I have a hunch that there is some new energy here in the money corner. So let me ask a question that I have been thinking about lately.
Assume I have a bit of cash to invest, say 150k that right now just sits around. I am overinvested in real estate, I am accumulating equities in a monthly plan (somethink similar to MSCI World), I am not intrigued by 3% bonds and I am concerned about a general asset bubble in equities, particularly in the S&P.
Can anyone recommend value-based investment opportunities that have performed reasonably in the recent market, are actively managed and have reasonable transaction cost and liquidity?
Thanks. This is blue chips and tech. I am covering these through my monthly plan. What I mean by “value” is low P/E, high dividend, good cash generation assets.
My hypothesis is that value stocks will appreciate (at least relatively) if and when the inevitable correction on the S&P comes. Dividends are not the driver here, I see them rather as symptomatic of healthy and cash rich companies. I can also buy EU corporate debt with coupon of 3-4% I guess.
The only times I have seen “value stocks” consistently and predictably appreciate is during the recovery phase of financial crashes. Last time, the covid mini crash.
What’s your objective, and for how long? Buy and be done (for 1 up to many years), perhaps check back in once a year or so?
But if so, why does liquidity matter? Even something like 2% spread won’t make a noticeable performance difference after a few years if you don’t trade.
How much risk can you (and are you willing to) take, IIRC you have family and one child? Single earner?
Have you considered Strukturierte Produkte? You’re effectively providing credit to the issuing bank, which uses it to sell calls/puts. Gains are mostly tax free as the “income” is the premium of the underlying option sold. But of course you risk getting the worst performing stock delivered (forced down your throat), especially if the entire market tanks. But these aren’t “buy and forget”, they typically lapse after 1-2 years.
As for the asset bubble, the US post-covid recession Phil was concerned about a few years ago is still to happen.
Honestly, over the next few years, I’m more concerned about return of capital rather than return on capital.
I’ve been waiting for a final melt-up that would signal the end of the bull market, but the bull run has continued to grind on and on.
I’m keeping my eyes open to see if the expected Fed rate cut could be the last straw that pushes all those waiting with cash on the sidelines into the market for one last hurrah before the real fun begins.
I’ve already heard a couple of times here about Fundsmith. Why is it so great? How is this working for Swiss residents (tax-wise)?
Are you using UK or EU version?
Good question. I don’t like having too much cash sitting around earning nothing. But I also value short term availability, especially because most of my other assets are fairly illiquid. Hence “value” stocks with linited downside, good liquidity and perspective of 6-8% performance seemed like a good idea.
Recent performance - FS did well for a few years so a lot of people piled in (see also Cathie Wood). With recent stalling performance, they lost some customers
Unlike Cathie Wood, Terry Smith actually has a pretty solid approach to investing that many people like
Terry Smith has a fairly decent track record, but beware, this is no guarantee (see: Woodford)
I have an investment in Fundsmith, I hold the UK T class.
Wrong vehicle then, stocks aren’t useful for liquiditiy in the emergency funds sense. Make that split first and use a separate vehicle for it.
For investments, ask yourself what your risk tolerance is, how much you can lose without losing sleep. That’s the most you should start with putting in stocks. In reality your tolerance will be more like half of what you think, at least at first, but a drawdown won’t produce 100% loss either.
While such a loss hopefully is only temporary, it nonetheless will feel real (simply because it is). The worst you could do in such a market phase is sell (if anything you should do the opposite, the harder it is the more you should), which is why you need to limit the potential loss by sizing your investment properly.
ETA:
And the part that needs to have a stable-ish value, you probably want to put that in nominal value stuff like bonds or a boring Sparkonto. Boring is characteristic because it is the result of stability and predictability.
This is not very helpful, is it? By liquidity I mean the ability to sell the asset quickly and at low transaction cost. This has nothing to do with price risk in the first instance. I would argue that cash rich “value stocks” with low P/E should be relatively safe from turbulences.
And yes, it is the “vehicle” I was looking for recommendations for. So please be specific. I am open to suggestions. That is why I opened the thread.
From the 90’s I was a value investor, lack of liquidity leading to spreads of around 10% with the ability to only trade tiny amounts at the quoted price. Trading was expensive in those days 1.8% plus VAT in addition to stamp duty.
My earliest big success was Ocean Wilsons Holdings. I first bought in 1991 at 52p (spread 48/52) at the time Balance sheet held liquid assets of 80p with a 4p dividend in addition to a shipping business in Brazil. In 1994 Warburg one of the 3 market makers decided to pull out & had 4,000,000 shares to sell, the price dropped to 28p where it languished for ages as daily volume were around 1000 shares. The shares rarely rose above 85p until 2002. They did start rapidly rising in 2005/6 when I sold most of my holding as a 10 bagger. The shares went on to hit £14.00 in 2011. I repurchased some during covid at £6.30 & sold out 1 year later just under £10.00. Here is the chart OCN Stock Price and Chart — LSE:OCN — TradingView
Old EF readers will remember laughing at me in 2013 when I started piling into Apple which had just collapsed. It was on a PE of 8 or 6 if you stripped the cash out with the brand valued at ZERO. The talk was it would never be a trillion $ company again. Thats what I call a value company & it paid off very well.
It’s actually very difficult to find real value, it is there if you look long enough but may take years to pay off, at 62 with heart issues it’s no longer an area of interest to me.
If you feel equities are over-valued, another option is to pay into your pillar 2 pension. You save taxes and depending on your fund, get between 1% and 6% return on top.
Which 2nd pillar fund has 5-6% performance? I’m at Profond, they inform proudly they have the highest long-term performance and still they are nowhere close to 5-6%
