My Investment Journey

[KnowThePast]

Can I suggest that you take a look at Dimensional Fund Advisers. Their style is tilting towards small and value companies (amongst other matters). They too have had a rough time of it in recent years.

The Value style has performed well for as far back as data is available to analyse it. The rationales seem plausible enough. Importantly, for whatever reason, it can go through bad patches. If it didn't, there would likely be no premium to Value.

In order to make an informed choice, perhaps it is worth going through some stuff from Dimensional and RAFI as well to see what they have to say about the recent dry spell on this concept. From that, you can make an assessment as to whether the well has been drained or whether it is just having a rough spell.

You may draw inspiration from Pzena.

It is legitimate to question your strategy in light of outcomes. You know that the stats are unlikely to yield anything material with the sample size, so it is just a call. It is also reasonable to come up with a better idea and run with that. Whatever you decide, it is well accepted that to be a Value investor requires a lot of patience. Perhaps the idea works, but you are simply unable to tolerate the pain that must be accepted.

Thanks DeepState,

Running out of time today, but will take a look tomorrow.

 

[KnowThePast]

Sold ARI @ $0.19, for a loss of $653.90 (-48.9%).

 

[systematic]

Thanks for sharing, KTP, and it all sounds good...sounds like your strategy going forward is a progression from, an evolution of, your current strategy - not a denial of. That happens!

I am also working backwards - instead of looking for value, then checking quality, my new automated strategy is about finding quality, growth, small companies, then checking for value.

Totally get what you're saying. That should work fine, then. Quality (growth, profitability, stability etc) first, before looking at (but still looking at) value, is well within, "what we know to work" - and again, not a complete divergence from what you were doing. You are now looking more for a true bargain than cheap trash.

 

[KnowThePast]

Bought ICU, 10370 @ $0.14

They build enterprise mobile apps, specialising in mobile banking, mobile micro payments, more specifically. In that way, they are similar to MBE, but at a fraction oftheir valuation.

They've done a backdoor listing after being spun off Donaco, so they are fairly unknown and their numbers look terrible in commsec,they aren't related.

Large director ownership, who continue to accumulate. Price decline since listing is most likely explained by Donaco share holders selling shares in the new company that they didn't invest in.

Their revenues are growing faster then costs, margin expansion is occurring on top of growth.

The sector is still a young one, with lots of consolidations failures likely to come. But this is now one of the bigger players, profitable, with access to capital to acquire other players, and has two other segments (enterprise mobility and content/services) to fall back on, as well as recent acquisition of Arte Mobile. Importantly, they hold first mover advantage in their markets.

 

[KnowThePast]

Sold HNG @ $0.34, for a loss of $410.90 (-38.8%).

 

[Triathlete]

Has anyone done any research or has experience with a strategy that deliberately changes from value to growth and back? Buy when when it underperforms, sell when it is doing well, ditto for growth. Not locking yourself into a strategy, but switch between several over time, as part of a master plan.

This is not at all my current intention, but another fear (again) of mine, is that I am very likely selling at exactly the wrong time for a value strategy. And, possibly switching to growth-like strategy and a high point, to make it worse.

As I said in my post above, the current plan is to keep my holdings, selling them as soon as capital is required in the new strategy. So, for a few months at least I will get the benefits and/or losses from both strategies, while it all unwinds.

What has helped me was learning about Technical analysis and incorporating it into my decision making along wih a companies fundamentals

I use a combination of Price ,Pattern ,and Time analysis to pinpoint my trades for my short term or long term portfolios.This has helped me elimate many of the failings you have described above.

Prior to taking any trade or investment I have a target price on the upside and also the downside (if my analysis is wrong) so my exit strategy is also in place before I trade or invest,this allows me to manage myself if things go pear shape.I do not really have a value or growth strategy but just looking for stocks to move up in price and take a position based on my analysis.

 

[Ariyahn2011]

Thanks for the ongoing posts KTP.

Have you ever considered changing from penny stocks to mid/large caps that offer both growth and perhaps smaller dividends?
I found risk is reduced greatly and you can still make big gains. When things get expensive, sell, and find another stock.
At least that is what I do now. I am always tempted to buy small caps to get that almighty 10 bagger, but I realise, I dont have the talent to pick the dogs from the pearls.
My new strategy of investing in good companies with market caps of minimum 500MIL with a few exceptions (small caps).
Basically, the ASX200.
I read a fellow beat the market consistently just sticking with the ASX20.
All imo.
Good luck and thanks again.

