This is the gamblers fallacy I mentioned.
The person gambling on black will also find that when zero comes in he loses half his money.
You don't know that number 5 is going to win - that is more of a gamble than betting on black. You have a 1/36 chance of winning big, but a 35/36 chance of losing all your money.Quote:
Originally Posted by christopher leigh
The rest of your argument is pointless because your basis to it is flawed. Gambling and investing are not the same because investing is not based on random conditions
I thought you didn't take financial advice from forumites? I'll assume you've changed your mind.Quote:
Originally Posted by Boy Wonder
If you've invested in one or more companies without understanding what you're doing(gambling) then you may make gains or you may lose everything, depending on how those companies perform, and regardless of whether you invest in one or more.
Now if you know what you're doing, why invest in three companies when your projections point to greater success in one. Only in the case where your projections point to an equal success rate in several of the best companies, is there any justification in diversifying. That's hardly ever, just look at current share prices.
Ive a prediction for the next twelve months
Im going to finish paying our mortgage and then pack up work and take up GROUSE SHOOTING , wooooooooooooooooooha:D
By the way
INVEST in MARGARINE , its the future
I'm glad you said that because I do know what I'm doing, so your argument falls down straight away. You are talking about random investing to support your argument, but no-one else is.Quote:
Originally Posted by christopher leigh
3 questions, please answer them without any analogies:
1) What projections are you talking about?
2) How can you be sure which is going to be the successful one?
3) How much of your wealth would you bet on this conviction?
Heathens
Your dead right about crude oil
Capacity is a major problem and I believe it was the instant rapid price of fuel just a short while ago that really but the brakes on our economy and started this spiral.
One major problem for this is that the refineries in America like oil that is produced from countries like mehico and venuswalaha.
Its a different type of oil
sweet crude instead of the stuff from Saudi etc that is sour crude.
I do if there is a powerful electromagnet on the wheel at number 5, and an iron core in the ball. You're right though I don't know that number 5 is going to come in, that was the point I was making.Quote:
Originally Posted by TheHeathens
If I put £1 on black and a £1 on zero, then in the long run I'll lose exactly the same amount of money based on probability.( By the way the probability of getting number 5 is 1/37 not one 1/36).
The rest of my argument is not pointless as you well know. The truth is no one in our society today knows what the government is going to do next. It's not like we have a constitution that delimites government power.Therefore the diversification of funds into different companies is a gamble.
If you weren't gambling you'd put your money into one company I.e the best one.
No I'm not just talking about random investments as anyone can see from my argument.Quote:
Originally Posted by TheHeathens
1)The projections are the future estimated profits of the companies.
2) I can't be sure today, but neither can you, that's why you're gambling. If investments were sure things we wouldn't be in the mess we're in today, thanks to so called financial experts.
3) None I don't gamble on conviction.
No it's not, it's a hedge against losing all of your money. Ask those who invested in the technology boom where their money is now?Quote:
Originally Posted by christopher leigh
If you shoot grouse I don't think margarine has got much future.;)Quote:
Originally Posted by daz h
What are they on about?:confused::confused::confused::confused:
10 years ago, technology companies were estimating HUGE future profits. Anyone remember Altavista and Lycos? Lycos was bought for $12.5 billion in 2000 and sold for $95 million in 2004Quote:
Originally Posted by christopher leigh
I can look at 5 or 6 different areas I expect to do well and spread the investment across them. This is not gambling, because gambling is based on random events and investing isn't.Quote:
Originally Posted by christopher leigh
Plenty of well-respected economists were predicting this situation in 2003 / 2004.
So what've you actually been arguing about in this thread?Quote:
Originally Posted by christopher leigh
The Oxford English dictionary defines a hedge fund as:an offshore investment fund that engages in speculation using credit or borrowed capital.Quote:
Originally Posted by TheHeathens
It also defines the term speculate: form a theory or conjecture without firm evidence.
In other words gambling.
I've been demonstating my point of view by using gambling analogies.Quote:
Originally Posted by TheHeathens
Quote:
Originally Posted by Margarine
Come on Margarine ship-shape.
I'l have to ask Grouse.
I am always cautious about anybody who advises people.If investing was not a gamble why do they rely on using other peoples money to invest with ? If i had a safe "no lose" formula,which is what so called experts claim they have,why tell anyone ??? Why not use your own cash,invest for a few years,rake in the cash.You could retire early and live happily ever after :confused:
A hedge fund at it simplest looks to make money in both rising and falling stock markets, in principle a good thing you'd have thought if it can be done. A hedge fund looks to borrow stock that is falling in value, sell it and then buy it back (hopefully at a lower price) before giving it back to the original lender and thereby making a profit on the fall in value - ie borrow some shares and sell them for a £1 each but manage to buy them back for 60p to make a 40p profit on each share. This is short selling, the practise recently put on hold by the government.Quote:
Originally Posted by christopher leigh
A hedge fund also borrows money to increase its stake in investments that are envisaged will do well; they if you like gear up so as to be able to buy as much of a good thing as possible.
The mere fact that a hedge fund can make money in both directions, a rising and falling market, can make them a really useful part of a balanced investment portfolio. They are risky viewed in isolation but, because their risk is so different to the risks of other forms of investment (stocks, shares, gilts, commodities, bonds, property and cash) by including them in a corner of their investments, investors can in fact reduce their overall risk and the overall volatility of their investments. Daft but true.
That said having the short selling side of the equation knocked on the head and the borrowing side becoming much more difficult some of these funds are now caught between a rock and a hard place.
Here ends the stolly lesson on Hedge funds :)
Are they privetised then?
