Being contrarian can be very lucrative

[burglar]

...
a BMI, or "Big Money Indicator".
Once I detect such "purposeful" activity, I look for evidence that they're all but finished and about to let the sp snap back up; ...

You listen for the cranking of the handle ... and wait for the "Thwak"!

 

[robusta]

Well

Maybe its time to come over to the dark side?

Thought I might update this little portfolio to explain in part why I am happy with my chosen investment philosophy.

Almost three months since the above post time to update and I have just added another holding to this portfolio

DWS Advanced Business Solutions Limited. DWS on the 1/12/10 announced a reduced EBITDA forecast due to reduced work for a client in the telecommunications sector. The sp plunged from ~ $1.55 to ~ $1.25 in two days.
DWS Advanced Business Solutions Limited
Average price paid $1.294
Price Today $1.27
Paper Loss -1.4%

FGE Forge Group
Average price paid $2.582
Price Today $4.59
Paper Profit 77.8%
Dividend received $0.05

JBH JB HiFI
Average price paid $18.636
Price Today $18.69
Paper Profit 0.3%
Dividend received 0.33

FRI Finbar Group
Average price paid $1.061
Price Today $1.31
Paper Profit 23.5%

This portfolio is starting to diverge a little from my personal portfolio as I have sold JBH to free up cash to participate in the FRI spp and to leave a little spare cash for the next bargain to turn up. For the sake of this exercise I will adopt a buy and hold strategy.

DWS Advanced Business Solutions Limited
Average price paid $1.294
Price Today $1.425
Paper Profit 10.1%

FGE Forge Group
Average price paid $2.582
Price Today $5.30
Paper Profit 105.3%
Dividend received $0.05

JBH JB HiFI
Average price paid $18.636
Price Today $19.21
Paper Profit 3.08%
Dividend received 0.33

FRI Finbar Group
Average price paid $1.061
Price Today $1.175
Paper Profit 7.00%

In my personal portfolio the initial investment in these companies was far from equally weighted.

FGE is my largest holding at 32.5% of my total portfolio after selling half my holdings at ~$4.15

My next largest holding is MCE currently 29.8% of my portfolio bought @ a average cost of $4.127 - no profits taken yet.

Not trying to sound smug just trying to explain why I am happy learning from Messers Graham, Buffett, Munger and Montgomery and co.

 

[So_Cynical]

Say you saw the Amex opportunity... And you wade in the mkt to buy 100 shares
and after you finished buying what will happen ?
Is it likely you could have bought cheaper ?

Contrarian works best near the turning points
But Then its called good timing ( I am not talking about perfect timing )

Mr Mkt might want to sell 1,000,000,000s of shares

You have to be more a "Hitch Hiker"
and less a mover and shaker who decides now is the time to buy
and buys his 100 shares without taking a little more care

Motorway

Motorway your post reads for me as " you cant pick bottom so don't try, just buy into the rally when others are buying, safety in numbers, don't stick your neck out etc.

While that's a valid strategy i cant help but think its also a little middle of the road and sheepish...in many threads we encourage people to think and do research, read books etc and think for themselves...and now here you are suggesting to just go with the flow, seems a little defeatist to me.

----------------------------

I am kind of lost in this discussion. Maybe I should stay in HotCopper.

We expect a little more than what's usual at HC

 

[tech/a]

Not smug at all.
Success seems to be frowned upon here.
By paper profit you mean open Profit?

How long did you held these?

The reason I ask is without FRG results are pretty average.
How long will you hold a trade which "Goes off the boil"?
Why would you sell a trade?---IE take profit---or Loss?

Without being smug.
LEG returned 100% on capital in 5 days.
UNX 80% in 5 days as well.

Your doing well and if it suits you style of trading and Thats the way you know how to trade then Thats where you should stay.

 

[motorway]

Well how are you going to Pick a Bottom is maybe the point

And maybe was the point

Better how do You IDENTIFY A BOTTOM


Just knowing "your" values does not do it imo
Bottoms are not made by doing some sums

I do not want to follow the crowd
or fade the crowd.
that is too prescriptive and not suggestive of working in Harmony.

Sometimes the crowd has wisdom .. Sometimes it ihas totally lost it..

The key is to distinguish Beginnings from endings
there is a cycle and rhythm to things..

Many posts on ASF of mine deal with this

This old quote I like was in one...

