# When To Buy A Stock



## SensibleInvesting (4 August 2019)

What do you guys look for when you buy a stock, and when do you decide to pull the trigger? 

My preferred method of investing is "bottom feeding" - I love stocks that have been wrongly sold off by the market, but are solid businesses with solid underlying fundamentals. In this video, I cover two ways to "bottom feed" and go against the herd for maximum returns.


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## brty (4 August 2019)

SensibleInvesting said:


> What do you guys look for when you buy a stock, and when do you decide to pull the trigger?
> 
> My preferred method of investing is "bottom feeding" - I love stocks that have been wrongly sold off by the market, but are solid businesses with solid underlying fundamentals. In this video, I cover two ways to "bottom feed" and go against the herd for maximum returns.





When I first read your post and decided to kill a few brain cells by watching your video, the first thoughts I had were more rubbish from someone that can't distinguish between their own genius and a bull market. That is what your 'easy money' section really is, total BS IMNSHO.

However I kept watching and the second half of your video on things to look for from a FA point of view is not bad. It looks at some common things that people pay attention to and some less than common aspects.

BTW one of the easiest ways to make money in the market is exactly the opposite to what you have said. Going with the crowd as a stock or stocks in general is when you can make big money, but you have to jump off before everyone else does.

A couple of years ago I made an obscene amount of money on a penny dreadful that had nothing, was never going to have anything, but was caught in an 'industry' hype movement. This was one of the laggard stocks (because they had nothing but an idea, and I mean nothing!), in the lithium boom in late 2017. I bought millions of shares at a very low price, less than 2 cents, yet had a margin of safety as there were tens of millions in the buy queue just behind me. I basically bought everything at just above these huge buy orders for over a week.
Along came an announcement of them doing something that seemed positive and the share price took off like a scalded cat, basically because it was the laggard of the sector with some sudden promise. Plus every trader that was making heeps of money in that sector (pretty much everything was going up), started to pile in. Hot money, in a hot sector, driven by prior profits, and hype.

The stock went on to be a 20 bagger eventually in about 8 weeks. I sold mine and caused a pull back in the price, just from my selling, after about 8 bags. The stock still exists, they are still  doing cap raises and still talk about their great idea, but the share price is well below where I sold and I still think the whole company has nothing worthwhile. 

Basically trading with the crowd in that instance was what made lots of money, the direct opposite to what you originally were saying in the video.

The right time or correct time to buy any stock is when it meets whatever criteria you have tested that works during a certain period or phase of the market. There are all sorts of different methods for buying a stock and most of them will work in certain conditions but not in others, which is where just about every 'method' of making money in the market that I've ever read about or studied, seems to fall down. 

The market is different and acts differently during different periods or phases. Treating stocks or a system, the same during a different phase of market just doesn't work, and most people that think they have all the answers, because they made money one way for the last few years, have to find out the hard way. 



SensibleInvesting said:


> I love stocks that have been wrongly sold off by the market, but are solid businesses with solid underlying fundamentals.




Can you name one of these from Australian stocks, that would be a buy right now, and how exactly would you 'play it'? (position size, stop loss, etc.)


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## SensibleInvesting (4 August 2019)

brty said:


> When I first read your post and decided to kill a few brain cells by watching your video, the first thoughts I had were more rubbish from someone that can't distinguish between their own genius and a bull market. That is what your 'easy money' section really is, total BS IMNSHO.
> 
> However I kept watching and the second half of your video on things to look for from a FA point of view is not bad. It looks at some common things that people pay attention to and some less than common aspects.
> 
> ...




Your point about stocks going up just because they're in a bull market is valid e.g.: Tesla - that's something I would never buy. Your comments about not painting every stock with the same brush is also correct. Having said this, I can't think of a single stock which continues to tank whilst the business fundamentals continue to improve - can you? 

I can't agree with your comments about the easy money section being BS. Case-in-point, when Buffett bought AMEX - the news was seemingly dire, but people still kept using AMEX - look at where it is today. Furthermore, buying Facebook at ~$125 and Apple at ~$150 was going against the crowd, not with it - not too sure how you got this idea?

