Profiting from market trends?

[tech/a]

The Coca-Cola Company stock splits.

If a person bought in at $40 at listing and just go to sleep, that stock is now worth some 9000 times in less than 100 years.

So an investment of $10k is now worth some $90, 000, 000.


View attachment 60553

Yes the same with Westfields and many others. Then there HIH and these in the USA.
http://www.thestreet.com/gallery/tsc-bankruptcy2-decade/0/photo-closed.html

As an example.

The only minor problem is finding one and staying on it for 50-100 years.
---------

I understand where you, Pixel, Burglar and other who trade stocks, either with the trend, TA or whatever technique it is you use. I know the reasoning and logic behind it, and if a person can do it successfully, what's the difference between value or trend... I agree with that.

Massive difference.
You cant make profit without trend in your direction. Most Value investors wait/hope/prey for a trend.
We find them and simply ride them till they stop.

Like Pixel said, there's the timeframe factor... True that not everyone has the spare capital to just pluck it down and wait months or years to maybe get a return (if you do get it then), why wait when you can get it now or in a few days time.

Yes but who's going to put $10k in 10 stocks in the hope that in 50 yrs time they can retire comfortably?
Its very likely not one will supply that!

However, there's some important mistakes and misunderstanding in the above two assumptions.

First, while it's true that if you could buy stock X at price P then flock it off when it reaches P2 - you'd make money and who cares what the company does or what some genius reckon it's worth. That's true but you're assuming that you can get in at P and will set out at P2. But what if you're too late to the party? What if too soon after you bought, the prices are just -Ps. You would get out and buy at a lower price and wait until it goes to your previous P or higher?

Youll be stopped out and live to invest in another "P"
I personally would never wait for a stock to fall more to buy any or more.
Id be looking for and trading something with momentum in my direction.
No way would I be watching a stock moving down thinking this is getting cheap cant wait to buy this!
If I found one which showed great momentum then yes Id consider it.

What if, like that UXC example where you bought in after April 2000 at say $70, or then again after another peak at $30? You would have lost most of your money. Yea you would make buckets if you got in early and the trend goes your way and you got out early or just right... but how many of us could do that given that future prices cannot be known?

Well some of us. You never let a trade fall into a massive loss. Personally I move stops to B/E as quickly as I can. Sure I get stopped out heaps but I don't have a lot in realized losses and way more in realized profits.
Youd be suprised how good you can become.

Or in the Coke example, what if you've made 100% or triple your money and decided to get out? Sounds reasonable... Then Coke just keep going up and up... you would jump in if that's the case right? But then you would have already paid taxes on realised profits, would have lost the profit gap since you left and now join.
This is assuming that your psychology and ego allow you to buy in at a higher price than when you just sold out recently. But like most people, chances are you might see something to expect Coke to go lower than when you sold and wait for it then.

Id rather have the profit and pay the tax. I'm never going to make a decision to buy or sell based on a tax consideration.

When you trade the trend, what you are doing, at its core, is being involved in a ponzi scheme. That regardless of the value of the fake jewelleries or the tulips or the stamps, any stock (whether it earns a profit or burn hundreds of millions)... who cares as long as you could buy low and sell higher, you make money.

Your argument here I suppose is value investors aren't involved in your Ponzi idea because they aren't selling?
But arent they also just riding the trend? As A value investor your doing exactly the same thing---buying lower to sell higher. The only difference is the label you give it.
"Value investing"
If we are trading technically buying low selling high aren't we finding "Value"?
We are "Technical Value Investing" like you we perceive value. Like you we maybe wrong short term or right long term.

Others (these others could very well be you) would see this "easy" profit and jump in hoping to buy high but sell higher... then when it unravels... on what basis do you use to predict when the end is nigh?

There are many that indicate an end or a pause.

The basis for value here is simply more supplies of buyers at the bottom of the pyramid... and while experienced traders or those with access to detailed data might have an idea and get out early... the market is very fluid and supplies of buyers can just dry up within a day or two, or dry up enough to do real damage to your holdings real quick.

Yes but your saying a value investor is immune to this---How?
I as a technical value investor may hold through this OR decide to sell.
I may even buy more. If your just holding your perceived low and value price may become a high price as a stock falls to oblivion while the value investor is screaming---how can this be its way under valued!!!

