The Beach Bum Investor

By Mark Wylie

The Beach Bum Investor is a practical guide that builds on Mark Wylie’s first five books about long term investing.
The author shows how his methods and suggestions can be successfully implemented by people who don’t have much time or technical knowledge to perform detailed investment research and reviews.
Mark examines how to construct a wise portfolio with a margin of safety, including equity indexes, exchange traded funds (ETF’s), property indexes, and cash.
The Beach Bum Investor includes information on:
•Choosing which investments to buy and which to stay away from
•Adding index funds, ETF’s, listed investment companies and managed funds to your portfolio
•When to buy, hold and sell
•Minimising fees and costs
•Construction and maintaining a portfolio
•What is Robo Advice
•Reviewing your investments
•The causes and effects of boom, busts and debt
The Beach Bum Investor is ideal for those smaller investors who are looking for an approach that will identify more stable investments that should deliver long term returns. This approach is also suitable for self managed superannuation funds (SMSF’s)and is particularly effective during time of market pessimism.

• Language: English
• Publisher: Mark Wylie
• Release date: Feb 9, 2017
• ISBN: 9780648018032

Mark Wylie

Over more than 15 years of investing, author Mark Wylie has found that under most circumstances his long-term investing approach will produce very good results and will from time to time locate that one company that gives an outstanding performance. Favouring a fundamental and analytical approach to equity investing, he has undertaken extensive research into Warren Buffett’s methods and holds a Diploma in Financial Advising. In 2002 Mark launched Business Perspective Investing with the aim of helping investors understand long-term investing and prepare a personalised strategy that would yield profitability and improved returns into the future. Investing: the Tortoise or the Hare approach? is his fourth book. Mark lives with his family in the Adelaide Hills.

Book preview

1. Introduction

The Beach Bum Investor is my fifth book. I hope it will give budding investors real insight into the investment arena.

I have written this book for ‘mum and dad’ investors, not professionals – because they always know better! It’s going to be controversial on some issues and go against what your traditional investment adviser or broker will recommend. But remember their job in life is to create transaction fees for themselves!

The global financial crisis (GFC) has changed my investment focus to protecting my capital more than I did before the crisis. Long-term investment success is about ensuring a large margin of safety to protect your hard-earned capital. Selecting the right companies/investments to invest into is extremely difficult for us small investors, and even the professional investment managers are not consistent enough over the long term. A very few – such as Warren Buffett and George Soros – are, and they are extraordinary investment capital allocators.

The small investor has limited or no access to the real need to know information about a company/investment. You need to know what you don’t know. But it is very hard to obtain that sort of information in time to act on it!

This book will help you invest with a more global perspective and help you to understand the potential pitfalls of investing over your lifetime – which sometimes is not long enough for the stock market!

I wish to truly thank all my family for their continued support when I was too grumpy or preoccupied to participate in life as a normal person during the GFC and other market corrections.

Your investment challenge is to find what works for you, and I do hope this book will assist with this very important endeavour.

Wise investing,

Mark Wylie

Glenelg North

February 2017

2. Markets over long timeframes

Do not go where the path may lead; go instead where there is no path and leave a trail.

Ralph Waldo Emerson, writer and philosopher

Over long timeframes markets tend to follow trends, and in the shorter term fluctuate above or below these trends. These shorter term fluctuations are caused by the daily information and news that is distributed about the various companies. Benjamin Graham, a world famous investor, called these short-term movements Mr Market, and he is either very excited or he is very depressed! This occurs from one day to the next.

The long-term trends will be either upward trending or downward trending. A long-term downward trend would indicate a declining product, service, company, industry or sector; for example, a VHS video product when DVD was introduced. One would be best to stay away from these as they can cause erosion of your capital. The ones you should look for are the upward trending ones; these potentially offer a better return over the long term.

When investing we need to understand these trends and establish if they are right for investing our money into. All the stock markets around the world have trends, and they can be viewed by visiting financial news providers worldwide. Charts of these markets are readily available and can be adjusted to various timeframes; I always look at least to the longest timeframe offered, and some shorter ones, to see if Mr Market is happy or sad!

What drives markets to be upward trending is an important question, and the answer is generally the underlying growth and profitability of the businesses within the market. Each market will grow by differing amounts over the long term, and you will need to establish this percentage to decide if the market suits your investment plan.

Markets go through stages over time: they boom, they bust and they revert to the mean. Once an investor realises this and prepares his or her financial investment plan to take advantage of these phases, he or she moves closer to becoming a wise investor. Each phase offers the investor opportunities. When a market has busted it offers a better time to buy than at the boom; likewise, the boom offers a better time to sell than in the bust. The mean or average reversion line or level helps you understand where in the cycle the market is. I like to call the reversion line or level the intrinsic value of the market; you could call it the fair value line if you like.

The title of this book, Beach Bum Investor, indicates that these long-term trends are just that – long term – and need to be understood. In the shorter term Mr Market can be very volatile. Investors needing to cash out in the shorter term must be aware that they might become a victim of Mr Market’s manic depressive attitude. The trend can be your friend – but sometimes not in the short term!

In figure 2.1 you will be able to see the long-term trend of the Dow Jones Industrial Average, which has continued to grow at a rate of about 5% p.a. plus dividends, which have been about 2.5% p.a. for the 89 years 1928 to 2017, giving a total return of around 7.5% p.a.

Figure 2.1: growth trend of the Dow Jones Industrial Average since 1900

Wise investors who had been able to massage their purchases to the bust phases of the market and sell at the boom phases of the market might have been able to improve on the 7.5% return, however that takes quite some skill and patience.

You can also see the volatility of the markets and how shorter timeframes can affect the capital value of your investments wildly. It’s not for the faint hearted. The period post 2000 has been quite a ride!

My point about the markets is they can be cruel in shorter periods if you have not purchased wisely. When the market is more at the bottom of the cycle than the top of the cycle the wait to regain your capital can be long and painful.

Summary

My point in this chapter is to highlight that investing can be a painful experience if you don’t understand the market (Mr Market) and its shorter term volatility. Investors who understand this will adjust their plans and strategies to accommodate market volatility. Over the longer term we as investors seek to receive the financial rewards that an upward trending market has to offer and avoid the losses of a downward trending market.

Patience is an extremely important attribute of the Beach Bum Investor.

3. Small investors

An investment in knowledge always pays the best interest.

Benjamin Franklin

By small investors I mean non-professionals, and I don’t wish to upset anybody by calling them small, it’s just to describe us as a group of investors who don’t have access to the same information that larger institutional investors do. It is unfortunate that we don’t have this access, but it is the hand we are dealt and we need to work with the information we get as best we can.

Small investors are generally time poor and have limited access to large amounts of investable cash. We don’t have a lot of spare time to plough through vast amounts of information and data. And small investors have often not been educated about wise investing. We are behind the eight ball to start; however, that should not deter us because there is an investment solution for us all.

As busy, hard-working people we need an investment strategy to build our wealth during our wealth accumulation years, which is generally thought to be our early twenties until our mid-sixties. Once into retirement our investments need to be income providing more so than growth focused, though some growth is still ideal. Each phase of our investment life needs a plan that meets the stage of life we