A penny stock and a blue chip is completely different - let me flip this in reverse and ask you, why would people stop using Facebook and IG? If they were to stop using it, what would they use instead? Who has the ecosystem and social network to detract their user-base? Same question with Google.

Take AIA:ASX or AIA:NZX for example, that got sold off during the GFC, yet the fundamentals of the business never changed but only got stronger as NZ experienced population growth tailwinds and Asian immigration - this is an example of a solid blue chip that will do well, and I'll be topping up on every unjustified dip.

In terms of an ASX stock which is mispriced, unfortunately I haven't found any in the last couple of months, hence I've been focusing on USA listed Chinese stocks. I'll run a screen in the ASX this week - ASX stocks are very overpriced at the moment - lots of money chasing little gains. Alacer was a pretty good one, but it's up about 300% and is fairly valued at the moment.


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## willoneau (4 August 2019)

So nothing in ASX last couple of months yet bull move since beginning of year? But to cherry pick a stock in hindsight that has increased 300% and say it's fairly valued at moment in a raising market, please.


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## brty (4 August 2019)

SensibleInvesting said:


> Your point about stocks going up just because they're in a bull market is valid e.g.: Tesla - that's something I would never buy. Your comments about not painting every stock with the same brush is also correct. Having said this, I can't think of a single stock which continues to tank whilst the business fundamentals continue to improve - can you?
> 
> I can't agree with your comments about the easy money section being BS. Case-in-point, when Buffett bought AMEX - the news was seemingly dire, but people still kept using AMEX - look at where it is today. Furthermore, buying Facebook at ~$125 and Apple at ~$150 was going against the crowd, not with it - not too sure how you got this idea?
> 
> ...







SensibleInvesting said:


> A penny stock and a blue chip is completely different




LOL Is that an assumption you make or a self delusion. Ho do you define a 'blue chip stock'?

You do realise that of the Dow30 stocks on 1/1/1900, not one of them exists today. The only Dow30 stock that existed in the 19th century that still exists is GE. As a blue chip, and in the year 2000 it was the bluest of blue chips, but has fallen in price from $55/sh to ~$10/sh. Your easy money would have lost money on it.
You use FB as an example in your video, showing 2 pullbacks, one of 23% the other 43%. When did you buy,or would you have bought?? At what percentage decline would you have bought?? 10%; 15%; 20%?? It obviously couldn't have been above 23% or you never would have bought the first decline. This means that during your second buy, at the same say 20% decline, you were prepared to hold on for a further 23% decline and been happy with making 'easy money'.
You mention that if it drops 50% or more then something is wrong, so if you had bought FB at 20% off the top, would you have used the 50% loss as your stop loss point?? In 2008 just about every 'blue chip' stock lost over 50% of it's value.

Your 'easy money' stocks/trades never mentioned entry points, exit points, nor stop losses, so yes total BS.


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## SensibleInvesting (5 August 2019)

willoneau said:


> So nothing in ASX last couple of months yet bull move since beginning of year? But to cherry pick a stock in hindsight that has increased 300% and say it's fairly valued at moment in a raising market, please.



I did buy AIA when it was around $8 NZD and am happy with the return. If you compare Alacer's move vs. the broader goldies like NST, EVN, etc. you'll see it outperformed them. For good reason too - it was quite mispriced because the negativity surrounding it didn't justify the 20+ year mine life and steady operations


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## SensibleInvesting (5 August 2019)

brty said:


> LOL Is that an assumption you make or a self delusion. Ho do you define a 'blue chip stock'?
> 
> You do realise that of the Dow30 stocks on 1/1/1900, not one of them exists today. The only Dow30 stock that existed in the 19th century that still exists is GE. As a blue chip, and in the year 2000 it was the bluest of blue chips, but has fallen in price from $55/sh to ~$10/sh. Your easy money would have lost money on it.
> You use FB as an example in your video, showing 2 pullbacks, one of 23% the other 43%. When did you buy,or would you have bought?? At what percentage decline would you have bought?? 10%; 15%; 20%?? It obviously couldn't have been above 23% or you never would have bought the first decline. This means that during your second buy, at the same say 20% decline, you were prepared to hold on for a further 23% decline and been happy with making 'easy money'.
> ...



