The Value in Share Buybacks

I read an article on Bloomberg this week regarding share buybacks (Goldman Sachs to Companies: Stop Buying Back Your Stock). The article concerned a note published by Goldman Sachs to companies urging them to stop spending money on share repurchases.  I am naturally favourable towards buybacks but I wanted to give more consideration to them in this weeks’ post.

Share Buybacks

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Fixed income: Still a Safe Haven?

Fixed Income

It’s a traditional notion to consider fixed income as the safe counterpart to the volatility of an equity-based portfolio.  The relative stability of bonds can be seen as the anchor which preserves wealth during market downturns.

And the professionals agree.  Warren Buffett advocates the average investor put 90% of his portfolio into an equity index tracker and the remaining 10% into short-term government bonds.  In his classic book “The Intelligent Investor” Buffett’s mentor, Ben Graham, suggests holding between 25-75% of a portfolio in bonds.

Were I looking to put together an equity/bond portfolio today I’m not so sure I’d agree.  What are our options?

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Four Reasons to Sell a Position

One thing I struggled with early on when I started investing (and still do occasionally) is the need to do something with my portfolio.  Without doubt, one of the main reasons investors produce poor performance over time is due to over-trading, the burning desire to buy and sell positions.  Not only do you lose the opportunity for gain, you also eat up your money in fees.

But the more experienced I become, the easier this becomes to manage.  It doesn’t feel natural though, does it?  Everything these days feels short-term and mile-a-minute paced.  It’s almost impossible to avoid market and/or company news.  There’s always something going on somewhere.  Add to this you have people’s resounding image of stock markets as a stereotypical trading floor like this:


Are these guys long-term buy and hold?  Not a chance!  They will make dozens, if not hundreds of trades a day, holding zero positions at the ring of each closing bell, ready to begin it all again tomorrow.

I don’t know about you, but to me that sounds exhausting.  I’m much more comfortable doing the hard work initially to identify a suitable investment, and then letting time work in my favour.  In doing so I also keep my trading costs to a minimum.

So what advice can I give to someone struggling with the urge to trade?  Define your own reasons to sell.

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