Psychology of the Stock Market

by G. C. Selden

Ticker Publishing, New York, 1912
Talking about the older material
G C Seldon was Richard Wyckoff's associate editor
at the "ticker" the name was changed in 1912 to "The Magazine of Wall Street."

The point we fail to remember is that public opinion in a speculative market is measured in dollars, not population. One man controlling one million dollars has double the weight of five hundred men with one thousand dollars each.

This is why the great body of opinion appears to be bullish at the top and bearish at the bottom. The multitude of small traders must be, as a plain necessity, long when prices are at the top, and short or out of the market at the bottom. The very fact that they are long at the top shows that they have been supplied with stocks from some source.

Again, the man with one million dollars is a silent individual. The time when it was necessary for him to talk is past - his money now does the talking. But the one thousand men who have one thousand dollars each are conversational, fluent, verbose to the last degree; and among these smaller traders are the writers - the newspaper and news bureau men, the manufacturers of gossip for brokerage houses.

It will be observed that the above course of reasoning leads us to the conclusion that most of those who write and talk about the market are more likely to be wrong than right, at least as far as speculative fluctuations are concerned. This is not complimentary to the "moulders of public opinion," but most seasoned newspaper readers will agree that it is true.

The psychological aspects of speculation may be considered from two points of view, equally important. One question is, What effect do varying mental attitudes of the public have upon the course of prices? How is the character of the market influenced by psychological conditions?

A second consideration is, How does the mental attitude of the individual trader affect his chances of success? To what extent, and how, can he overcome the obstacles placed in his pathway by his own hopes and fears, his timidities and his obstinacies?

No following there !

and this

Traders respond to input based on the model of the market they have
built for themselves. A positive response grounded in Wyckoff's
theory of the Composite Operator will have distinctly different--and I
would argue, consistently more profitable--outcomes than will a
negative response to input based on the theory of Contrary Opinion.
Understand and work with the Composite Operator--rather than against
the Public.

Hank Pruden

The concept of the Composite Operator imo became watered down into MR market
To fully appreciate the difference is something those interested can study..

Ben ) Graham's association with ( Richard ) Wyckoff began in 1919. When he Submitted an article
entitled " Bargains in Bonds " to the Magazine of Wall Street and Quickly became a regular contributor.

Eventually Graham was offered the publication's chief editorship, with a generous salary and a sizable share of the profits. After considering the offer seriously ,he turned it down, perhaps influenced by the lure of a junior partnership that he received in 1920. Graham capitalized on his friendship with Wyckoff, however, to land his brother Victor a job in the periodical's advertising department.

Victor swiftly rose to head the department , then rode the crest of the Magazine of Wall Street's soaring circulation during the twenties. Advertising sales climbed and Victor prospered. Unfortunately ,he then fell in love with a young woman, whom he married in 1928.

Carrie (Ceclia G. ) Wyckoff was furious. According to Ben Graham, she had amorous designs on Victor, or hoped he would marry her younger sister, or both. Victor left her employ and embarked on a far less successful career in investment banking. Throughout it all, Ben remained on good terms with both Wyckoff's .....


From...
It Was a Very Good Year: Extraordinary Moments in Stock Market History
By Martin S. Fridson

Here is something From a time when RDW was making a bit more use of value
( Times change )

The " Ten Vital Trends " Wyckoff 1920

Corporate

1 to financial strength or weakness ..........
2 of management ............ positive or negative
3 earning and dividend power......................up or down
4 to or from leadership in industry.............A leader or laggard

Trends of the Sector

5 of The Industrial Group..........
6 Of business in general ( esp money and interest rates ) ...

Technical....( Graham's Mr Market But instead of a suggestive anecdote ,, A method )

7 trend of Market...
8 trend of intermediate
9 trend of short term
10 accumulation distribution , trends of manipulation ..........

7 8 9 10 or relate to Mt market,,, But in the proper guise of the Composite Operator.


Nothing defeatist here

Identify a bottom
If you can
If you can't learn HOW

Then ask Tech/A what to do about it

He will tell you what you do is what is important

Motorway

 

[robusta]

Not smug at all.
Success seems to be frowned upon here.
By paper profit you mean open Profit?

Yes

How long did you held these?

FGE about 8 months
FRI about 5 months
DWS about 6 weeks

The reason I ask is without FRG results are pretty average.

True but these positions are still open...time will tell

How long will you hold a trade which "Goes off the boil"?

