Relative value trading

nioka said:

A calculation done today shows that had I held the original purchase the shares would be worth $5643. Still a good return but through trading one against the other they are today worth $53,886. Trading allows this snowball effect.

All aided by splendid results by EDE with edencrete.as discussed on the EDE thread.

Opportunities like this are few and far between. Over the years I have only found three. All discussed on this forum. The first was EKA. AUT and VPE. The three of them had varying percentages in the same oil prospect. I traded them to a point where I was a top 20 shareholder. Then there was CER and CNP where one was the trading company and the other owned the bricks and mortar. Now there is the EDE and TAS combo and here the fat lady is yet to sing.

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Hats off to you. :bowdown:

When I read your initial few posts I didn't doubt there will be opportunities to trade between the two. I just didn't think that 1/ you would be so prolific to increase holding by 10x and 2/ the shares would actually go up 5x.

P.S. GMM and GXY is a pair potentially for your next project.

skc said:

Hats off to you. :bowdown:

When I read your initial few posts I didn't doubt there will be opportunities to trade between the two. I just didn't think that 1/ you would be so prolific to increase holding by 10x and 2/ the shares would actually go up 5x.

P.S. GMM and GXY is a pair potentially for your next project.

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Thanks for those two. However Thanks but no thanks. While they have similar interests those interests are not tied together. I realise that when one goes up or down the other may go with a delay or go in different directions.

What I look for is where the interests are tied together with fixed proportions, preferably with the same board and management. I like to see a good chance of success with their endeavours too.

nioka said:

A calculation done today shows that had I held the original purchase the shares would be worth $5643. Still a good return but through trading one against the other they are today worth $53,886. Trading allows this snowball effect.

All aided by splendid results by EDE with edencrete.as discussed on the EDE thread.

Opportunities like this are few and far between. Over the years I have only found three. All discussed on this forum. The first was EKA. AUT and VPE. The three of them had varying percentages in the same oil prospect. I traded them to a point where I was a top 20 shareholder. Then there was CER and CNP where one was the trading company and the other owned the bricks and mortar. Now there is the EDE and TAS combo and here the fat lady is yet to sing.

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Wow, teach meeee!

That is incredible nioka. Very well done. I must admit I still don't fully understand what it is you were/are doing, as far as I understand in this case EDE would react first, so you would buy TAS(already have a position in EDE) which would then react/follow EDE, you then sell TAS and buy more EDE with those profits from TAS?

But seriously impressive, would love to learn more from you about this, been interested since you started this thread and have always been interested in relative value trading, how you guys do it, find the opportunities etc. Would love to have a go with 1k myself, but haven't got the slightest idea where to start, having traded futures mostly all my trading life.

What do you use for executing trades and doing research etc?

Amazing job nioka

ThingyMajiggy said:

Wow, teach meeee!

That is incredible nioka. Very well done. I must admit I still don't fully understand what it is you were/are doing, as far as I understand in this case EDE would react first, so you would buy TAS(already have a position in EDE) which would then react/follow EDE, you then sell TAS and buy more EDE with those profits from TAS?

But seriously impressive, would love to learn more from you about this, been interested since you started this thread and have always been interested in relative value trading, how you guys do it, find the opportunities etc. Would love to have a go with 1k myself, but haven't got the slightest idea where to start, having traded futures mostly all my trading life.

What do you use for executing trades and doing research etc?

Amazing job nioka

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Its easy to operate. All you need to do is establish a relative value and swap one for the other when the values are out of whack. The hard part is finding two or three stocks that qualify. Over the years I have only found three. All these I have shown and discussed on stock forums. I cant find another just now but it still applies to EDE and TAS with TASO and EDEO thrown in for good measure.

I work on a ratio of 1.4 TAS = 1 EDE and buy the best according to that formula. when quotes a favourable I sell that one and buy the other. Take brokerage into account and each trade should leave you with more shares. It doesn't matter if the market is up or down. All you need to work out is "will I end up with more shares" but keeping in mind that for each EDE held you would need to 1.4 times as many TAS.

Congratulations again on your amazing results.