 

[TPI]

KTP, from reading some of your posts you come across as someone looking to develop a quantitative, rules-based and automated/mechanical investing process, that doesn't require too much time and too much in depth analysis of companies, and that has been backtested... would that be right?

If so, why don't you just invest in a smart beta ETF? Eg. RAFI as has already been mentioned here.

The hard work has already been done for you by people much smarter than you or I.

Why reinvent the wheel by spending ages experimenting with different strategies yourself to find the perfect strategy?

 

[KnowThePast]

KTP, from reading some of your posts you come across as someone looking to develop a quantitative, rules-based and automated/mechanical investing process, that doesn't require too much time and too much in depth analysis of companies, and that has been backtested... would that be right?

If so, why don't you just invest in a smart beta ETF? Eg. RAFI as has already been mentioned here.

The hard work has already been done for you by people much smarter than you or I.

Why reinvent the wheel by spending ages experimenting with different strategies yourself to find the perfect strategy?

Hi TPI,

That's spot on, exactly what I am trying to do, although I don't necessarily rule out more in depth analysis then normally recommended in these kind of strategies.

I don't have a good answer to your question. Something in between enjoying it and arrogance, probably.

I also think the funds do no propertly cover the smaller, illiquid companies, where I see an opportunity.

 

[KnowThePast]

Thanks for the ongoing posts KTP.

Have you ever considered changing from penny stocks to mid/large caps that offer both growth and perhaps smaller dividends?
I found risk is reduced greatly and you can still make big gains. When things get expensive, sell, and find another stock.
At least that is what I do now. I am always tempted to buy small caps to get that almighty 10 bagger, but I realise, I dont have the talent to pick the dogs from the pearls.
My new strategy of investing in good companies with market caps of minimum 500MIL with a few exceptions (small caps).
Basically, the ASX200.
I read a fellow beat the market consistently just sticking with the ASX20.
All imo.
Good luck and thanks again.

Hi Ari,

I do not think I can do better than average in ASX 200, so if I go down that route, I would just invest in an index.

My super is 40% in index funds, so I see merit in your idea.

This portfolio is about finding something better and developing my software. I am still confident that I am onto something good, despite small underperformance so far.

Regarding risk, I do not think small caps are significantly riskier than large caps, if at all.

 

[Triathlete]

Hi Ari,

I do not think I can do better than average in ASX 200

Regarding risk, I do not think small caps are significantly riskier than large caps, if at all.

My beliefs are that anyone can do better then average with the right knowledge and experience but it is not an easy road.

To do this you will also need a good understanding of technicals. This will give you more understanding of when to be in a stock and when not to be.

Having good fundamentals, value etc is one thing but having it supported by technicals is another.

In other words your probability of being successful has just increased significantly.

Remember you do not need to have money tied up in the markets 24/7 if a stock shows it makes a move for 9 months and you where able to be on it and stops then goes sideways take your money out and wait for another opportunity if you believe it will not rise further for a while.

There is a reason why they are small caps....they have not proven themselves.

Look at stocks such as CSL they have grown greater than 26%pa over the last 5 years this has beaten the average.

Do not risk your total portfolio on small stocks trying to find the big winner they are few and far between....!!

 

[KnowThePast]

Sold LYL, 500 @ $1.36 for a loss of $1,394.90 (-63%). It no longer fits my investment strategy and I need to free up funds for my next purchase.

Bought AKG, 1890 @ $0.79.

A smaller version of VET, but with good quality teaching, 100 year old reputation and little debt.

Up until recently, they also owned a fasteners business that they have recently sold. With cash, they've bought more colleges, a business that has generated very good returns in previous years.

The recent shake up of the industry and reputation damage to the sector caused by VET hurt AKG this year, with profit halved. But, they are still profitable and revenue is growing nicely.

They have a good mix of courses for both international students and local vocational/trade.

Long term, I think Westen style education will continue to be in demand, and Australia's standard of living, climate and location will make it appealing to many international students. Having established colleges that have been around for many decades and have good reviews is a good competitive advantage.

Share price has dropped about as much as their profit for the year. Directors have been busy buying on market and own a large chunk of the company.

 

[Triathlete]

Sold LYL, 500 @ $1.36 for a loss of $1,394.90 (-63%). It no longer fits my investment strategy and I need to free up funds for my next purchase.

Bought AKG, 1890 @ $0.79.

A smaller version of VET, but with good quality teaching, 100 year old reputation and little debt.