Indefinately

Why would you sell a trade?---IE take profit---or Loss?

Only a few reasons:
1) The sp exceeds my calculation if the iv by a significant ammount.

2) I identify a better prospect

3) To rebalance my portfolio ie FGE was ~ 65% of my portfolio at one stage.

Without being smug.
LEG returned 100% on capital in 5 days.
UNX 80% in 5 days as well.

Your doing well and if it suits you style of trading and Thats the way you know how to trade then Thats where you should stay.

Thankyou. It works for me. My SMSF has returned 55.3% this calendar year after contributions, brokerage, fees and taxes.

I could never trade like you do re LEG and UNX

 

[robusta]

It all comes back to what I was saying about there is more than just number crunching, you have to have a good understanding of business and economy etc.

it's not somthing that is quickly learned.

As I said most people that have an opinion on Value investing don't actually have a good understanding of it.

It not about buying somthing that has gone down in value,

It's about buying good business at sensible prices. The fact is that if you own a portfoilio of good businesses that you have bought at sensible prices over time you will do well.

Granhams teachings in no way say that it is easy to become a successful value investor, In fact alot of his teaching are styled as warnings to people who are going to try and beat the market, he recomends 90% of investors limit them selves to index funds type investments.

Just wanted to join the Tysonboss cheer squad. Hard to argue with most of his coments.

 

[burglar]

I try to beat the market !

In the bull run, I invariably succeed.

In the bear run, I invariably get savaged.

Happened to me three times now ... You'd think I'd learn??!

 

[Tysonboss1]

Well how are you going to Pick a Bottom is maybe the point

And maybe was the point

Better how do You IDENTIFY A BOTTOM

I would say that you don't really need to pick the bottom, You just have to buy what makes sense.

Remember value investors are not traders, we are not banking on selling the stock in a week a month or a year. We buy good businesses when they are at attractive prices and hold them as long as the business is operating well. I only sell something if fundamentally the business changes or it's price rises to a level well above it's fair value and the price is dangerously high or alternativly I may sell somthing to free up cash for somthing else thats better value.

If I can identify a company with a sound business and it's share price suffers falls, But after I re assess things I can see that all is still good and the earnings and cashflow is high compared to the share price, the dividend is high, mangaement are doing smart things with retained capital, I will buy some.

It does not matter to me if the share price falls after I have bought in because this may give me an opportunity to deploy some more capital at a later date.

This may sound crazy, But as a general rule I prefer prices going down, even I stocks I already have a holding in. Every month I have about $10,000 to deploy and I can deploy this much more effectively when share prices are lower.

Offcourse I can't stop the share prices rising, and traditional the bargains I find do double or triple in price, and that is nice. But I would have much prefered they stay at lower levels for a longer period.

I have posted this video in another thread, But the first 2mins 30 has some logic that is missed by most.

http://www.youtube.com/watch?v=9sgCYOeYrnw

 

[Tysonboss1]

I try to beat the market !

In the bull run, I invariably succeed.

In the bear run, I invariably get savaged.

Happened to me three times now ... You'd think I'd learn??!

Are you a trader or investor.

First 1.5 mins on this video is good.

http://www.youtube.com/watch?v=3XlBrohrIUc

 

[robusta]

I would say that you don't really need to pick the bottom, You just have to buy what makes sense.

Remember value investors are not traders, we are not banking on selling the stock in a week a month or a year. We buy good businesses when they are at attractive prices and hold them as long as the business is operating well. I only sell something if fundamentally the business changes or it's price rises to a level well above it's fair value and the price is dangerously high or alternativly I may sell somthing to free up cash for somthing else thats better value.

If I can identify a company with a sound business and it's share price suffers falls, But after I re assess things I can see that all is still good and the earnings and cashflow is high compared to the share price, the dividend is high, mangaement are doing smart things with retained capital, I will buy some.

It does not matter to me if the share price falls after I have bought in because this may give me an opportunity to deploy some more capital at a later date.

This may sound crazy, But as a general rule I prefer prices going down, even I stocks I already have a holding in. Every month I have about $10,000 to deploy and I can deploy this much more effectively when share prices are lower.

Offcourse I can't stop the share prices rising, and traditional the bargains I find do double or triple in price, and that is nice. But I would have much prefered they stay at lower levels for a longer period.

I have posted this video in another thread, But the first 2mins 30 has some logic that is missed by most.

http://www.youtube.com/watch?v=9sgCYOeYrnw

Very insightful video.