I mentioned entry points: 25% - 40% drop for the blue chips, and 60 - 70% for the 500m - 3m. My FB first buy was $170, and second buy was $140. My sell was $202. I'm targeting a re-entry first buy price of ~$155 - $160 for FB. Unfortunately I didn't buy Apple because I only had enough money to buy one - Apple would have been a good buy - Tobias Carlisle started tweeting Apple was undervalued around the high $150's. My exposure on any single stock never exceeds 5% of total portfolio, so I'm not sure what the purpose of stop losses would be. Perhaps if you're going big on a stock, options might be better than stop losses.

As mentioned in the video, a blue chip is a solid stock with a proven history and has an ecosystem that will allow it to outperform moving forward, with a solid management team. Facebook is only one example - there are about 50 on my watch-list waiting for dips.

Perhaps I should have clarified GE - that was an example of something wrong e.g.: plenty of accounting problems, excessive amounts of good will, taking on excessive leverage to buy businesses which didn't compliment the core offering - I'm sure if you compare GE's balance sheets vs. the companies mentioned in the video, you'll see the difference.

You're absolutely right about the Dow30 point, but let's look at the situation in reverse. How much profit would you have made before these stocks left the Dow30? Keep in mind FB swung 30 - 40%+ in the space of 6 months. Do you see FB or Appple or Google leaving the index in the next 6 months - 3 years? Are they more likely to get better or get worse in this period of time? Will there be more drama and noise surrounding these stocks in that period?


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## SensibleInvesting (5 August 2019)

willoneau said:


> So nothing in ASX last couple of months yet bull move since beginning of year? But to cherry pick a stock in hindsight that has increased 300% and say it's fairly valued at moment in a raising market, please.



If it helps, I bought APT when it first dipped from ~$28 at ~$23.20, and bought more when it dipped again from ~$28 at around ~$23.50; I believe the AUSTRAC noise will not materially affect its overall business health - it looks set to sell off for a bit due to the most recent Trump tweet, so will be topping up again if it gets to my buy price. I believe the AUSTRAC issue won't result in anything dire.

If you track its uptake in USA and UK, and couple that with the hyperbolic social media follower growth, and how many stores these people are tagging on IG to use APT, you'll see why I've come to this conclusion - let's revisit this in about 6 - 12 months though - happy to be wrong!


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## tech/a (5 August 2019)

All good
Put a few up going forward to demonstrate your theory/method.
4-6 over the next 6 mths would be great.
Don’t care which Market.

Do you have any exit criteria.
Any stop?

This is a very old methodology.
But it seems to me that not everyone sees the same miss pricing.
In stock that’s suggested as a great value stock.

Hindsite examples are the easiest thing in the world to analyse.
Real-time tends to fall in a screaming heap.


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## SensibleInvesting (5 August 2019)

tech/a said:


> All good
> Put a few up going forward to demonstrate your theory/method.
> 4-6 over the next 6 mths would be great.
> Don’t care which Market.
> ...



Sure, the one's I'm currently long on are QD:NYSE and WW:NASDAQ, in the $500m - $3b category. I'm targeting ~$21 for QD and ~$35 - $38 for WW. As per my reply above, I bought APT at ~$23 when it dipped from ~$28 twice - I believe it should reach ~$40 in the next 12 months based on uptake in new markets.

Happy to revisit in 6 months to see how these 3 play out. Exit criteria is what the market is willing to pay during times of optimism, but for a trivial reason they're currently pessimistic, despite the fundamentals and the story not having changed - I'm betting on them reverting back to optimism when they see the business is still in tact and healthy. 

FYI - I was buying FB on the dips, hence this is not a hindsight example.


