Charts vs. Fundamentals

[pattyp]

Re: Charts vs Fundamentals

Tech,

One of my best examples of FA is MRE and the nickel Boom. The win far out-weighs my failures.

Got onto MRE as Ni started booming, MRE looked undervalued and was not popular due to the failure of Anaconda... Worth a risk IMO due to the Mine Life, High Nickel and DCF valuation/production forecast.

See Chart... I would have sold as soon as I hit my LT valuation - Except Ni was still very high so I held a little longer, then got scared about el bubble, etc.

Was a nice FA trade… one of my most "To the plan"… Still suffered some nasty periods of draw-down.

Cheers.

 

[tcoates]

Re: Charts vs Fundamentals

Just to add some pictures into the mix...

http://www.thedigeratilife.com/blog...ysis-versus-fundamental-analysis-in-pictures/

Tim

 

[MichaelD]

Re: Charts vs Fundamentals

Now if everyone believed 100% in charts they would be a self fullfilling prophecy.

Actually, this is quite incorrect. What actually happens is that the more sheeple "believe" in a pattern the worse it performs since the really smart traders are profiting from the sheeple's belief (i.e. trading against them).

 

[explod]

Re: Charts vs Fundamentals

Would someone care to show in a live trading exercise exactly how a Fundamental trader does this PROFITABLY.
Ive never seen it.

Those that I have seen are killed by losses.
Due to the sad lag between price and valuation.

The price drops like a stone before the Fundamentalist has re valued the stock. Its only after the drop that the value of the stock is even questioned---well from what Ive seen.

Yes, Oil Search (OSH) for a fundamentalist was a no brainer. It became well known that they were sitting on a lot of Natural Gas more than 4 years ago. At that stage got in at $1 and sorry I sold in 06 at $4, but a very good profit. Family and friends are still holding and now $6

 

[nioka]

Re: Charts vs Fundamentals

Those that I have seen are killed by losses.
Due to the sad lag between price and valuation..

It is the lag between price and valuation that I use. There is a lag both ways, on the up and the down. It is possible to use both to your advantage. It is hard to give an example before the event but I'll give it a go.

1.The fundamentals tell me that CFE is undervalued and has been for some time. There was a 90% chance that FIRB approval would be granted for the sale of it's iron ore find. They also told me that the sale price was almost twice the market cap for CFE. They also told me that the management had made money for me with Azetec. I bought a few weeks ago at a good price. I could have made a small profit this week on the announcement, the fundamentals tell me to hold. I don't expect to be holding this time next year. I do expect to make a good profit.

2. I consistantly have traded back and forth with ADI and AUT. Proof of that is there if you read the ADI thread. I have a fundamental valuation which to me values their SP equally. When they get out of sync I trade one for the other to get better value. Forget what the chart says, forget what the actual price is. By doing that and creaming off some profit i have a holding which the fundamentals still tell me is undervalued and is free carried.

3. MCR. When I "lost" my investment in nickel with the buy out of AGM by ZFX I wanted another nickel stock. (I had held SMY and did very well out of them but selling them to buy AGM.) I did a fundamental analysis and determined that MCR was in my opinion undervalued in comparison to most of the others. I valued it almost equal to SMY and only two thirds the price. I ignored the charts.

Look these up from time to time, compare the results with what the chart would have told me to do and see where we are. The only thing that will kill me is old age not trading losses.

 

[Tradert]

Re: Charts vs Fundamentals

Got onto MRE as Ni started booming, MRE looked undervalued and was not popular due to the failure of Anaconda... Worth a risk IMO due to the Mine Life, High Nickel and DCF valuation/production forecast.

Pattyp - Nice work mate, congratulations.

From a F/A perspective - How do you come up with stop loss level? And on what do you base them on? When do you calculate it (i.e. at the time of the trade etc.)

Just interested to know what the tools of the trade are for a fundamental analyst.

 

[pattyp]

Re: Charts vs Fundamentals

Pattyp - Nice work mate, congratulations.

From a F/A perspective - How do you come up with stop loss level? And on what do you base them on? When do you calculate it (i.e. at the time of the trade etc.)

Just interested to know what the tools of the trade are for a fundamental analyst.

Mate - This type of investment/trade is not for faint hearted... No stop loss... No time frame.

I run my DCF numbers over and over with many, many variables... Once I have a fairly conservative estimate of NPV / Fair Value, I buffer the PPS with heavy (But realistic) future dilution... Then I make an edu-ma-kated guess at the risk and apply another offset… Say 40% off the PPS (This depends on many things).

This process gives me a "Buy under this price" value. So I buy a few, buy a few, buy a few... Careful, careful...