When you trade the content inside a closed box but not knowing what is in that box, where do you anchor your value around? If the price of that box goes up 50 times, how do you know that that is too low or too high?

I can tell by the actions of the participants in the daily auction of price---they are determining value right now today or this week or this month.

If it drops 500% from its height, how do you know it won't go lower and go broke? A box that contain one solid piece of pink diamond is vastly different from one containing a lump of coal, or contains nothing.

Again---I can tell by the actions of the participants in the daily auction of price---they are determining value right now.---today or this week or this month

Second, although value investment usually mean waiting a while to see your profit return, to wait for a turnaround... while we all associate value investing with long-term investing, thus giving an impression that invest on a value basis, one buy into a business and hope it grows over time. That a value investor buy now, not make any money now but wait until a year or two or five for the business to make money. This is wrong.

I read with eager anticipation!

Value investing is buying a business at a price that already makes you money the moment you bought it.

It is buying a $1 note for 60 or 50 cents because most others figured it's only worth 50cents or much less.

Value investing is not buying 50 cents for 50 cents then hope that over time, if management is clever and if luck is on our side, that 50 cents is turned into $1 and then you sell out.

A few ifs here.
You may perceive that your 50c stock is worth $1 but until it IS $1 its only worth what the participants in the daily auction say it is! you cant tell me that every value investment you make is going to double just as i cant tell you every technical value purchase is also going to double.

So if you know what you are doing, which you need to whether you trade the trend or value a business, if you know value investing and find the right opportunity, you have already made your money the very moment you buy into it - just the market does not agree with you... But it is the business and its profit that matter since opinions can change, hard cash is what it is.

No you've not made anything UNTIL price has risen to where you think it should be. Your valuing of 50c that should be a dollar doesn't mean jack to tomorrows auction.
QUESTION If you've been able to find this at great value---why hasn't the other 100000 analysts come to the same conclusion?
Why do so many vary? some think value is cheap others average others still about right?
If its clear to you why not all the Economic grads!

So while it could take years for the market to recognise and re-evaluate your stock, you as the owner of the business have been making money ever since you bought in... and the market might reflect the earning streams as it has been or value at the new and higher earning streams over the time you bought in.

And many are never re evaluated UP many are re evaluated down!
Dividends don't make up the loss in capital value and at times dividends decrease and stop.
Often those in love with their valuations go the same ways as their failing business.

Lots of theory hear I'm pretty sure your not over 40 so haven't been involved in business or trading for 40 yrs.
Some of us are and some of us have been.
That's why we trade like we trade.
We know the difference through practical experience.

 

[Habakkuk]

The technical analyst is frequently wrong, finds out pretty soon and deals with it.

The fundamental analyst is NEVER wrong - everybody else is. Because he knows better than the market.
And eventually the market will agree with the fundamental analyst.

That's how it works ...

 

[tech/a]

The technical analyst is frequently wrong, finds out pretty soon and deals with it.

The fundamental analyst is NEVER wrong - everybody else is. Because he knows better than the market.
And eventually the market will agree with the fundamental analyst.

That's how it works ...

Aint that the truth!

 

[McLovin]

Bits of it.
I trade early sessions when I'm at the screen.
That's a daily chart
I trade 1/3/9 min.

Generally pick up a grand to 3 a session or B/E where I often let it run and it comes back on me.

Maybe you should've said that instead of putting up a chart with how much one could hypothetically make. Yours and luutzu's examples seem to both fall into the same blue yonder category.

Back on topic, what sort of unlevered returns do punters get from trend following through the cycle?

 

[luutzu]

Yes the same with Westfields and many others. Then there HIH and these in the USA.
http://www.thestreet.com/gallery/tsc-bankruptcy2-decade/0/photo-closed.html

As an example.

The only minor problem is finding one and staying on it for 50-100 years.
---------

Value investing does not mean buy and hold, no matter what.
Value investing, like marriage, mean entering HOPING to stay forever but things may deteriorate or not worked out as we though; when that happen, we exit.

We simply review performance every six months or a year or two, depending on the nature of the business and the projects or business life cycle. If we see economic or market condition changed drastically than we had anticipated or the business is used to; if management is not performing etc.; that's when we exit. We don't hang around.