I have often noticed I buy into stocks in a falling market early. Trying to wait for the bottom may cause me to miss out all together.

The way I invest after identifying EXCEPTIONAL businesses is to work out my estimation of the iv. If the price is 20% below my iv then I may alocate 5% of my portfolio to that business. If the price drops to 25% below iv then all things being equal and this still being a EXCEPTIONAL business then I might double my initial holding.

 

[burglar]

Are you a trader or investor.

Hi Tysonboss1,

I started out an investor but greed slowly descended over my plan.
I like to think I have a foot in each camp, if that's at all possible.

Currently holding ADN AXE CIG EXM EXMOA FMS

CIG was a straight out gamble, lost plenty,
learnt plenty, they're in the bottom drawer!

EXM and EXMOA: I was unaware that they
had "lost" near 900,000 ozs of gold reserves,
til I read it here at ASF!

I hold out great hope for the rest!

When Warren Buffet decided that energy was the way forward,
he bought Burlington Northern Railways.

I like the thinking but my pockets aren't that deep!

 

[Tysonboss1]

Hi Tysonboss1,

I started out an investor but greed slowly descended over my plan.
I like to think I have a foot in each camp, if that's at all possible.

It is possible, But you should have one account for your investments and one for speculation.

There is intelligent speculation as there is inteligent investing, but you have to have the accounts separate.

Here is grahams thoughts,

http://www.youtube.com/results?search_query=intelligent+investor+2&aq=f

 

[Tysonboss1]

EXM and EXMOA: I was unaware that they
had "lost" near 900,000 ozs of gold reserves,
til I read it here at ASF!

Speculating when you think your investing is the worst type of speculation.

 

[Tysonboss1]

It is possible, But you should have one account for your investments and one for speculation.

There is intelligent speculation as there is inteligent investing, but you have to have the accounts separate.

Here is grahams thoughts,

http://www.youtube.com/results?search_query=intelligent+investor+2&aq=f

sorry, wrong video

http://www.youtube.com/watch?v=nlG0VPVwTfI

 

[FxTrader]

Speculating when you think your investing is the worst type of speculation.

Indeed, and I hasten to add that "investing" in penny dreadful mining stocks is also the worst type of speculation.

 

[burglar]

Speculating when you think your investing is the worst type of speculation.

Hi Tysonboss1,

EXM: I had traded them a lot, based purely on their JORC reserve of circa 1.2 million ozs.
Three good holes, from memory, and an electronic database from previous owners.

All that being said, I agree it was a speccie,
as they were years away from production, i.e. profit.

How was I to know the company had lied to the ASX about the JORC reserve?

It's unheard of ... isn't it?

An independent review downgraded the JORC reserve to roughly 279,700 ozs.

 

[burglar]

Indeed, and I hasten to add that "investing" in penny dreadful mining stocks is also the worst type of speculation.

Indeed,,
I made mistakes!
These are what I got stuck with during the GFC.
A 1 in 100 year event with no precedent!

They do not represent my ideal portfolio.

Not unlike a used car yard when the pretties have
been purchased and the trade-ins dumped in their place.

 

[So_Cynical]

I have often noticed I buy into stocks in a falling market early. Trying to wait for the bottom may cause me to miss out all together.

I think that alot of success can come in just trying to buy the bottom, buying at the lowest point is near impossible, however what i have found is that in attempting to buy a bottom i actually end up buying close enough that i doesn't really matter that i missed the bottom or got in to early....most of the time.

Fact is that stock can only be brought at very cheap price levels by those actually trying to buy bottoms and or interested in value.

 

[Bill M]

I consider myself as a contrarian investor. Buying really good stocks at really cheap prices is my game. In 2009 at the height of the GFC I was 99% invested which going against the grain of most who were "waiting" for clear signs before buying. By the time they saw the signs the market had jumped 30%. I was very lucky at one stage, I put my last lousy 2k into my ASX 300 ETF on March the 9th. 2009. The rest of my money I had in at higher prices but for me it was value at those prices anyway. No one can pick bottom that's for sure.

At the end of the day you got to do what you feel is right. Some of those so called pros got it all wrong, VERY WRONG. I remember at one time in 2009 one of those pros said that now you should cash in and get out of stocks altogether, what friggin genius he was. Thinking for yourself and being contrarian could be very lucrative indeed.