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## willoneau (5 August 2019)

SensibleInvesting said:


> If it helps, I bought APT when it first dipped from ~$28 at ~$23.20, and bought more when it dipped again from ~$28 at around ~$23.50; I believe the AUSTRAC noise will not materially affect its overall business health - it looks set to sell off for a bit due to the most recent Trump tweet, so will be topping up again if it gets to my buy price. I believe the AUSTRAC issue won't result in anything dire.
> 
> If you track its uptake in USA and UK, and couple that with the hyperbolic social media follower growth, and how many stores these people are tagging on IG to use APT, you'll see why I've come to this conclusion - let's revisit this in about 6 - 12 months though - happy to be wrong!



So APT should look like another buy for you in next few days maybe if around $23?


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## SensibleInvesting (5 August 2019)

willoneau said:


> So APT should look like another buy for you in next few days maybe if around $23?



Correct - I've got one more bullet left to fire - it looks like they've been incorrectly sold off on the Trump tweet and etc. - have a look at their IG follower numbers increasing, web-traffic data, relevance vs. peers like Sezzle, Klarna, Facebook follower increase, app store rating increase, and what the followers on IG are saying


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## SensibleInvesting (8 August 2019)

willoneau said:


> So APT should look like another buy for you in next few days maybe if around $23?





Hey Will, check out WW:NASDAQ - I used the buy criteria in my video to find the stock when it had fallen over 80% - it's up 42% since last night; the market was expecting a disaster from them, and they posted a great Q2 with an even better earnings call - I love it when negative sentiment doesn't correlate with business fundamentals!


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## willoneau (8 August 2019)

SensibleInvesting said:


> View attachment 96668
> 
> Hey Will, check out WW:NASDAQ - I used the buy criteria in my video to find the stock when it had fallen over 80% - it's up 42% since last night; the market was expecting a disaster from them, and they posted a great Q2 with an even better earnings call - I love it when negative sentiment doesn't correlate with business fundamentals!



Hi SensibleInvesting,I am only trading AU stocks and don't have stock data for USA.


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## SensibleInvesting (9 August 2019)

willoneau said:


> Hi SensibleInvesting,I am only trading AU stocks and don't have stock data for USA.



That's a shame - limiting to one market might affect returns in the long run


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## willoneau (9 August 2019)

Capital constraints dictate at moment were I trade.


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## StockyGuy (9 August 2019)

Good presentation, sir.  Pleasantly surprised.  I think tech/a's question re exit remains a little bit unanswered.  I expect you are good at getting it right, but no one has a crystal ball.  Eventually a black swan event may occur and a stock you buy may fall continuously.  It does happen with stocks - while it doesn't really happen in eg forex as that is mean reverting by nature, a currency basically cannot go to zero of another currency, but a stock can go to zilch (even a blue chip).  What happens if you're wrong?  Eg, would you close if it halved in value after your purchase?  Would you double down and buy more at the further "discounted" price?

If you're skilled and lucky you may never experience a black swan.  Or your profits overall over time may be good enough to allow for the rare occasion where a stock price goes down for the count and doesn't get back up again, ever.


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## willoneau (9 August 2019)

Gee StockyGuy now I'm going to have to look at his vid thanx mate ,


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## willoneau (9 August 2019)

I'm sorry after watching the vid, as I am TA based I didn't find any value in it. Telling me a stock dropping 40% is trivial shocked me as I wouldn't be holding it until then. I am watching on with facebook and google to see what happens once governments worldwide make them accountable for their platforms. Also you said why you were buying at bottom sort of but vague, then said you sold at top with not one reason why?


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## willoneau (10 August 2019)

you could always use your FA to pick the stock then the flipper system for entry and exit.


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## SensibleInvesting (10 August 2019)

StockyGuy said:


> Good presentation, sir.  Pleasantly surprised.  I think tech/a's question re exit remains a little bit unanswered.  I expect you are good at getting it right, but no one has a crystal ball.  Eventually a black swan event may occur and a stock you buy may fall continuously.  It does happen with stocks - while it doesn't really happen in eg forex as that is mean reverting by nature, a currency basically cannot go to zero of another currency, but a stock can go to zilch (even a blue chip).  What happens if you're wrong?  Eg, would you close if it halved in value after your purchase?  Would you double down and buy more at the further "discounted" price?
> 
> If you're skilled and lucky you may never experience a black swan.  Or your profits overall over time may be good enough to allow for the rare occasion where a stock price goes down for the count and doesn't get back up again, ever.



