what to invest in, page-86

"I do still hold a sizeable chunk of CBA shares and have accumulated them over the years"


If you have held CBA for many years, I assume since the IPO, I would hazard a guess that it has been your biggest winner as far as gross dollar profit is concerned.

I cant see the point in selling your best performing assets.
Thats not to say that CBA's price may not fall, but if you sell with a cost base of $5.40, you will realise $36 after CGT and you will have to wait for CBA to fall to $36 before you buy it to break even, and if that takes 2 years, there is another $8 in foregone grossed up dividends ......

Let me say this, and I will only say it once.
There is never a bad time to own good companies, and the only returns you will make in the stockmarket depend on the financial performance of the companies you own. No worse, no better.
Therefore you should concentrate your efforts in picking companies which rate to be very profitable over long periods of time .
Trying to time the market is a mug's game.

You want proof ?

Here goes. (hypothetical example)

I have a fair idea that WOW will be worth $50 (very conservatively) in 10 years time and its Market cap will increase from $26 million to $60 million. I also expect that they will pay $16 billion in fully franked dividends over that time frame.

Scenario 1) All of WOW's shareholders are happey with their investment and hold for the entire 10 years ie the same people who own WOW now will hold WOW in 10 years. Their profit will be $50 billion ($36M in capital gain, $16 in dividends)

Scenario 2) WOW shareholders trade their shares to bug*gery, the entire float is turned over each year (that's what is actually happening on the ASX) and as a result a new set of shareholders own WOW at the end of 10 years. In this scenario WOW will still be worth $50 billion and will have paid $16 billion in dividends.

So whats the difference ?
Under scenario 2) capital profits will have been realised resulting in $8 billion bein pis*sed away in the direction of Peter Costello. Also 1% of capitalisation pa will be pis*sed away in the direction of stockbrokers thats another $4 billion.

Therefore, the buy-and-holders of scenario 1) are playing for $50 billion and the market timers of scenario 2) are playing for $38 billion. Big difference.

Therefore if you try and market time you are behind the eight ball in a big way and not only do you have to be an above average timer (that would suffice if it was a zero-sum game) you have to get things right almost 90% of the time because market timing is a substantially negative-sum game.

Now, I know that everyone fancies themselves as above average market timers, but then again studies have shown that 80% of people think of themselves as above average car drivers.