By MARY HOLM
Q. After my first letter in your column, setting out the benefits of single share investing, there was a clamour of responses from "diversifiers" smugly (in face of the evidence) setting out they were on the right path; moralisers against investing in casinos; and doom/gloom merchants (a Kiwi disease) predicting terrorists would put paid to my concept, as if such an event wouldn't affect the whole business community.
After my second letter, where I set out the facts and figures of massive profits in Sky City shares (against their massive losses), silence reigns.
You can't argue with success when, by following the "experts" (who are self-interested commission agents, to demystify them), you run up 54 per cent-plus losses.
Since sometimes a sharp shock of reality works best to remove the scales from people's eyes, I am pleased to pass on the results of 24 hours' "work".
I saw in the business section that a brothel in Sydney was to be floated. According to the Human Instinct TV programme, gambling and sex are two basic human needs, always have been and always will be.
Here was an ideal investment in good times and bad, alongside Sky City.
The shares were available on May 1, with an offer value of 50c Australian, which I knew was unobtainable. The lowest offer was 70c, so I put a bid in prior to the market opening for 20,000 shares for NZ$15,758.
I followed them up and put a sell in at AUS $1.65 (they touched $2.05), as I have learned not to be greedy.
I received NZ$36,970, a profit of $21,212 (134 per cent) in one day.
Also, I bought and sold on-line at a cost of $49, instead of going through a broker - why should I pay someone for nothing? - and saved $500.
I am happy to provide the data to prove I am not making this, or previous success, up. The moralisers can rant and the plodders plod backward whilst I pile up the profits.
I am happy to keep on providing this antidote to the gloom and doom merchants for nothing, and suggest the "rich dad" eggs in one or two baskets is the way to go.
Bearing in mind that astuteness has to be tempered with caution, I could have piled much more into The Daily Planet, or held on (I'm pleased to see they have drifted back).
But caution, whilst going for continuous gains in one or two investments, is the key.
A. All the people whose letters haven't made it into this column won't be happy that you are getting a third go.
But your letters raise some really important points, given that many New Zealanders invest in just one or a few shares, and quite a few also "stag", as you have done, buying initial public offerings (IPOs) and selling quickly.
Fairly often, stagging works. And in your case it worked brilliantly.
Sometimes, though, the share price doesn't rise soon after listing.
Brian Gaynor recently wrote about an Australian Financial Review report that showed only 15 of 37 IPOs in the past 12 months were trading above their issue price. The average return on the 37 companies was minus 9 per cent.
But, you seem to be saying, you know how to pick the good ones. You went for a company that supplies a basic human need, and seems to be recession-proof.
Don't you think everybody else realises that - particularly the analysts who work for the institutions that do the vast majority of share trading?
You didn't outfox the market. You were lucky, as you have been with Sky City.
And you might continue to be lucky for quite some time. If we look at enough people who own just a few shares, some will gain lots and write to newspaper columns about it.
On average, though, you won't all do as well - for the risk you take - as diversifiers.
And, after watching this dance for decades, I'm convinced it's luck rather than skill that pushes one individual investor above the crowd for a while. When the "while" ends, anything can happen.
Gambling certainly seems to be a basic human need for you!
PS: I presume you will be declaring your Daily Planet capital gain on your tax return.
PPS: Those who favour diversification do include "self-interested commission agents", but they also include the smartest academic brains in the finance area.
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Q. Why is it that so many people have recently dumped equities and bought low-yielding investment properties?
Have they not heard that the property market is booming? Are these the same people that bought into a booming stock market just a few short years ago?
If more people were contrary investors, wouldn't we all be better off, with lower highs and higher lows?
Damn the sheep!
A. In answer to your first question, I don't know. And I wish they wouldn't, for their own sake. We can't be sure, of course, that the same people who are quitting share funds are buying property. I suspect many of those scared off shares are going for the shelter of fixed interest.
But property is certainly popular these days. And, as you say, many are buying at relatively high prices, just as many bought international shares at relatively high prices in the late 1990s.
I don't for one moment expect property prices to plunge as much as world shares have. The share slump has been extraordinary, even for shares. And property is not as volatile.
Still, most people who buy property borrow to do so, whereas share investors rarely borrow. Even a smallish fall in property values can seriously hit mortgaged investors who have to sell in a down market.
If they had bought their property when prices were low, there would be much less chance that their sales proceeds wouldn't cover their remaining mortgage.
So, yes, contrarian investment - buying what everyone else is selling, and selling what everyone else is buying - isn't a bad idea. It would, indeed, reduce volatility for all of us. And it is also self-serving.
Recent research by fund manager ING confirms this.
If you had $100,000 at the start of 1982, and at the beginning of each year you moved that money, plus the return on it, into the asset type that performed best in the previous year, you would have about $680,000 at the start of this year.
That's an average return of more than 9.5 per cent a year.
Note, though, that your two worst losses would be an ugly minus 49 per cent and minus 15 per cent.
If, instead, you had invested in the previous year's worst performer, you would have accumulated almost $1.3 million.
That's almost twice as much, and the average annual return is an impressive 13 per cent. And your two worst losses would be somewhat easier to take, at 36 per cent and 7 per cent.
I'm not suggesting you follow the "worst performer" strategy. For one thing, the research doesn't include all the commissions, fees, brokerage and tax - to say nothing of additional tax on capital gains - you would have to pay.
Also, you would be in long-term investments for only a year.
And you would be extremely undiversified, putting all your savings into a single type of asset each year.
Those two factors would boost your risk frighteningly.
But I am suggesting that investments that have done badly tend to be a better bet than those that have done well.
Bailing out of the dogs and into the boom assets is silly.
An interesting point from the research is that, over the 21 years, you would have had fairly similar holdings. The big difference is the timing.
For instance, you would have invested in New Zealand shares eight times if you were going for the previous year's best performer, and seven times in the "worst" scenario.
For international shares, it's eight times for the best, four times for the worst. For property, it's two and four; for New Zealand fixed interest, one and four; for international fixed interest, one and zero; and for cash, one and two.
Note that property, the current darling, was worst performer four times and best only twice.
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Q. In the article you wrote last week in reference to property, you said: "Nobody knows whether property will keep rising or whether it's done its dash for a while."
What about the property cycle, up and down again, every six to seven years or so? So long as you were investing smartly in this market, it would make little difference at what stage in the cycle you invested.
Property investment should be long term.
A. I couldn't agree more with your last point. And as long as you stay in property for 10 years, or preferably longer, it probably won't end up mattering a great deal whether you bought when the market was weak or strong.
Sometimes, though, people who plan on a long-term property investment end up getting out early.
They may decide to go overseas or elsewhere in New Zealand and not want to be distant owners.
Their income could drop, or they may have no tenants for a long time and can't cover the property expenses.
Or they might freak out when property values fall.
If they sell within a few years of buying, they are more likely to do badly if they bought in a boom.
As for a six- or seven-year property cycle, there isn't one.
House prices certainly accelerate for a while, then decelerate, and sometimes fall, then rise again.
But when I look at a graph of price changes over the last 40 years, some of the rises last about seven years, some last one year. Same with the falls.
I would hate to see anyone making a short or medium-term investment in property and counting on any regular cycle to make it work.
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