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.