Do you actively search for these sister companies or have you just found the three opportunities serendipitously? You have been very public about what you have done, so I take it you are not concerned about other people copying you? Do you think if someone else was to try to do what you're doing with the same pair of companies it would make the opportunities to exchange less frequent or smaller? I would have thought you would want to keep it under your hat.

I love the idea and wish I had done the same with EKA/AUT. I was trading both at the time and did pretty well, but for the most part I was buying and holding more and more EKA because it was always so undervalued relative to AUT. What I should have done is to just accept the irrationality of the market and run with their valuation. Using my own valuation meant I would never swap EKA for AUT because the market always put EKA as being cheaper.

nioka said:

Its easy to operate. All you need to do is establish a relative value and swap one for the other when the values are out of whack. The hard part is finding two or three stocks that qualify. Over the years I have only found three. All these I have shown and discussed on stock forums. I cant find another just now but it still applies to EDE and TAS with TASO and EDEO thrown in for good measure.

I work on a ratio of 1.4 TAS = 1 EDE and buy the best according to that formula. when quotes a favourable I sell that one and buy the other. Take brokerage into account and each trade should leave you with more shares. It doesn't matter if the market is up or down. All you need to work out is "will I end up with more shares" but keeping in mind that for each EDE held you would need to 1.4 times as many TAS.

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Just find the relative value and swap one for another, just find a couple companies that are that closely related and then just simply figure out a ratio that works and just think will I end up with more shares.........yeah nah I'm too stupid for all that, you make it sound so easy/simple I wouldn't have the faintest where to start, especially with which companies then all the ratio stuff.

What else do you do then if you've only found a couple of these gem setups in recent years, what/how do you trade in the meantime? Or has this itself brought you enough success etc. that you haven't bothered doing much else?

ThingyMajiggy said:

Just find the relative value and swap one for another, just find a couple companies that are that closely related and then just simply figure out a ratio that works and just think will I end up with more shares.........yeah nah I'm too stupid for all that, you make it sound so easy/simple I wouldn't have the faintest where to start, especially with which companies then all the ratio stuff.

What else do you do then if you've only found a couple of these gem setups in recent years, what/how do you trade in the meantime? Or has this itself brought you enough success etc. that you haven't bothered doing much else?

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I do have other investments but these are the jewels. They are also a challenge. Normally I am not a trader. I am not a fan of the ASX in general where the odds are stacked against the small investor and there is so much blatant manipulation of share prices. I prefer to invest in unlisted companies, small ones where I can make an investment and have some say in how the business operates. On the ASX I tend to invest in spec stocks.

On listed companies I try and find companies that do something different, something new and innovative. Eden Energy fitted that bill and I bought Eden shares as a spec investment. There I found the relationship with TAS and worked out how to trade them. I am still trading them back and forth.

With EDE and TAS I have noticed that EDE is the first mover either up or down and TAS follows, sometimes a day or two later. Last week was a good example. I check in a few times a day with quotes and my orders. I'll have buy orders in below the rate of one and sell orders in higher than the quoted rate on the other. I use the relative value of 1.4 TAS =1 EDE. That doesn't go down well with the TAS diehards that suggest it is the wrong way around and in theory they are right. History shows that for months now they trade on my ratios. If the ratios change I'll adapt and still trade because there probably will be a lag in the adjustment of TAS to action by EDE. The beauty is that regardless of which one you hold you are still invested in the same product and enterprise.

Check them out. Work out how many TAS are worth the same as 10000 EDE day by day or better still hour by hour. Right now 10,000 EDE would cost $2,500 for that you could buy 13,888 TAS. So close to my 1.4 to one ratio that they are roughly equal value. Watch how that changes. Check out the quotes when they are trading and watch for changes.

It really is easy. This has been going on for months and probably will continue on for some time. A bonus comes if EDE has hit a jackpot with edencrete. Both TAS and EDE will benefit.

Sdajii said:

Congratulations again on your amazing results.

Do you actively search for these sister companies or have you just found the three opportunities serendipitously? You have been very public about what you have done, so I take it you are not concerned about other people copying you? Do you think if someone else was to try to do what you're doing with the same pair of companies it would make the opportunities to exchange less frequent or smaller? I would have thought you would want to keep it under your hat.

