Ask Colin

I have a moderate amount invested in Australian shares. I read the daily financial press, Age, Australian, Financial Review and Herald Tribune where there used to be a column that I really thought was good by James Glasser, and also investment books ("The Warren Buffet Way", "The Art of Investment" by Barrie Dunstan, "The Intelligent Investor" by Benjamin Graham). The advice I have come to adopt is to ignore the daily "flak" of the market and simply buy and hold a share of several good Australian companies. Time in the market not timing the market, unless of course taking advantage of a situation where a company becomes ridiculously cheap or expensive. On paper the portfolio has increased about 29% over the past 12 months including dividends. I have 15 companies in the portfolio with the main contributors increasing in capital value between 60-120% over their purchase prices. The $64 question is should I be trading more and if so why?

I have a moderate amount invested in Australian shares. I read the daily financial press, Age, Australian, Financial Review and Herald Tribune where there used to be a column that I really thought was good by James Glasser, and also investment books ("The Warren Buffet Way", "The Art of Investment" by Barrie Dunstan, "The Intelligent Investor" by Benjamin Graham). The advice I have come to adopt is to ignore the daily "flak" of the market and simply buy and hold a share of several good Australian companies. Time in the market not timing the market, unless of course taking advantage of a situation where a company becomes ridiculously cheap or expensive. On paper the portfolio has increased about 29% over the past 12 months including dividends. I have 15 companies in the portfolio with the main contributors increasing in capital value between 60-120% over their purchase prices. The $64 question is should I be trading more and if so why?

I find it very difficult to argue with your approach. I think you would find some considerable comfort from a book I have just read and reviewed for Shares magazine (to be published in the October issue I think). It is called Stocks for the Long Run by Jeremy Siegel.

Essentially, his work shows that it is very difficult to beat a widely diversified portfolio of large stocks. To beat it we are going to have to be very good stock pickers and market timers. A few outstanding people may achieve consistently better results, but it will not be easy. And it may involve taking greater risk.

The only thing I see in your approach to comment on is that 15 stocks is not widely diversified. It is reasonably aggressive and will, along with good stock selection, be one reason you have beaten the index.

Of course, some people will take this sort of approach for most of their wealth, while actively trading a small part of it for fun or to try to strike a big winner in the speculative area. However, this is not what you are talking about.

Another reason people trade is because they do not have enough savings to retire. They see trading as the only way they can get enough money. Of course, this is a silly choice unless they have decided that it will be "Sydney or the bush" - like buying lottery tickets.

The major impediment to the trading approach is the transaction costs. I use an active investing or position trading approach. For me, transaction costs are manageable because I minimise the number of transactions and trade enough size to make brokerage relatively insignificant. However, it still remains that I pay some toll every time I pass "Go".

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