Up until recently, they also owned a fasteners business that they have recently sold. With cash, they've bought more colleges, a business that has generated very good returns in previous years.

The recent shake up of the industry and reputation damage to the sector caused by VET hurt AKG this year, with profit halved. But, they are still profitable and revenue is growing nicely.

They have a good mix of courses for both international students and local vocational/trade.

Long term, I think Westen style education will continue to be in demand, and Australia's standard of living, climate and location will make it appealing to many international students. Having established colleges that have been around for many decades and have good reviews is a good competitive advantage.

Share price has dropped about as much as their profit for the year. Directors have been busy buying on market and own a large chunk of the company.

KTP,

Thought you might be interested in the comments from www.lincolnindicators.com.au

AKG exhibits unacceptable levels of financial risk due to a below benchmark Financial Health score. Investors need to be aware such companies pose risks and warrant a speculative investment only. Any prospective investment should be managed with tight stop losses implemented.

 

[KnowThePast]

KTP,

Thought you might be interested in the comments from www.lincolnindicators.com.au

AKG exhibits unacceptable levels of financial risk due to a below benchmark Financial Health score. Investors need to be aware such companies pose risks and warrant a speculative investment only. Any prospective investment should be managed with tight stop losses implemented.

Thanks Triathlete,

I do not have a subscription to them so I am not sure what "Financial Health" score is.

It does score lower then average on Alt Z and Piotroski F score, but I expect these to improve greatly after another profitable year takes retained earnings above zero.

Sorry if it seemed like I was ignoring your posts. The topic of incorporating technical analysis and stop losses has been discussed more then enough here and elsewhere, no way I am reviving those topics again.

 

[KnowThePast]

Monthly update. Portfolio went up $1,681.51 (3.4%) for the month.

 

[KnowThePast]

Sold MCP, 1540 @ $0.67, for a loss of $768.30 (-32%).

Bought 4361 share of CTE, another small growth company that specialises in storing stem cells and other biological material. They have been investing for growth in the last year, so their PE looks out of whack. On a cashflow, or underlying earnings potential, they are very cheap in my opinion.

 

[KnowThePast]

Sold TTN @ 0.077 for a loss of $1091.72 (-82.91%).
Sold FUN @ 0.02 for a loss of $834.62 (-64.68%)

 

[AverageJoe]

Sold TTN @ 0.077 for a loss of $1091.72 (-82.91%).
Sold FUN @ 0.02 for a loss of $834.62 (-64.68%)

May I ask what type of strategy are you basing your entry and exist?

I had a look at all the losers you posted and every single one except CTE are pointing down. In other words the weekly charts have a bearish price trend. CTE for instance lacks seriously any volume so the bid and ask spread would usually be huge?

 

[KnowThePast]

Hi AJ,

No strategy followed in the last few exits. I switching my portfolio over to a different long term strategy then one I originally started with. I am selling all stocks that don't meet the new strategy.

You'll have to read the many pages of my thread to get an idea of what I'm doing, but to describe it simply, I look for small, growth, quality, reasonable valuation. I will hold for long term, unless they no longer meet this criteria.

I do not look at charts and I will sometimes buy very illiquid stocks.

 

[AverageJoe]

Hi AJ,

No strategy followed in the last few exits. I switching my portfolio over to a different long term strategy then one I originally started with. I am selling all stocks that don't meet the new strategy.

You'll have to read the many pages of my thread to get an idea of what I'm doing, but to describe it simply, I look for small, growth, quality, reasonable valuation. I will hold for long term, unless they no longer meet this criteria.

I do not look at charts and I will sometimes buy very illiquid stocks.

The reason I look at charts is to get an instant snap shot of where money has been heading, either into or out of it. If the stock is consistently falling the first question I ask is "WHY". Iliquid stocks makes a mockery of the price or chart so agreed if looking at these, the chart is meaningless. Length of term to hold is not not a healing process of price that has gone through a large phase of selling destruction of value.

Take a look at the destruction of REITS such as SGP MGR from the GFC high 7 years ago or the gold sector or any of the commodities sectors.

If you don't look at charts how do you know if the price has been falling or rallying. Most research you get hold off from the web are second, third and even last hand information that has already factored into the sentiment. You are either the last investor in or you found a gem that the market is ignorant of. Such cases are few and far between and usually involves some type of first or second hand "inside info".

But I suppose if you are making money month after month then who is to say you have not got an profitable strategy. Good luck.

I am not professing to be more knowledgeable, just applying some basic common sense when I search forums to keep learning what others are doing.