Massive difference.
You cant make profit without trend in your direction. Most Value investors wait/hope/prey for a trend.
We find them and simply ride them till they stop.

Yes but who's going to put $10k in 10 stocks in the hope that in 50 yrs time they can retire comfortably?
Its very likely not one will supply that!

In my opinion, this is a big misconception about value or fundamental investing. One that a lot of books, experts and fund managers help spread - that is, they define value investing as equal to long-term investing. Like looking after your nest egg, a seedling growing into a tree etc.

Like I said, while value investing often mean long term holding, mean being patient. But that does not mean buying a seedling and pray and wait for it to grow. It means buying a business and treat it like a business. In business, some projects could be delayed; some product line could fail; some new plant or new venture will burn cash years before they could give new life to a new income stream... Value investing mean you are aware of these and then decide whether you're OK with it or get out.

Why do I need to sell a business to make money? That's one way to make money, but not the only way.

The definition of a business is one that makes you money, and keep on making you (its owner/s) money. If the rate of return is good; if its prospects is further icing on the cake and I do not see any other opportunity, why would I want to sell it?

Say I bought a property and its net rental income is $1000 per week. As long as I get $1,000 a week (and be able to adjust it with inflation etc.)... If I am happy with that return based on my purchase price and annual maintenance/expenses... I don't need daily quotations from real estate brokers to see if I make money or not.

If a guy come to me and offer, every minute if he'd like, to buy that property for $200K, or $500K... and I know it earns $52K real/adjusted net income a year... I wouldn't sell it and still make good enough return on my investment.

Youll be stopped out and live to invest in another "P"
I personally would never wait for a stock to fall more to buy any or more.
Id be looking for and trading something with momentum in my direction.
No way would I be watching a stock moving down thinking this is getting cheap cant wait to buy this!
If I found one which showed great momentum then yes Id consider it.

Well some of us. You never let a trade fall into a massive loss. Personally I move stops to B/E as quickly as I can. Sure I get stopped out heaps but I don't have a lot in realized losses and way more in realized profits.
Youd be suprised how good you can become.

I work on the assumption that others are just as smart as me if not smarter. So when I buy something, I want to know what it's worth. That way, when I want to sell it on to others, I know when or when not to sell.

I prefer not to buy something I have little idea what its real worth is just to then pass it to another guy demanding a higher price. The buyer do not need to buy my stock, and I cannot force them to... so if they don't buy, I at least know the earnings is still acceptable and won't lose sleep over it.

As Value Collector said, to each his own. But I really think that given the potential of what a good business can achieve in our time, it might be a real great lost to simply try and make profit from trading what is essentially paper stocks. I mean, if you trade stock, you're buying low and selling higher... that's all find and good but you're only profiting from what your buyer is paying only, and that's it.

But if you buy into a good business, for the same price, you suddenly have hundreds of millions or billions of dollars worth of resources, some of the best minds working to improve your company (and maybe the world's standard of living) - all over the country and the world. Why would you want to trade the potential gain from that sort of resources for a few bucks if you can help it?

Id rather have the profit and pay the tax. I'm never going to make a decision to buy or sell based on a tax consideration.

If I own the corporation outright, aren't I, its sole owner, already be paying taxes on its earnings? If I own a couple of shares, aren't I paying my portion of that earning in taxes?

Your argument here I suppose is value investors aren't involved in your Ponzi idea because they aren't selling?
But arent they also just riding the trend? As A value investor your doing exactly the same thing---buying lower to sell higher. The only difference is the label you give it.
"Value investing"
If we are trading technically buying low selling high aren't we finding "Value"?
We are "Technical Value Investing" like you we perceive value. Like you we maybe wrong short term or right long term.

I can't speak for value investor, they probably laugh at my ideas anyway...
But me as a value investor I know that I seek to buy and sell at fair value. If the buyer or seller want to sell or buy at value above and beyond what I considered fair, who am I to not make extra profit?

What is fair value?

If a stock is worth $100 in my opinion... fair value have to be below that. Why? Why would I want to go through the trouble and expense to exchange my $100 for another $100? It has to be below what I think it is worth to give me a margin of safety as well as profit for the transaction.

After that initial transaction, my return is what the business return on its equity.

