For bottom pickers and knife catchers

[Sean K]

OK, one last point.

I'll stick my neck out and predict the outcome of this experiment.

50% of the stocks picked will continue to fall
50% will rise

Unfortunately, the 50% that rise will be sold off fairly quickly and the 50% that fall will be bottom drawered turning the exercise into a net negative one.

Stockpicking skill will be claimed for the 50% that rise.
Unforeseeable external factors will be blamed for the 50% that fall (short sellers, hedge funds, corrupt directors, insert scapegoat de jour here).

Michael, I agree that this could occur.

But, the point of the thread is multifold.

1. For members to be made aware of stocks that have been significantly sold off and represent good value for long term fundamental investors.

2. For people to be made aware of short term trading opportunities for stocks that have been oversold due to market psychology.

3. For members to practice and learn some FA and TA skills in identifying stocks that represent good buying opportunities.

We are moving up to a stage where real value will be exposed in the Australian market. Whether that's a few days or a few months is unknown, but it WILL be an opportunity for people who have kept some cash aside to make the most of it in the long term. I have held off for some time in creating this thread becasue I thought sub 5000 would be where value emerges. It's emerging for the long term investor IMO. But how much longer is Yogi's guess....

Also, your random % classifications above are just that. Random. Like your objection and lack of insight into the value of this thread.

 

[julius]

Michael,

With all due respect, all I keep hearing is "I can't do it, therefore no one can"...

Of course, we can't all be 'better than average', but if we choose subscribe to market inefficiency, isn't it reasonable to assume there might be some particularly talented individuals who can preempt the aggregate biases of lesser investors...smart money?

 

[Bushman]

OK, one last point.

I'll stick my neck out and predict the outcome of this experiment.

50% of the stocks picked will continue to fall
50% will rise

Unfortunately, the 50% that rise will be sold off fairly quickly and the 50% that fall will be bottom drawered turning the exercise into a net negative one.

Stockpicking skill will be claimed for the 50% that rise.
Unforeseeable external factors will be blamed for the 50% that fall (short sellers, hedge funds, corrupt directors, insert scapegoat de jour here).

In terms of my pick, you will be earning an income yield of 12-13% p.a. So yes there might be capital destruction over the next 3 months (I'll say maximum 10% for LEP given it is seen as an A-REIT) as the world comes to terms with oil and inflation. But property is a hedge against inflation and at some stage listed LPTs that have strong direct property exposure (like LEP) will return to a share price that refects long-term yields of 8-9 %. It has to happen and the total return for FY09 (ie income yield plus capital growth) should do well for LEP (say 30%). That is good given the level of risk of this share (lower beta - booze, long term leases WOW, income escalating at CPI).

TA seems to completely ignore income. Rather is seems to only be a measure of sentiment (as measured by volume and price action) in the short to medium term.

So you could use TA to 'pick' your bottom, stop losses to protect your down side risk and FA to pick the down trending stocks to measure.

 

[Sean K]

In terms of my pick, you will be earning an income yield of 12-13% p.a. So yes there might be capital destruction over the next 3 months (I'll say maximum 10% for LEP given it is seen as an A-REIT) as the world comes to terms with oil and inflation. But property is a hedge against inflation and at some stage listed LPTs that have strong direct property exposure (like LEP) will return to a share price that refects long-term yields of 8-9 %. It has to happen and the total return for FY09 (ie income yield plus capital growth) should do well for LEP (say 30%). That is good given the level of risk of this share (lower beta - booze, long term leases WOW, income escalating at CPI).

TA seems to completely ignore income. Rather is seems to only be a measure of sentiment (as measured by volume and price action) in the short to medium term.

So you could use TA to 'pick' your bottom, stop losses to protect your down side risk and FA to pick the down trending stocks to measure.

How do I include yield in to the Matrix Bushman? Nice point by the way for longer term fundies.

