Investing the FARM on 5 LTBH Investments to make a Million

Jim Rogers: My First Million

What is the secret of your success?

As I was not smarter than most people, I was willing to work harder than most. I was prepared to examine conventional wisdom. If everyone thinks one way, it is likely to be wrong. If you can figure out that it is wrong, you are likely to make a lot of money.

What is your basic investment strategy?

Buy low and sell high. I try to find something that is very cheap, where a positive change is taking place. Then I do enough homework to make sure I am right. It has got to be cheap so that, if I am wrong, I don’t lose much money. Every time I make a mistake, it is usually because I did not do enough homework.

Do not underestimate the value of due diligence. In the 1960s, General Motors was the world’s most successful company. One day, a GM analyst went to the board of directors with the message: “The Japanese are coming.” They ignored him. Investors who did their homework sold their GM stock – and bought Toyota instead.

Where should people put their money in the recession?

Invest only in things you know something about. The mistake most people make is that they listen to hot tips, or act on something they read in magazines.

Most people know a lot about something, so they should just stick to what they know and buy an investment in that area. That is how you get rich.

You don’t get rich investing in things you know nothing about.

 

http://www.ft.com/cms/s/2/0e676a08-d602-11de-b80f-00144feabdc0.html#axzz1zyZ1YidU

Hi Isaac,

Having 3 out of your 5 in banking stock is carrying risk concentration to the extreme, it seems to me....it's true that I've been 55-60% invested in oilies at times, but over 8-10 co's.

FWIW, I'm constructing a portfolio for a relative at the moment (5 year view, no great expectations) and the 5 I'm currently considering are : AVN, BBM, IND, ,SIA and TNI, with- as an alternative - 1/2 tranches in each of AEX and SRT. I would expectr each of these to double at some point in the next 5 years.

AVN and IND (and SRT) aren't ISAble, but that's not an issue for my relative, given the sums involved.

What are your own 5 as a matter of interest ?

Having 3 out of your 5 in banking stock is carrying risk concentration to the extreme, it seems to me....it's true that I've been 55-60% invested in oilies at times, but over 8-10 co's.

It is exactly that kind of thinking that makes me want to invest big in the banks and forget about them for the next several years. Do you see the banks going bust? I don't.

So what one can be sure of is the banks will bump along up and down but will eventually recover. And in several years from now they will probably be significantly higher. Basically I think they are at a point where the downside is small and the upside is a multiple from current levels as far as LLOY and RBS are concerned IMO. Barc less so.

I would'nt choose SIA as part of the 5 as the max upside I see from current levels is 100%.

Somethng like TPL would work as one of my 5 because the downside is limited, yet the upside is many multiples.

So if one started with a £100k pot and put the cash into 5 stocks it is reasonable to expect to make a million over a 5-10 year period IMO.

TNI is interesting as it is a value play, but the business is in decline which is what put's me off. The property on the balance sheet is worth more then the market cap, the debt is expected to be reduced in the coming years but the underlying business is in decline.

AVN and IND are AIM listed so can't be held in an ISA, I don't think I would choose them either if they could be held though.

I am still thinking of my 5, it is not an easy exercise. You see you only get 5 shots at choosing 5 stocks, so it is important to carry out thorough due dilligence and really believe in the companies.

There are loads of value stocks in the markets, some of them are duds and will remain as 'value' stocks.Others are very good businesses that will out the value.

So the real question I am asking is can you find businesses that will outperform the markets whilst offering little downside?

Over the last few years IMO most of the money has been made from the commodities sector, most of the other sectors have not done as well. And where stocks have done well outside of commodities have been special situations.

Infact every time I used to push out of the Oil sector in the past few years I was a lot more nervous then had I been simply stuck with O+G.

Hi Isaac,

Not for the first time, I'm a bit confused by your comments ;-> :

- you appear to have gone from asking for input re a portfolio that doubled every 3.8 years (hence my reply based on doubling over my approx. equivalent 5) to a portfolio that goes from GBP 100k to GBP 1 million in quote "5-10" years....... ie a 10-fold increase in 5 OR 10 years......with respect, those are both wildly different propositions from your initial 'target'.

- in your initial msge, you appeared to be suggesting exposure to the banking sector for 3 of your 5 picks - simplistically 60% or so - yet don't provide much of a case for holding them other than 'little downside, they won't go bust'.....I paraphrase. Maybe the banks won't go bust, but that doesn't stop you potentially being significantly diluted further down the line in a further rescue, which from a return perspective could amount to quite a lot of 'downside'.....

FWIW, I'm more in tune with your concluding observation that good ol' O +G has a' comfort zone' appeal; the supply/demand arguments seem persuasive over a 5-10 year time frame, tho' I'm not sure about further out.

I also feel that it's probably better to be in the wrong companies in the right sector than in the 'right' companies in the wrong sector....