Once I have the Qty (Not Value) of shares I want I sit back and try not to pay much attention to daily fluctuations.

Key to all this is my inputs... eg. CAPEX, OPEX, Production Targets, Commodity Price per shipping unit...

Every week (Sometimes day) I update my DCFs to ensure that things continue on target... If I start to see Commodity prices peak... Inventories climb, New producers I then start to lighten up...

As long as the inputs remain stable, the market usually meets a conservative estimate eventually.

Daily, weekly market movements don't impact me... Only my data inputs...

I could rave for hours, so I'll stop now... But this is a good over-view of my strategy for FA Long Term investing.

Cheers,
Pat

 

[nioka]

Re: Charts vs Fundamentals

Just interested to know what the tools of the trade are for a fundamental analyst.

The tools of trade are the fundamentals themselves. Aided by an educated guess gained with experience. You check your holdings regularly for change by checking their value against their price. If they look a good buy at the current price then you hold if they don't then you sell.

Simple as that. All and not many

 

[tech/a]

Re: Charts vs Fundamentals

Patty

There is nothing wrong with what your doing.
Particularly as the stocks you are trading have a far greater Profit "Possibility"
than most.
As you say the odd 20X initial buy price makes up for a fair amount of Drawdown.
Not that thats how Id like to trade.
I do understand what your doing---not the analysis.

I must admit to a trade which Y/T talked about a longtime ago.
NSL.I didnt like the chart at .025 but bought a few just as I like Y/Ts work.
I now have quite a few and holding. I like the chart now!

 

[Tradert]

Re: Charts vs Fundamentals

Pat - Thanks for the open and honest reply.

This type of investment/trade is not for faint hearted... No stop loss... No time frame.

This approach would really make me feel uneasy. I guess you have found a way to work those other numbers that you have mentioned in your post out to your success.

As for me I would not put a trade on without knowing my initial risk. And, T/A comes handy for that.

There are a lot of ways to make and loss money in the financial markets. As the barefoot investor would say - tread your own path.

 

[pattyp]

Re: Charts vs Fundamentals

As for me I would not put a trade on without knowing my initial risk. And, T/A comes handy for that.

I started trading with TA before FA - And I don't care what anyone says... TA is real, it works, its not just pretty pictures and black magic... There is a clear logic beneath the "pictures"...

The charts are a visual representation of the market psychology and news that hasn't hit mainstream. So many dismiss it as pictures... Look beyond the pictures, what do the pictures mean... If you have done a degree or course in statistics you will know that so much information can be acquired from a graph (or chart).

I use and study both TA and FA. I have so much fun drawing all over charts. I also love crunching numbers and seeing Billion Dollar Mcaps pop up before my eyes.

But due to my "real" life and family I don't have the time to "Trade"... So Investing works better for me. -- At the mo' anyway

As always - Just my opinion!

Pat

Ps. I do sell stocks (Stop Out) once I clearly see the fundamentals change... This isn't necessarily a bad Qtrly... More often based on industry economics or the managers starting to do dodgy stuff.

 

[nioka]

Re: Charts vs Fundamentals

I must admit to a trade which Y/T talked about a longtime ago.
NSL.I didnt like the chart at .025 but bought a few just as I like Y/Ts work.
I now have quite a few and holding. I like the chart now!

NSL would have to be a good example of a fundamental analysis showing up a good stock. I also bought in after reading the information we got from YT. I am up over 125% and still holding. YT's method, I believe, is based on fundamental analysis to find an emerging and undervalued stock. How about a comment on the subject from the master himself.

 

[cuttlefish]

Re: Charts vs Fundamentals

Would someone care to show in a live trading exercise exactly how a Fundamental trader does this PROFITABLY.
Ive never seen it.

Those that I have seen are killed by losses.
Due to the sad lag between price and valuation.

The price drops like a stone before the Fundamentalist has re valued the stock. Its only after the drop that the value of the stock is even questioned---well from what Ive seen.

There are of course plenty of examples from the upside perspective but you are asking here as I understand it about the down side perspective. I'll give a rough sketch of a losing trade on TAM.

TAM - Feb - entry circa 10.5/11.5c avg price just under 11c (I tend to accumulate rather than enter with a bang). Reason - TAM price and market cap was low - quarterly production figures were high - operating margin slim but gold price rising/high - TAM had negative sentiment I believed due to the VRE situation and being a similar high cost producer. So it provided a good leveraged entry to high gold price and would generate significant profit vs market cap if production figures were maintained whilst the gold price was high. I could of course write much more on the various reasons and metrics I used to decide to enter but thats a very rough sketch.