If I make improvements, if luck was on my side, then that's extra profit on top for risk and innovations I take as owners of a business. If condition deteriorate etc... that's part of the risk I was hoping to avoid but couldn't so I suffer losses.

So when a value investor buy at a low price then later sell at a higher price; while it appear like he's simply trading and buy low sell high as any trader does... the difference is in the value behind buying low and the new value added since then that now demand a fair higher selling price. Both prices may very well be fair value at their transactions.

A trader have little or no idea, and does not care to know, about this value. Value to him is the difference between his costs and his income. He could as easily buy a lump of coal or a lump of useless rock if there's a good chance of a higher bid in the near future.

There are many that indicate an end or a pause.

Yes but your saying a value investor is immune to this---How?
I as a technical value investor may hold through this OR decide to sell.
I may even buy more. If your just holding your perceived low and value price may become a high price as a stock falls to oblivion while the value investor is screaming---how can this be its way under valued!!!

I can tell by the actions of the participants in the daily auction of price---they are determining value right now today or this week or this month.

Again---I can tell by the actions of the participants in the daily auction of price---they are determining value right now.---today or this week or this month

Depends on definition of value. If I buy and make $1 profit, that's value; If I sell and not suffer losses, that's valuable.

I read with eager anticipation!

A few ifs here.
You may perceive that your 50c stock is worth $1 but until it IS $1 its only worth what the participants in the daily auction say it is! you cant tell me that every value investment you make is going to double just as i cant tell you every technical value purchase is also going to double.

The few IFs refers to that's NOT what value investing is.

No you've not made anything UNTIL price has risen to where you think it should be. Your valuing of 50c that should be a dollar doesn't mean jack to tomorrows auction.
QUESTION If you've been able to find this at great value---why hasn't the other 100000 analysts come to the same conclusion?
Why do so many vary? some think value is cheap others average others still about right?
If its clear to you why not all the Economic grads!

Ask economic grads, how do I know. Actually I do know.

Before that... if you can spot patterns in share prices, what make you think others cannot? What stops others from jumping the gun before that pattern even appear? What if they know that before such pattern, there's this other patterns... and others read before that and before that... so that eventually a new pattern is formulated and the cycle repeats.

QUESTION If you've been able to find this at great value---why hasn't the other 100000 analysts come to the same conclusion?
Why do so many vary? some think value is cheap others average others still about right?
If its clear to you why not all the Economic grads!

Why? Because they're not as smart as me. I'm quite exceptionally clever to be honest

But mainly because they weren't taught right and basically follow market and share price trend (TA) without realising it. You know, thinking that risk is related to return; then define risk as deviation from a fancy aggregate of "representative" stocks index Share price movement. That's trend following and silly thinking masked in fancy maths and backed by billions and trillions of dollars and a couple of Nobel prizes.

That and varied required rate of return. Some are perfectly happy with getting return just above or equal that risk-free return one gets from a bank account - why I don't know, they seem to want to play fair. So if they/we all agree on earnings but varied by our required rate of return (say some require 6, others 10%)... you got yourself a wide range of value... mix that up with varied earnings/return estimates and it seem nobody knows anything.

Then there the really smart one who look at economic and geopolitical factors; look at industry trend and make assumptions and protect earnings into a distant future and priced it based on all these factors aligning...

Then there's people like me who just talk

And many are never re evaluated UP many are re evaluated down!
Dividends don't make up the loss in capital value and at times dividends decrease and stop.
Often those in love with their valuations go the same ways as their failing business.

Lots of theory hear I'm pretty sure your not over 40 so haven't been involved in business or trading for 40 yrs.
Some of us are and some of us have been.
That's why we trade like we trade.
We know the difference through practical experience.

I have traded before (not TA, but have invested/traded stocks - did pretty well I reckon but had very small capital then to be impressed); have also, still is, running my own business with my siblings doing good work with big boys, and we're doing not too badly. So I do have some experience running my own show as well as getting some ideas of how some large corporation works.

Theory leads to action though

I'm not having a go at you guys or TA... to be honest, I think TA is much more intelligent than these "modern" investment theories and portfolio management rubbish. At least with TA, you guys don't pretend to muck around with stuff that doesn't matter to you - you are trading the market and the market only cares about share price and that's your focus. With the other approach, they're doing the same but want to appear smarter and so look at things that are quite useless and harmful.