These are some great questions StockGuy,

Perhaps I should have specified more clearly in the video - if I buy a stock, and the fundamentals clearly don't match the trajectory, and it goes down, I simply buy more. FB kept dipping after my first buy, so I bought a second time - it then bottomed at $10 lower and went back up to ~$200 - $205 before Trump opened his Twitter again. My re-entry for FB is around $150 (if it gets there).

As long as fundmentals point the opposite way of SP, I'm happy to hold, but if they deteriorate then I will cut my losses. In FB's case, the fundamentals weren't just holding but improving, so there was no reason not to hold.

Typically I'll do first buy ~25 - 40% on first drop, and then buy more if it goes down another 25 - 30%, with one more buy if it goes down another 25 - 30% after that.


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## SensibleInvesting (10 August 2019)

willoneau said:


> I'm sorry after watching the vid, as I am TA based I didn't find any value in it. Telling me a stock dropping 40% is trivial shocked me as I wouldn't be holding it until then. I am watching on with facebook and google to see what happens once governments worldwide make them accountable for their platforms. Also you said why you were buying at bottom sort of but vague, then said you sold at top with not one reason why?




Hey Will, if you're pure TA, you won't get any value from this video. Let's use Qudian and WW as an example - I know you said you only do ASX, so you might not have all the data, but let's look at the key points.

QD:
1) They dipped huge when China cracked down on Microlending, except they froze their own P2P license when the new bill was still being decided on, and shifted 100% to institutional funded capital - the market didn't care and sent it down to the bottom
2) They dipped huge when Alipay (their partner) said cap all deals at 24% APR, or we cut ties - so they did - market thought this would effectively half their profits - it didn't, but the stock fell off a cliff nevertheless
3) They dipped huge when Alipay said we won't renew the partnership agreement - despite <3% of their total revenues coming from Alipay referrals. Furthermore, when the relationship was not renewed, QD's sales & marketing expense decreased by 49% YoY without giving Alipay kickbacks and they raised their NPAT guidance, and reaffirmed it throughout the year - the market didn't care and sent the stock down
4) QD were getting 1 - 2 million users per quarter (new users) on their app, and their sales & marketing expense was ~5% of total sales - the market didn't believe them, and sent the stock down
5) They lifted their NPAT from 2.5b RMB to 3.5b RMB - the marketing didn't care

By the time I had found QD, they had gone from ~$24 down to ~$4, I entered at $5.07. One of their major holders (Kunlun) had dumped all their shares on the open market. They tanked >80% in one year.

QD is now ~$9 - they recently bumped their NPAT guidance up from 3.5b RMB to 4.5b RMB - the market now believes them. Check out the volumes and the upwards momentum on Yahoo Finance. 

My target price for QD is 10 - 12 PE multiple of it's NPAT converted to USD. After assessing their short 3 month of share price stability before the Alipay "bad news", and their closest competitor and the oldest microlender in China (YRD), it looked like the market was willing to pay a 10 - 12 EPS multiple during times of positivity. QD are currently trading at a forward PE of ~4 based on today's prices.

WW - I haven't finished my research yet, but this is what I know:

1) WW had been bleeding since 2014 when their 50-year old weight loss programs were no longer working - people were detracting from them at a huge rate
2) Their online service was also antiquated
3) In 2015, WW brought on Oprah as a chairperson of the board, with the aim to turn the business around
4) They invested heavily in revamping their digital marketing and digital services experience
5) Subscriber trends turned from negative, to neutral, to positive
6) The business made an all time high in 2018 of $100, before dropping 80% back to ~$20
7) They made an execution error by trying to re-brand as a wellness company, and people became confused - they always thought it was a weight loss program, and believed wellness defeats the purpose if it doesn't emphasize weight loss 
8) WW then fired their VP of USA Sales and Marketing, and amended their value proposition - weight loss is still the focus, but wellness comes after
9) They also resumed advertising and marketing efforts they previously put on hold, and recruited other influential celebs like Robbie Williams, DJ Khaled, Kate Hudson, along with having Oprah take a very active role in promoting WW
10) Their quarter one showed subscriber churn trends reversing, with new member recruitment way up - the market didn't care
11) I found WW around this point and entered around $20.71
12) On their Q2 earnings call, the CEO and CFO detailed exactly what they did to turn things around in Q1 and detail where they made sales and marketing blunders. They also detailed their new advertising and member recruitment campaigns - I then used SEMRush to verify the web traffic and mobile traffic data, and it seemed to coincide with how they were investing and recruiting with these new campaigns, so I bought more
13) Q2 earnings were far better than the market had expected, and WW was up >43% in one day. The gains have held so far
14) They lifted their EPS up from $1.5 - $1.55 to $1.55 - $1.70
15) Their next focus is to revamp their studio experience, as digital is now firing on all cylinders
16) If this studio revamp is successful (and based on my research there doesn't seem to be any evidence showing it'll flop), then this could see their EPS go up to where it was back in early 2018
17) During times of optimism, the market (on average) was happy to pay an EPS multiple of 22.5 - 24 for WW
18) If the same holds true this time around (which there isn't any reason why it wouldn't), then I'm expecting a target exit price of ~$48
19) The WW business could also deliver some positive surprises e.g.: they've just revamped their entire WW suite of frozen and ready to eat meals, and have signed new distribution partnerships
20) They've also revamped their services and product offerings, designed to support the revamped digital and studio experience
21) I'll be watching the stock and earnings calls closely, as if they execute on all the side projects as well as the main one, perhaps the SP could even go north of $60

Hope this helps?


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## StockyGuy (10 August 2019)

SensibleInvesting said:


> These are some great questions StockGuy,
> 
> Perhaps I should have specified more clearly in the video - if I buy a stock, and the fundamentals clearly don't match the trajectory, and it goes down, I simply buy more. FB kept dipping after my first buy, so I bought a second time - it then bottomed at $10 lower and went back up to ~$200 - $205 before Trump opened his Twitter again. My re-entry for FB is around $150 (if it gets there).
> 
> ...




Adding to a losing position is dangerous.  It's not to say the exceptional individual cannot prevail with your type of approach.  Giving the same discretionary system to various people will produce varied results over time.  Also, remember smart money may know stuff you don't, even with your diligent research.  Their closing may trigger a sell off that appears unjustified...at first.


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## SensibleInvesting (10 August 2019)

StockyGuy said:


> Adding to a losing a position is dangerous.  It's not to say the exceptional individual cannot prevail with your type of approach.  Giving the same discretionary system to various people will produce varied results over time.  Also, remember smart money may know stuff you don't, even with your diligent research.  Their closing may trigger a sell off that appears unjustified...at first.




Not too sure about this one - take my example about QD. Even if you bought it when it was dropping from $6 to $4, you'd still be up 50% based on today's prices, as there was nothing wrong with the company, and they continue to disprove fears and woes - yes perhaps the smart money does know something we don't, but that would constitute as massive insider trading.

This is part of the reason why I like the ASX far less than the US markets - there seems to be so many leaks which regulators turn a blind eye to. I'm yet to come across one on the US markets.


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## willoneau (10 August 2019)

I traded with BBY (futures) before they failed and no one saw that coming , guess cooking the books helps.


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## SensibleInvesting (10 August 2019)

willoneau said:


> I traded with BBY (futures) before they failed and no one saw that coming , guess cooking the books helps.



Best Buy? They seem to still be up and running


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## willoneau (10 August 2019)

SensibleInvesting said:


> Best Buy? They seem to still be up and running



BBY futures broking firm.


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## SensibleInvesting (10 August 2019)

willoneau said:


> BBY futures broking firm.



Sorry to hear man... are you using the Beneish M score now? I think that's the one which detects earnings manipulation


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