Equity Portfolio Advice

Finance, Taxes, Banking, Insurance and Retirement
1
Hello fellow investors,

Firstly, I would like to thank fatmanfilms , Phil_MCR , EPMike , HickvonFrick , Urs Max & many others for the financial knowledge that you have kindly shared on this forum. I have lurked here for quite some time and managed to glean a lot of valuable information.

I would be grateful now for some specific advice on my current and future portfolio. In the last few years since arriving in Switzerland I have worked to improve my financial IQ. The crash in February/ March was really the catalyst that kicked me into action and finally got me to open an Interactive Brokers account (my partner also opened an account). I also setup an account with Fundsmith UK. Until this point I focused on minimising and optimising expenses to save as much as possible.

I think like many of you (and Terry too) I’ve been a bit surprised by the ferocity of the recovery. I recall fatmanfilms you mentioned earlier in the year that you planned to be a net buyer of stocks for the foreseeable future but more recently I saw you comment that you are now holding around two years of expenses in cash.

I understand that all in at once beats a DCA approach approximately two thirds of the time but I think I can be forgiven for thinking that after a long bull run and with such uncertainty a DCA approach may be better (also as a new investor a bit easier to stomach).

Anyway, I’m in the market now and I’m in it for the long term. I’m building my positions and would greatly appreciate your advice as I’m somewhat conflicted by Buffett’s/ Terry’s advice to the majority of investors, ie buy a low-cost index fund and what seems to be espoused in these pages, ie more stockpicking, buying quality etc.

Current positions:

VT, VTI, VEA, VWO, VSS, BRK.B, SSON & Fundsmith

Partner’s positions:

VT & SSON

If I understand correctly, SSON and Fundsmith should be held 65%/35% respectively.

I’m leaning towards 50% index funds and 50% SSON & Fundsmith. I’m not sure about keeping BRK.B but I took a position in the belief that it would fare well in a bear market (which we exited rather quickly!).

I switched from buying VT in my account to VTI, VEA and VWO on recommendations from others elsewhere to save a little on fees and also to have slightly broader diversification. So far we stuck with VT in my partner’s account for simplicity but to be frank my strategy here is a little confused. What concerns me a little is index funds have been somewhat derided on this forum.

Phil_MCR , I think it was you that commented that these funds have had such large inflows in the last decade and this perhaps doesn’t bode well for the future. My research led to the conclusion that there is no index fund bubble and these inflows do not drive price discovery in a significant way but maybe this is wrong. Another comment you made which impressed me was your dismissal of VWO as an option for EM as you could construct something similar yourself but without the fees (I believe this was in the discussion of FEET). I sense you’re a much more sophisticated investor than the average. I too would love to be able to pick winning stocks with conviction but I’m not an accountant and so far I’ve been led to believe that this skillset is a prerequisite for such an endeavour.

With this info in mind I would really appreciate feedback on current positions and suggestions on how to move forward including percentage allocations etc. A couple of additional points about me: 34, living with partner (Swiss, she’s a few years older), dual income and no kids. The plan is to have something like a 95% equity and 5% cash allocation. Still sitting on a chunk of cash in addition to monthly savings.

Many thanks for reading and looking forward to your comments.

2
I need to some cash as essentially have zero income, I retired all pensions taken as cash & then fully invested. I got married & then broke my back in the first 3 1/2 years of retirement, since then have bought another property (cost of marriage) which completed on 19 March 2020. My cash levels were fairly low plus my expenses were clearly rising. I too advantage of a rising market hence some cash. I have a property for sale in France which is under offer, as it's been very difficult to show people with restrictions, assuming that goes through the proceeds will be fully invested. My cash allocation is not so far away from your plan.

As far as FS / Smithson is concerned Smithson is about 8% of FS UK, so clearly very few people are highly invested in Smithson, I will be at least 50% of my portfolio in Smithson once the property is sold.

You are very young with 50 plus years of life ahead of you, high equity allocation is clearly a good idea.

As far as index funds go, they have done well for 10 years, but there comes a point when a clever active manager will be able to beat the index, especially when you look at what is in the index.

3
I'm in employment I've a good cash base and other investments so that if my stock investments entirely disappear, I'll have sufficient upon retirement. So I buy stock. 20 years to retirement.

4
Thanks for your reply and sorry to hear about your back.

It seems my plan is along the right track. I'm just having difficulty with the idea of discarding the index ETFs altogether.

Remember, I don't have your experience and I haven't acquired your conviction for active management. I only acknowledge the statistics of how few managers beat the index consistently over long periods of time.

My thoughts were guarantee a 5.5% real rate of return tracking the world index with part of my allocation and risk the rest on a quality approach hoping for the very juicy compounded returns.

I want to set the plan now and stick to it. That's why I seek input here. It's better to correct course now than in x years time.

5
There is some some disconnect between what WB says (buy trackers) and what he does. But there is a reason. 99% of people are not good investors. It's generally recognised that you need to have two main traits:

- The right psychological disposition (probably the most difficult part)

- The analytical ability

Or as I like to put it: a stomach and a brain.

I think you actually need more than that, but it's probably fair to say that >99% of the population are not suited to stock-picking investment.

If you don't have either, then it is easier to just put it into a LC tracker and get market returns and cross your fingers that market returns are good.

Looking at current valuations, I personally do not trust that markets will be great over the next decades which is why I don't hold trackers/broad funds except when I'm forced to (e.g. in my VIAC account).

Next step along is that you find someone to manage your investments for you e.g. by buying a fund managed by someone you trust and agree with. this is of course a minefield in itself (just look at recent troubles with Woodford).