Stolly just to correct you on one thing. Firstly the SFA has only banned short selling in financial stocks, not the whole market, plus they've only banned it for 3 months.
I agree about the diversification but its worth pointing out a few other things, firstly many (and certainly the most successful) are not open to mere mortals, you need at least £500k to invest in some of them.
Secondly they are expensive, many were operating a 2 and 20 charging structure, ie 2% of assets management fee and 20% of outperformance of their target (nearly always cash).
Thirdly the market has become flooded with them with many mainstream fund management organisations offering them and like any asset class, that sees massive growth, performance tends towards the mean as opportunites become more scarce due to the weight of money chasing them.
Finally they can become very illiquid when you want your money out as lots of investors tend to want it out at the same time and already funds are putting time bans on redemptions of up to 6 months.
There ends the Bladerunner lesson on hedgies http://forum.fellrunner.org.uk/images/icons/icon12.gif
It's illegal to advise that unit linked investments can't go down, unless it's a guaranteed product.Quote:
Originally Posted by Rodders rambler
Do they? Care to point us in that direction? I've not come across anyone who guaranteed a no lose formula. Easy point to remember; if it sounds too good to be true, it probably is!Quote:
Originally Posted by Rodders rambler
They do. Stockbrokers? You've got to build a capital base though.Quote:
Originally Posted by Rodders rambler
:rolleyes:Quote:
Originally Posted by christopher leigh
That's all well and good, but who mentioned Hedge fund??? Stop doing that spin thing!
Definition of hedge (other than the botanic variety):
Gambling:Quote:
"an act or means of preventing complete loss of an investment, or the like, with a partially counterbalancing or qualifying one."
As investment doesn't involve chance (it involves risk), it's not gambling by definition.Quote:
"to stake or risk money, or anything of value, on the outcome of something involving chance: to gamble on a toss of the dice."
In diversification, you select the areas you think are going to do well and spread the investment. The areas you don't think are going to do well, you don't invest in (we don't invest in Property or Japan).
You may not get the highest returns of the single highest area, but you are taking much less risk as diversification lowers risk (proven - research it)
There is a direct correlation between risk and return and the trick is finding the balance commensurate with your risk profile.
If you had someone with a risk profile of 4, you wouldn't stick them all in stocks and shares due to the risk, so you would diversify across fixed interest investment (which have lower volatility) and shares (higher volatility). This would limit the potential returns, but that's what you sacrifice to keep the investments in line with your risk profile. It would of course, limit the potential losses.
Assessing what you've actually said over the thread, it seems your opinion boils down like this:Quote:
Originally Posted by christopher leigh
1) Diversification isn't good (neither are mutual funds, ETFs, or betting on a single colour in roulette).
2) It's better to invest in a single area you were convinced was going to do well because you get better returns than spreading the investment.
3) You wouldn't invest in a single area because you don't 'gamble on conviction'.
Now, surely you can see you're contradicting yourself massively there?
If investments are gambling, why are the best investors consistently the best investors? If it was truly gambling (based on chance) then the returns would be spread more evenly.Quote:
Originally Posted by christopher leigh
Damn it, the Scottish Football Association are diversifying into everything nowadays! Does short selling in financial stocks play for Rangers? ;)Quote:
Originally Posted by Bladerunner
Quote:
Originally Posted by Bladerunner
That's an interesting point.
Talking about mutual funds, the Schroder Mid 250 fund was one of the most successful fund a few years back due to it's success. However, because of this it became so big and ended up more like a tracker fund (tracking the Mid-Cap companies). It's really been hit badly during this economic downturn.
Of course, most of us wouldn't invest in just that fund ;)
Heathens, the smarter hedge fund managers close their funds to new investors when they get to a certain size to avoid the 'too big to take advantage' syndrome. However, most are more concerned with getting their fees in so let them grow as big as possible.
Do the maths....size $2bn, return (for the sake of argument and easy maths 14%) with a cash return 4%. In one year that hedge fund manager will earn $40m management fee and $80m performance fee on a 2 and 20 fee structure...even if that fee structure was 1 and 10 they'd earn in total $60m. Even if they underperform cash they'd earn $40m and $20m respectively...altho they'd lose a lot of assets as soon as investors got their statements!!
Now if you think the vast majority of that money goes to the top 2/3/4/5 guys in the organisation who are the partners and that their operating costs are low as they are typical small and lean organisations you can see why hedgies are buying up all the country estates and half of the art world!!!
Quote:
Originally Posted by Bladerunner
I agree totally. But the principle applies to all funds and not just hedge funds - with the exception of one or two fund managers (e.g Neil Woodford @ Invesco Perpetual and Mark Lyttleton @ BlackRock) we try and avoid the funds that have grown too big as it limits their flexibility.
talking about country estates Neil lives just down the road from us and you should see his place!! However, he fully deserves it, sticks to his view, takes massively contrarian positions when he believes it right and it normally is. However, he only gets away with some of them due to his long term record. I know other pms who took a similarly contrarian anti tech/telco stance through the boom who lost their jobs as their performance suffered badly over a 2 year period before being proven correct.
this is quite impressive
If you have enough to buy a grouse at the end of the week thats all that matters:D
Quote:
Originally Posted by Margarine
I think they are talking about GRouse paying into a hedge fund.
Paying into one? I think he lives in one!
Is that like a privet pension?:)Quote:
Originally Posted by daz h
[QUOTE=TheHeathens;153847]It's illegal to advise that unit linked investments can't go down, unless it's a guaranteed product.
That's not what Rodders was asking. Why don't you answer the question, instead of waffling?