I'll start adding it in, and perhaps if this has legs, start adding individends to the value of the stock. sp's don't capture the whole value of course. Well, only to TA only traders.....

 

[Sean K]

No one panick selling their bottoms?

I'm holding KMN until 17 is broken.

 

[nioka]

How do I include yield in to the Matrix Bushman? Nice point by the way for longer term fundies.

I'll start adding it in, and perhaps if this has legs, start adding individends to the value of the stock. sp's don't capture the whole value of course. Well, only to TA only traders.....

Can I suggest that the dividend potential is always priced into a stock, sometimes not fully and sometimes overpriced in but there just the same.

 

[Sean K]

Can I suggest that the dividend potential is always priced into a stock, sometimes not fully and sometimes overpriced in but there just the same.

Yep, possibly, and since this a shorter term exercise, probably has little value.

Nice sun set today!

 

[Gurgler]

Okay I'm in for MCW Macquarie Countrywide Trust as bottoming out at 0.84 a few days back (I actually bought in at 0.895, not sure which you want to enter).

Reasons:
1. It got dusted in the wake of Centro/ANZ/Opes fallout etc. and could be ready for recovery.
2. It has 'quality' tenants like Coles, Woolies, Walmart, etc. at 97+% occupancy.
3. Yesterday it announced a restructure of its key debt facility;
4. and lastly, it has now just dipped, ex-dividend.


BTW can see the hills on all sides today - this is a once a year event.

 

[rub92me]

I'll nominate ADY as a bottom pick. More than 20% of shares were caught up in Opes Prime which exacerbated the sell-off in April/May. Combined with overall market fear of the ability to finance their debts ADY has been in the doldrums. Massive iron ore and Lithium resources and started production on both. We may not see huge appreciation of price in the next 6 months, but if this is below today's price 12 months from now I'll eat my hat.

 

[Bushman]

Here is a spreadsheet that tracks the theoretical total return for LEP assuming the shares are oversold by 20%.

I have adjusted the initial unit price to make it ex-dividend.

Harder to track in the short-term.

View attachment LEP Total Return FY09.xls

 

[MichaelD]

You haven't actually provided any real proof that FA and/or TA can not assist in seeing a bottom, potential bottom, or near bottom.

I'll tell you what could make this really interesting and valuable as an exercise (but it depends on how long you are prepared to keep tally) - I would be prepared to post my REAL long term trend following trades including position size for you to track in parallel with all the bottom picks. The only thing I won't disclose is the % leverage I use as that would disclose my total trading capital.

It is "conventional wisdom" that FA is supposed to outperform in current market conditions. I believe it won't and solid risk and money management will still outperform.

Want to create a comparison that will have significant long term value?

IMPORTANT: This is NOT an ego massaging exercise. I would be happy to be proved wrong.

 

[enigmatic]

MichaelD i can see were you are coming from when you say it is much more likely that people will sell there stocks for a quick profit but not for a loss.
I'm new and have made the later many times. However i havent made the first to many time aswell. were my share has been re rated and becomes overvalued and i haven't exited. it then has dropped 40% in a few weeks and i loss most of my profit.

I believe this thread will catch a few new people thinking they will find many bottoms and put there cash into them and never sell out however that is a valuable lesson to learn and if you dont learn from it then you shouldnt be buying/trading or investing in shares.

if you are trying to pick a bottom is no different to how you decide to buy your shares. I to can put a stop loss and keep the shares i think will be undervalued for the future. however at what point does a stock become hold and sell. hey it could still be going up 15% a year. does this still make it valid for me to keep. that is up to the trader.

This threads main focus should be to enable a group of people who are looking for undervalued stocks to share there analysis on there bottom picks in a single thread rather then having to venture to all the different threads to get the insight on how one can analyse a stock.

It is still up to the individual to buy, wheather it is based on FA, TA a mixer or some random decision on the wind direction of the day.