I don't think index funds drive price discovery, if anything, they perhaps muddy the waters. Just look at Tesla. In a couple of weeks, TSLA will join the S&P 500 triggering a likely $70+bn of trades to re-balance. Trackers will be forced to buy Tesla AND be forced to sell everything else to make room for this. Perhaps some traders play this already bidding up the price to dump after inclusion. Sure, there's probably enough liquidity to handle it all. But they are not selling the other stocks because there's something wrong with them or they analysed them to be bad. They are just mechanically re-balancing. In the end it is all just noise, but with valuations at highs, it doesn't bode well for returns. At least the large indicies have size/quality in their favour. I have more concerns with broad small cap trackers.

In the end, tracker vs stock-picking is a question of why buy everything when you can buy just the good companies. the critical assumption is can you really identify the good companies to make stock-picking work? indexing may yet prove to be the 'right way'. but i'm not yet convinced of that. we might know better in a couple of decades.

i'd consider how strong is your stomach and how you would react/feel had you held your proposed asset allocation in March when everthing tanked.

6
the other thing to add is that stock-picking yourself is a time-consuming activity, so you have to enjoy it too.

Even when you try to be low-maintenance by buying quality and holding forever, company moves can up-end you.

I previously wrote about buying Siltronic AG during the covid crash (I was lamenting I'd bought only about 1/3 of the position I wanted as I wrongly thought that covid would drive the price lower). this was a company i was happy to hold for the long term, but earlier this week it was announced they'd be bought by another company forcing me to re-invest the proceeds elsewhere.

for now I enjoy the process, but i spend more time managing my stock investments than i do my property investments!

7
In my opinion: stock picking can work - whether by a fund manager or yourself. On average, it does not work. It doesn't beat the "market" benchmark for the vast majority of investors. But it can.

The argument for large and liquid ETFs is obvious, in that it involves owning the entire market (or almost all of it). By doing that, you get your fair share of earnings from the businesses of the World / country of the index.

Still the best explanation I've read, from Bogle's "little book of common sense investing" (originally by Buffett):

http://johncbogle.com/wordpress/wp-c...pter%20one.pdf

8
Since you're a polymath....

I'm probably going to get slammed here and not knowing your cash position why don't you play a bit with crypto and bitcoin?

You can do an end to end flow (buy bitcoin, send to wallet, retrieve it back) with something like 100 chf just to understand the mechanics. You'll lose a couple of chf in fees but you'll come out understanding how this work which for me was a ton of fun

Then read up on bitcoin maximalists views but also contrarians and then decide. It might not be for you but you might also see other options available to you

9
Very good move that you have opened IB accounts. I don't really see the point of buying all these index funds when you can buy individual stocks at very low cost in IB. There are so many opportunities with stocks but it is not only that. Stock selecting allows to sharpen your mind and understand the world you are living much better. Yes you may make mistakes but at such a young age you will have plenty of time to rectify them.

10
I'd consider fund picking before going for individual stocks ... much less of a jump

11
Its worth noting that since Bogle's day, the cost of active investment funds has come down loads. For instance, Scottish mortgage's annual charge is only 0.36% - and that can be held with no platform charge in Degiro etc. 2-2.5% used to be the going rate inc. platform

With its long record of vastly outperforming the market, why would anyone consider that an excessively high price to pay.

Outside pillar 3a, I don't own a single ETF, and have beaten the market (MSCI world) every year since I started investing - and all I'm doing is picking funds with a history of outperforming the market. In the last 5 years, I'm probably not far off doubling that index. Sure history isn't a promise of future returns - but a long history of outperformance suggests a winning investment thesis.

12
excuse my ignorance, what is IB? i use an american platform e*trade, for the few investments (individual stocks, not funds) that I make, is IB a 'swiss' platform? thank you for the clarification

13
Its international

14
Also available are Tulips and Nikola Corporation. The latter is up 5% today so what could possibly go wrong.

15
I think you've found your contrarian, now you just need a maximalist and then you can form your own opinion

I'll stop on this topic so as to not derail the thread

16
Ha - thanks for bringing up bitcoin. I enjoy every opportunity to post something rude about it.

17
Apologies but struggling with the multi-quote function?

I agree entirely and like your 'stomach and a brain' comment. It's for these reasons that I've adopted the hybrid approach that I've outlined.

Reading between the lines, it sounds like you wouldn't fundamentally disagree with my current strategy as you leave the door open for index fund performance in the coming years. I had to make decisions based on worst case. Probably the excellent performance of Fundsmith and Smithson continue (I indeed hope so) but reminded of the mantra that past performance does not guarantee future performance it seemed to me an index strategy serves as somewhat of a hedge at least until my 'brain' improves and I can pick stocks myself.

As far as my 'stomach' is concerned, I'd like to think that should there be a repeat of March that I'll be licking my lips and buying more of what I own already. However, they say preparing for such a scenario is like an emergency landing in a flight simulator. Only when it really happens it's like an emergency landing for real. So I remain to be tested in this regard. Sadly I didn't know in March what I know now and it was all happening so fast back then. I knew something was amiss when I saw NKE drop to circa $60. Even without a 'stomach' or a 'brain' I knew that was a bargain! (my account was not approved then). Sure enough, I think it was surely after that that Fundsmith scooped a few units, so now I own it indirectly anyway.

18
My plan is to learn how to read an income statement, balance sheet and cash flow statement before I venture out on my own. Hopefully then I can set aside the time needed to do the research.

19
Bitcoin doesn't produce anything. I'm only interested in investing in businesses the are generating future streams of income. I hoped to make this clear from stating my cash/ equity allocation at 5%/ 95% respectively.

Nonetheless, thank you for your comment.

20
Haha, we are clearly on the same page. These are the charlatans that rolled the truck down the stage if I'm not mistaken.