On the other hand, the FT's John Authers Long View (Sat 7th) praises JM Keynes' investment record, achieved in part by taking a contrarian view : " In 1936, Keynes held 65.7% of his portfolio in mining stocks, which accounted for only 9.8% of the UK stock market".

For there to be an opportunity for disproportionate gain relative to risk, I think the average PI has to wait for 'special situations' eg LDC debt in the 70's and '80s, techie stocks in the run-up to the 'noughties, bank sub-debt and preference shares at the start of our current malaise......and no, I don't have any sectoral 'conviction buys' of that type at the moment !

The great thing about being a PI, though, is that there are always individual shares that from time to time Mr Market misprices /ignores and which - sooner or later - will play catch-up. And meanwhile we don't have an Investment Committee or Compliance to answer to !

ATB

In reply to extrader, post #4

£100k is a hypothetical number, how big a pot you start with depends on how much cash you have.

£100k/5 = £20k/share is merely an example.

The principle is to find 5 of your best stocks which offer good value and massive upside that you would be prepared to hold for a long period of time say 5-10 years.

Hi Isaac,

The GBP 100K I quoted was only using your own number !

To repeat/clarify, in post 1 you talk of going from X to 2X in 3.8 years (which extrapolates to about 6X in 10 years).

In post 2 you talk of going from X to 10X in 5 years to 10 years.

Are you talking of 1500m or a marathon ? The challenge you pose in the 2 messages is very different, it seems to me !

HTH

I don't think its necessary to have a specific time frame in mind that you must hold for - if a share went up 20 fold tomorrow you wouldn't hold for another 4 years 364 days thinking that will be the key to out-performance.

But to generate 'get rich' type of returns you must think much longer term that the average market participant and go for the seriously unloved - this is why I think it's a mistake to exclude TNI on the basis that it's a declining industry - in 10 years time it's likely to be a property company with a small media business tacked on!

While the academic mantra of risk = return has been disproved one mustn't accept that by holding a concentrated portfolio and buying the seriously unloved you are taking more than the market risk -but then that's always going to be the price you pay for the chance of getting rich quickly.

With that caveat and if they must be ISA'able then I'd go for the cheapest unloved shares in the unloved sectors:

Retail: Halfords or Home Retail
Media: Trinity Mirror or Creston
Finance: Man Group or Tullet Prebon
Insurance: Aviva or Phoenix Holdings
Defense: Chemring or BAE Systems

You get some sectoral diversity - each share is cheap on assets or earnings or both - many have high operating margins or ROCE showing that the underlying business has strength whatever the SP says.

If you can forget the ISA'able part then you can expand the list with some smaller caps - Hellenic Carriers, Work Group and Inland to expand the sectors to the also unloved shipping, recruitment & property.

You're not wrong there extrader..compliance and investment committees....especially compliance is a bane. Why do you think I've always avoided the big groups (and there's been plenty of offers believe me). being in control does have its advantages.

Unfortunately compliance is killing the flair in the industry.it loads on costs and ties our hands whilst still not stopping those who are determined to do wrong.

£100k is a hypothetical number, how big a pot you start with depends on how much cash you have.

Where would we be without your insight Isaac.

Buffy

My first pick for Investing the Farm on one of 5 picks would be TPL i.e. 20% of my capital.

I personally have a decent sized holding of these in my portfolio so it is not some kind of fantasy pick, the holding is real and I genuinely think there is a good chance of making a lot of money from this stock over time.

There are definetly risks, but you need to take risk to get the reward. TPL is exactly the type of share you would need to buy to make a lot of money in a short period of time, i.e. 5 years or so. It may work, it may not, time will tell,

My reasons are explained in more detail on my thread : http://www.stockopedia.co.uk/content/tethys-petroleum-doris-fueling-the-drilling-of-tajikstan-66576/

Is it the bottom here? I have no idea.

The offer price at COB 13/07/2012 is 42.75 pence/share.

There is no stamp duty to pay on TPL, so a £20,000 - £12.50 broker commision = £19,987.50/0.4275 = 46,754 shares


My next pick as to when that happens I have no idea. It depends on the research I do and the markets, I will add as and when the time is appropriate.

My first pick for Investing the Farm on one of 5 picks would be TPL i.e. 20% of my capital.

Isaac, you are perverting the term, first used as far as I remember by Pyad on TMF.  Betting the farm meant plonking down pretty much all your investment money on ONE company's shares!

You seem to be using it to mean not having any cash left to invest.

Buffy

In reply to thebuffoon, post #11

Thanks Buffy

Feel free to share your Investing the farm stocks.

Hi Isaac,

Flwg on from post #2, in which I suggested a possible 5 LTBH investments, I'd now amplify and say that my 'game plan' calls for each of the 5 to double at some point over the next 5 years, guesstimating as follows :

Year 1 : SIA (from 325p)
Year 2 : AVN (from 295)
Year 3 : TNI (from 27p)
Year 4 : IND (from 320p)
Year 5 : BBM (from 55p)

Each share having a 20% weighting in a GBP 25K pot.