Just my two cents

 

[enigmatic]

Hey MichaelD, Reading alot of your stuff since my last post. liked alot what I'm reading, and will be trying to implement some of it into my own system. Just a question and humor me as I'm new, is there a reason why you can't mix. Entry, timeframe, Risk money management and anything else you have discussed in one of your threads with Fundamental analysis.

My idea of a bottom is when a share has reached a support and has tested this support to find it has found resistance and bounced back. the share has done this a few time. At which stage i would call this a strong support and most likely the price it reaches each time a strong resistance. If i believe this company has strong fundamentals. I will likely consider buying.

Is it not also wise for me to set an entry point, and the time frame in which I am looking at holding. Once i have done these two isnt it wise to set up some sort of risk management so that i can not lose to much money from my current point however have the possiblity for extensive gains. Depending on my time period.

I personally although do not currently use the system as its in development and i prefer to make a few mistakes on the way.

Is it not wise to have a stop loss so you minimise your loss at the same time should this stop loss be a moving stop lose depending on the previous share price. no point having a 15% stop loss on a stock to see it rise 100% then fall back to your buy -15% .

Still a firm believer that this thread has useful points both in the analytical and the lessons learnt..
The first thing i learnt when starting, can't even remember were but i'll try and put it to words..

"High intelligent people tend to pick great stocks there reasoning is un questionable, yet the share price drops. the fundamentals havent changed and there decision was right its an amazing stock, yet the share price drops.
Even though they were right the share price continues to drop and so does there investment.

The thing is they were right the share was incredible it had the making of the best thing since slice bread. But the public thought otherwise."

This i believe applies to everyone.
The main 2 things I have taken out of that:
1) You should always know the risk you are willing to take. "stop loss"
2) Even if a stock is the best thing since slice bread it may still not be a winner.

Thanks for reading and all your posts.

 

[So_Cynical]

I had a thought today

If stop loss orders are all important...then why isn't the superannuation industry using them?

I mean if there so vital to maximizing returns etc.

After all if they did use stops the funds wouldn't of lost so much value.

 

[Trembling Hand]

I had a thought today

If stop loss orders are all important...then why isn't the superannuation industry using them?

I mean if there so vital to maximizing returns etc.

LOL.

If you are happy to match a large super fund I think then thats enough said

 

[MichaelD]

Is there a reason why you can't mix. Entry, timeframe, Risk money management and anything else you have discussed in one of your threads with Fundamental analysis.

You can mix whatever you like into your entry, but I believe it makes virtually no difference to outcome.

Is it not wise to have a stop loss so you minimise your loss at the same time should this stop loss be a moving stop lose depending on the previous share price. no point having a 15% stop loss on a stock to see it rise 100% then fall back to your buy -15% .

Yes, I believe it is wise to have a trailing stop - there are quite a lot of threads on precisely that topic.

 

[Sean K]

I'll tell you what could make this really interesting and valuable as an exercise (but it depends on how long you are prepared to keep tally) - I would be prepared to post my REAL long term trend following trades including position size for you to track in parallel with all the bottom picks. The only thing I won't disclose is the % leverage I use as that would disclose my total trading capital.

It is "conventional wisdom" that FA is supposed to outperform in current market conditions. I believe it won't and solid risk and money management will still outperform.

Want to create a comparison that will have significant long term value?

IMPORTANT: This is NOT an ego massaging exercise. I would be happy to be proved wrong.

Michael, you can do that if you like, and you can follow my blog if you like to see if I beat you.

I'm not sure how or why you think 'conventional wisdom' about FA has anything to do with this thread, or you, or me, or anything....

Anyway, do whatever..

 

[Sean K]

Is anyone thinking this a good opportunity to call another bottom in something, or still going much lower?

 

[Sean K]

Update in the dirty fingers race.

 

[explod]

Update in the dirty fingers race.

Now that's a good layout Kennas.

Some disquiet among many of the pundits over the weekend, so could be an interesting week, keep near to the seat belt perhaps.

Anyway, off to the casino today, 7 of the 7th, the family number