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That's the great thing about negative expectancy. All one has to do is put oneself on the opposing side of their trades and "voila".
Precisely why I have not followed the Fundamental Trading methodology.
If the pros get it wrong more often than not what hope have I got?
The very fact that so many analysts disagree on IV and price targets indicates to me that it's a discretionary method that requires a fair amount of self-belief on the part of the value investor.
I think differently - If the pros always got it right then how on earth would anyone else make any money?If the pros get it wrong more often than not what hope have I got?
Analysts or pundits? Analysts get things right most of the time. I don't know too many people who take sell side analysts' price targets very seriously. I read their reports because they usually have some useful info, but I have never bought or sold something because an analyst report said it was cheap/expensive.
Pundits on the other hand, well they get asked for an opinion so they give one. They write off entire sectors because they're not in fashion.
No, I was talking about broker's analysis. Quite often they'll all fall within a tight range, or agree, but on some occasions they can vary quite a bit - I guess often due to their predictions for the industry concerned. If you think the iron ore price is going to fall and stay low or rise to all-time highs, then that will colour your value for stocks in that industry won't it? I know the liklihood of me predicting such things with any consistency is low, so I prefer to just follow the crowd.
I've actually just been watching last night's YMYC, and the three panellists are the most gloomy, conservative bunch they've had on for a while. They've just written off as "dogs" two shares I own, which are still in uptrends, and advised a caller to sell another as it's way over their calculated full value so therefore the smart thing to do is to sell and take profits. I'm going to do the opposite and continue to hold my "dogs" while they continue to rise in price, and have no intention of selling IIN until it takes out its prior pivot low.I guess history will tell whether they were right or I am - but I prefer not to sell based on calculations or predictions - I want to stay on the ride until it's over.
I think differently - If the pros always got it right then how on earth would anyone else make any money?
Their mistakes are opportunity for others.
Discretionary. Some of the basic criteria are:
Low or no debt
Market Cap > $1m
Increasing EPS
Increasing DPS
Good liquidity
Yield > 5% ff
Established company with record of sound management.
Entry - uptrend.
Exit criteria will vary company by company. Stop will be much wider on e.g. one of the big banks than on smaller companies.
I'd have thought this was a given, but it does raise the question of how value investors buy into a company.Low debt, good liquidity, increasing profits and sound management/past performance are common to us both, but I like to try to buy on a resumption of uptrend after a dip in my inexact attempt to get a good company at a reasonable price. Sometimes I just let a buy order well below current price sit in the market in case I get filled on daily volatility - have been lucky once or twice.
herzy, I don't have any hard and fast rule about this. I can think of two instances when I'd have been better holding through the downturn than selling, viz CBA and MND.Sounds pretty good - out of interest, if you are stopped out of a company with good liquidity, increasing EPS and DPS, yield has obviously become bigger, and management remains the same - will you buy back in at a lower price? If so, under what circumstances? Say you had a 5% trailing stop loss, would you buy back in if it has dropped 20%? Or only buy back in on another uptrend, irrespective of price (subject of course to yield)?
It's the self-belief aspect that would be a major hurdle for me - I think I'd start second-guessing my calculations and decision-making ability if price started to fall.Another very interesting thread on a topic that probably takes up more mind share for me than when to buy.
As a 95% FA (admit to glancing at charts following committing to buy decision), I have found that best approach to selling is to follow same rules that I used to buy.
Buying for me is based around having a strong degree of confidence that purchasing stock XXX at Price $n.nn is highly likely to return 15% pa TSR over the next 5 years. This is based on my view of ROE, EPS growth and DPS growth based on analysis with a conservative MOS. I accept the view that this is "a discretionary method that requires a fair amount of self-belief on the part of the value investor" but it seems to work well for me.
This approach means that I have limited buying opportunities, the price I am prepared to buy at generally only comes into play when external events such as Greek Defaults or Product Recalls affect market sentiment.
The "problem" that I have had over the past 6 months is that having waited patiently to buy something, you take the opportunity, and then find the market settles and you get a big jump in price (20-40%) in a very short period. Though this is obviously good, having spent a long time researching the stock I find it difficult to let it go as a degree of attachment has occurred:bad:
To address this, my portfolio tracking sheet starts flashing red at me when a stocks SP has risen to a level higher than my system predicted it would reach in 3 years time (based on my original 15% pa requirements). This indicates that the stock has moved from cheap to over-priced and it is time to take profits.
I still find it difficult to sell as my basic philosophy is to buy for long-term holds but applying the same discipline to selling as buying has meant that selling over-priced stocks (in my opinion of course) at least occurs now. Still hurts when the price continues to increase after having sold
With respect, it sounds rather as though you have at the outset decided on an approach and are determined to stick with it, even if there might be evidence that you could adapt it to be more profitable.That is a good question and reality is that I have never bothered to track "what-ifs" after deciding to sell - gut feel is that in most cases I would have been better off holding but this goes against my basic philosophy. I like my portfolio to be highly likely to generate 15% pa growth per year - once a stock is overpriced (in my opinion), it may keep increasing in price but not at my desired rate (I expect it to fall or flatline).
I know this may sound strange but my preference is for the stock to just slowly increase in value Year on Year so it stays in my value range so you never are put in the position of considering selling them as being over priced.
As an example, I bought CCP in Feb last year for $4.70 back in February as it met my criteria. Good final year result reported, dividend paid and then it has jumped above $8 in November. That's what I view it as being worth at the end of 2015 so couldn't justify holding it. Price may go up or down from here (and it has!) but I wouldnt but it at this price so struggling to justify holding it.
Money off table, reallocate to stocks that offer greater likelihood off meeting my 15% pa guidelines. I find the discipline helps even though I would have preferred a more gentle increase and hold it for years as still believe it is a good company, just overpriced.
I don't look at charts to make purchase or sell decisions.I'd have thought this was a given, but it does raise the question of how value investors buy into a company.
Could one of you perhaps comment on this? eg if you decide a company is trading below your IV, will you look at a chart to determine an appropriate entry and place a limit order accordingly? Or is your lack of interest in the market price sufficient to render the actual entry point irrelevant?
I'd have thought this was a given, but it does raise the question of how value investors buy into a company.
Could one of you perhaps comment on this? eg if you decide a company is trading below your IV, will you look at a chart to determine an appropriate entry and place a limit order accordingly? Or is your lack of interest in the market price sufficient to render the actual entry point irrelevant?
+1Ves said:The IV calculation is the very last thing that I do. In 99% of cases I don't even calculate an IV because my personal judgment tells me that it is irrelevant because I either do not understand the business or the future is too uncertain / not promising / it doesn't meet my risk management criteria.
I'm interested in swapping capital for cashflow. And I'm not too bad at it.
+1
I think you will find that a good value investor is a lot quicker to take a loss than you seem to be giving them credit.That's the easy part.
Harder to preserve capital while
Generating cash-flow.
Even harder increasing it.
Lose sight of capital preservation ( it's not a loss unless I take it )
At your peril.
That's the easy part.
Harder to preserve capital while
Generating cash-flow.
Even harder increasing it.
Lose sight of capital preservation ( it's not a loss unless I take it )
At your peril.
Of course capital preservation is important. When a business changes, I change my opinion. I just don't think I find it in a chart. I realise others do and I'm not planning on getting into a debate about it. The question was about whether value investors look at charts.
... And far too time consuming.
Look at the ASZ thread. I sold at 70 odd cents - and I admit I was slow selling. But I still sold before the steam roller hit. Look at the price now.Ves
I just haven't seen it.
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