If we're all (you, me , S'pedia) still around in 5 years, I'll let you know how it turned out.

Re your suggestion (1 of 5, you've been a bit coy in volunteering what  you have in mind for the others ?), Tethys Petroleum (TPL), congrats - per another thread - for  posting details of your apparent  first toe in the water.

I'm not sure what protection TPL has agst downside risk (you haven't said), I'd put it myself in a different type of portfolio, technically known as a Sh*t or Bust (SOB) portfolio.

In a SOB, you work on the basis of buying 10 shares, 6 or 7 of which (if you're lucky) go nowhere, 1 or 2 of which go bust .....and (here's the clever bit)....1 or 2 that multi-bag (you hope seriously, like 20x or 30x)

A mainly oilie 'off the cuff' SOB 10 might include :
- Bahamas Petroleum (BPC);
- Falkland Oil and Gas (FOGL);
- Intercede Group (IGP);
- New World Oil and Gas (NEW);
- Quintain Estates (QED);
- San Leon Energy (SLE);
- Software Radio Technology (SRT);
- Tethys Petroleum (TPL):
- West African Minerals Corp (WAFM); and
- Western Zagros Resources (WZR);

(WAFM has already 8xbagged, for reasons that aren't really clear to me.....;->)

As Buffy may reasonably point out, a 10% weighting in a SOB investing strategy is even further away from being a 'farm bet' than your suggested TPL

The nearest thing to a 'farm bet' that you (reading between the lines) and I (at times unintentionally) have had has probably been our respective SIA holdings........in investment terms , I consider Soco a bit like my children : my greatest joy - and my greatest heartache ;->.....

So maybe - rereading this thread - from a temperament perspective neither of us is really cut out for this 'farm bet' stuff ??

Just a thought.

ATB

I consider Soco a bit like my children : my greatest joy - and my greatest heartache ;->.....

Lol. Very true.

You also need to know, with both, when to let them go...

I'd not put TPL quite in the SOB category, which is what makes it attractive. Having said that, you've come up with an interesting portfolio suggestion, for the patient type.

Buffy

extrader

I wrote the message below on Satuday night and then got very tired and went to bed...But saved the message with the view of finishing it off. However, I've read Buffy's post - I think you should do some reading rather then me spoon feeding the research ... No point in deleting my post so I will just post whatever it is I wrote...

 

extrader

Thanks for sharing your 5 picks with fellow readers, it will be interesting to see how it plays out.

    Re your suggestion (1 of 5, you've been a bit coy in volunteering what you have in mind for the others?)

Over time I have learnt that one aspect of Investing in the markets, is to have extreme patience and discipline. Ofcourse like other Investors I have other stock idea, but I think it is important to time the entry appropriately.

I would'nt Invest a large sum of money in one go in real life so why should I choose the 5 stocks all in one go? There is nothing wrong with holding 'cash'.


    I'm not sure what protection TPL has agst downside risk (you haven't said), I'd put it myself in a different type of portfolio, technically known as a Sh*t or Bust (SOB) portfolio.

I don't see TPL as a shit or bust punt...

They do have 25m booked 2p reserves, with a current resource of 2.4 bil and due for further upgrade from Tajikstan, TPL takes 91% of the Oil/Gas during the cost recovery phase & 70% after costs have been recovered with no further taxes to pay, thecompany is producing 5-6 boepd currently with a $35-40 netback with a ramp up of production expected by end of 2012 circa 10-12,000 boepd as tpl upgrades AOT terminal and providing we get some success on Dynas.Plus TPL owns 5 rigs so we can manage the timing of our dilling better which in turn helps funding, the beauty of any exploration company is when you have decent cashflow to help you fund the exploration. Therefore you get minimal dilution but massive upside - it is exactly the type of share that can multi bag many times. Also worth noting Persea, East Olimtoi (Tajikistan) and Kalypso (Kazhakstan) - 3 significant drilled prospects have yet to be tested eachof which are significant.

Hi Isaac,

I think it's a bit rich for you to write, in post 15 :

".....I would'nt Invest a large sum of money in one go in real life so why should I choose the 5 stocks all in one go? There is nothing wrong with holding 'cash'........"

when your opening post asked for some 'spoon-feeding of research' as follows :

".....I am interested to know what holdings people would want to have if the maximum they can hold is 5 at any one point in time?..."

Suggest you have a read of Eric Berne's " Games people play".

I think you play a hard game of what the transactional analysts summarize as  'Yes, but..." . That is, whenever someone answers or attempts to answer your question, you change the goal-posts. The question isn't a serious one, seeking a serious reply , the gratfification comes from showing yourself that no-one really understands you .

Frustration occurs when people decide not to 'play/play along' with you.

Have fun.