TAM - mid to late march - over a couple of weeks I partialy exited about half my holding - due to gold price run not continuing and instead the gold price was falling. For a high leverage/narrow margin gold producer this significantly affected its fundamental outlook.

(Note there are other gold stocks, quite a few still in my portfolio, and some I've increased my holding in, that were purchased at various stages during 07 that have benefited very well from the gold price run as well as exploration and/or production success and that are not as leveraged to the gold price, but I'm giving an example of a losing situation here and how the fundamentals get me out as well as in).

TAM - 28th April - blandly titled "operations update" released. An apparently minor grade estimation issue at a small satellite open pit that was to provide temporary ore feed whilst underground access was being developed at gonzales was the trigger for me exiting the majority of the remainder of my position. The reason being that if they can't estimate the grade of a small satellite pit properly then I had no confidence they would achieve predicted grades in any other areas. Given they are a high operating cost operation grade is crucial so if I can't have confidence in the grades then I can't invest in the business. It also reflected on management and I had some skepticism about management from past issues.

TAM - 29th April and days following exited the small remainder of the position.


By making the adjustments that I did based on the various fundamental factors I managed to exit from an average 11c entry at prices averaging around the 9.5c mark when all sales are considered. In particularly it got me out of most of my holding before a one day drop from 9.5c to 8c on the 29th of April when their quarterly was released.

After the price fell from 9.5c to 8c it continued down to a low of 7c before beginning to recover.

I am unlikely to re-enter this unless I'm confident that management have estimated grades properly with appropriate density of in-fill drilling, or there is a clear track record of good operating grades from one or two quarters of production though of course that could change with new information both external or company related.

Had I not exited at a higher price due to the fundamental inputs that changed my viewpoint, I also had a stop loss at 9c based on money management rules. However if I tried to exit all my holdings in one go when the stock hit that price I would probably only have obtained 8.5c or less so I would have reduced over a few days or weeks if the price hit this level, rather than just dumped.

There are many other factors I haven't mentioned, including that there were other companies getting into production with more reliable grade estimates and better margin that proved more attractive, and there was also a fund that had a position in TAM that influenced some of my thinking both about entry and exit.

I also haven't mentioned the technical factors that influenced my decision but one reason for the 10.5c/11c entry price was that I felt it had reasonably strong technical support at the 10c level based on the historical chart which would also limit downside, and then the fact that this support level had been broken certainly added to the reasons for exiting though wouldn't have been adequate on its own for me.

 

[nioka]

Re: Charts vs Fundamentals

oh god here we go again. This discussion seems to pop up quite regularly, and we've had more than one thread devoted to it before.

Does it really need to be discussed again

Sorry professor, hope you haven't kept banging your head. 33 posts in less than 24 hours seems to me that the subject still needs discussion.

 

[professor_frink]

Re: Charts vs Fundamentals

Sorry professor, hope you haven't kept banging your head. 33 posts in less than 24 hours seems to me that the subject still needs discussion.

That's good nioka. Enjoy your gloating. I'm not quite sure why it's required, but enjoy it anyway.

:dunno:

 

[MRC & Co]

Re: Charts vs Fundamentals

Fundamentalists exploit chartists to buy in on the cheap.

So you should be thankful!

 

[nioka]

Re: Charts vs Fundamentals

Fundamentalists exploit chartists to buy in on the cheap.

So you should be thankful!

I am.

 

[MichaelD]

Re: Charts vs Fundamentals

Is it just me, or do these successful (and unsuccessful) fundamental trades look uncannily like;

"cut your losses short and let your profits run"

 

[nioka]

Re: Charts vs Fundamentals

Is it just me, or do these successful (and unsuccessful) fundamental trades look uncannily like;

"cut your losses short and let your profits run"

Definitely not. Some investments may be behind today but the fundamentals say they are good value so you hold. Another may be well in front but the fundamentals say they may be fully priced or overpriced so you sell.

eg. Check the LYC thread where months ago I said I was selling because they were fully priced and that I would buy back when they were closer to production. I was making 250%+ at the time and they were not going to fall a lot.
I hold ADI which a lot of investors gave up on. I hold because Agentm has done fantastic fundamental research that has shown me there is a better than 70% chance of them being a great investment.

The fundamentals are regularly checked regardless of profit or loss. A buy or sell decision is made regardless of the profit or loss situation.

Works for me most of the time but I'm not always right.

 

[MRC & Co]

Re: Charts vs Fundamentals

I hold because Agentm has done fantastic fundamental research

Who is Agentm and who is the master you refer to above in reply to tech/a?