OK, I think I've upset just about everyone. At least it's good entertainment though.

 

[luutzu]

Maybe you should've said that instead of putting up a chart with how much one could hypothetically make. Yours and luutzu's examples seem to both fall into the same blue yonder category.

Back on topic, what sort of unlevered returns do punters get from trend following through the cycle?

How is it theoretical?

If you bought in 1996, 16 years later it's 4,500 times more? I think that's what it is based on that chart.

Anyway, there will be businesses now and in the future that may present the kind of opportunities coke or a walmart did (maybe still does)... so it's not theoretical. It doesn't come by everyday and we may not buy in at bottom or stay til the end... but it's out there.

 

[Wysiwyg]

Just thinking back to 1919 when average American wage was $25/week. Buying one share in a fizzy drink company at near two weeks wage for one share would not have been thought a smart investment. Especially after the trauma of World War One. Stock data can look fantastic in hindsight but the real game is here and now. Could one Coke share make you a billionaire in a hundred years? With all the drink competition and nutritional data and awareness about sugary substances, no, but get those developing countries hooked on the sugar and fizz and the company could do well again.

 

[McLovin]

How is it theoretical?

If you bought in 1996, 16 years later it's 4,500 times more? I think that's what it is based on that chart.

Some times it pays to think if something sounds so far fetched it probably is. How realistic do you think it is that the world's largest beverage company had a return of 450,000% over the 16 years to 2012?

 

[McLovin]

Just thinking back to 1919 when average American wage was $25/week. Buying one share in a fizzy drink company at near two weeks wage for one share would not have been thought a smart investment. Stock data can look fantastic in hindsight but the real game is here and now. Could one Coke share make you a billionaire in a hundred years? With all the drink competition and nutritional data and awareness about sugary substances, no, but get those developing countries hooked on the sugar and fizz and the company could do well again.

Exactly. Hindsight is 20/20. Putting up a chart of an absolute outlier and saying "look how easy it is" adds zero. If you picked KO you got lucky.

 

[luutzu]

Some times it pays to think if something sounds so far fetched it probably is. How realistic do you think it is that the world's largest beverage company had a return of 450,000% over the 16 years to 2012?

yea was half asleep man.

 

[luutzu]

Just thinking back to 1919 when average American wage was $25/week. Buying one share in a fizzy drink company at near two weeks wage for one share would not have been thought a smart investment. Especially after the trauma of World War One. Stock data can look fantastic in hindsight but the real game is here and now. Could one Coke share make you a billionaire in a hundred years? With all the drink competition and nutritional data and awareness about sugary substances, no, but get those developing countries hooked on the sugar and fizz and the company could do well again.

I'm not saying I or anyone could pick and stayed with a Coke; though there could be another one like it, I'm not saying I could pick it and just stay with either.

I agree with you that buying Coke in 1919 and holding onto it is unrealistic (even if we can go back in time)... but thing is you can buy it over any decade since listing and make a fairly decent return. And this even though during that time Coke had made a bunch of mistakes - like New Coke, or venturing into strange businesses... it even own some entertainment/TV/Film production company at some point; and gone through World wars, Cold War, crashes and recessions; diet fads and what not.

Anyway, what I am trying to say is that while trend trading could make a lot of people a lot of money, and for some people they could do it consistently... I know I can't do it, not consistently. I'm not made for it so I opted for the easy way where I think I could have a good chance of doing things I understand, doing it consistently, and that is looking for businesses that are well established and seem to have been and are likely to keep doing well... and get in when it stumble a bit or the market could be wrong in reckoning its days are numbered... and put my capital in a large established organisation run by people who are brilliant and shown to be very capable and let them decide how best to move and adapt. I could lose money there too but at least I would know why and maybe learn from it.

I recently scanned through WalMart's annual reports and from the 70s, it had a few dots on a map of America... about ten years later those dots were scattered all over the Eastern then soon the entire US... and now that map coloured in a few major regions/countries in the world. I'm sure that even Sam Walton couldn't have predicted that.

 

[McLovin]

yea was half asleep man.

Of course.

 

[luutzu]

Of course.

Better than my "blame the wife" excuse

Yea that's a really good price and I'd love to buy it like I said, but have to talk to the wife. You know how it is.