I love the idea and wish I had done the same with EKA/AUT. I was trading both at the time and did pretty well, but for the most part I was buying and holding more and more EKA because it was always so undervalued relative to AUT. What I should have done is to just accept the irrationality of the market and run with their valuation. Using my own valuation meant I would never swap EKA for AUT because the market always put EKA as being cheaper.

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When you talk about EKA being undervalued at that time it reminds me of the same factor as there is now with TAS and EDE. TAS holders are so sure that TAS is worth more than EDE that they hold on to TAS for fear that it will catch up and they will be in EDE at that time and miss out. EKA holders were that way inclined. I just traded as values changed. We were also lucky that a certain ASF poster regularly gave this forum news from America ahead of the company announcements. At the time AUT did have additional other interests that added to its value and I gave it a premium when I calculated relative value. The reverse applies to TAS where I believe its other interests are more a liability than an asset.

I do talk openly about what I am doing both on this forum and others. I am not greedy or want it all to myself. I am 83 with one foot in the grave and the other on a banana skin and happy to share. All I give is information. What anyone does with it is their worry. I don't think my forum posts have much effect on the stock market.

nioka said:

I do talk openly about what I am doing both on this forum and others. I am not greedy or want it all to myself. I am 83 with one foot in the grave and the other on a banana skin and happy to share. All I give is information. What anyone does with it is their worry. I don't think my forum posts have much effect on the stock market.

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Never thought that. I hope you keep both feet on the ground for quite a few more years yet.

P.S. I'd like to stress to the casual reader that, swapping is the "relatively" easy part. The hard part is finding a stock that will go up. There are 4 companies (BPH, MMR, GBA and BUY) that hold various direct/indirect shares in a license to to drill the Sydney Basis for oil and gas. So their movements were mostly in sync and you could have swapped them around all year in 2009/2010. But then they hit a duster (look at their share price around Jan 2011) and shares fell 50//60% upon re-open. They have never really recovered. So whilst holding 10x more number of shares via swapping is advantageous to holding just your original holding, 10x more shares @ 5% of the original price is not going to make anyone a fortune. There seems to be some activities brewing amongst them again so may be there's a chance to use nioka's methodology at least for the short term.

For the doubters that the results from the stocks traded in this demonstration were real there is more detail in the April stock picking comp results where both the top 2 stocks more than doubled their value during the month and during that time there were still opportunities to trade between the two to increase the overall holding.

The opportunity to continue is still there. I will continue to trade them on behalf of a family member. She starts today with $2000 in the kitty.

skc said:

Never thought that. I hope you keep both feet on the ground for quite a few more years yet.

P.S. I'd like to stress to the casual reader that, swapping is the "relatively" easy part. The hard part is finding a stock that will go up. There are 4 companies (BPH, MMR, GBA and BUY) that hold various direct/indirect shares in a license to to drill the Sydney Basis for oil and gas. So their movements were mostly in sync and you could have swapped them around all year in 2009/2010. But then they hit a duster (look at their share price around Jan 2011) and shares fell 50//60% upon re-open. They have never really recovered. So whilst holding 10x more number of shares via swapping is advantageous to holding just your original holding, 10x more shares @ 5% of the original price is not going to make anyone a fortune. There seems to be some activities brewing amongst them again so may be there's a chance to use nioka's methodology at least for the short term.

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That is where choosing the stocks to trade is important. With oil drilling you can wait until the oil is found otherwise all you are doing is expanding a risk. Never the less it does give you a greater exposure in the event of a strike if you are taking a gamble on oil search. It does also give you the opportunity to trade for freebies, cream off some profit to recoup the original outlay and then you have nothing to lose. Never be too greedy. Greed often leads to disaster.

There is some volatility in the SP of both TAS and EDE which continue to provide good trading opportunities in and between the two. "Swap trading" between these two for freebies is possible even on a falling market. EDE is usually a leader in a change of SP and TAS usually follows.

Adding to the equation is the exciting prospects that the development of Edencrete appears on track to be a winner for the stocks.

Have you continued this project Nioka?
I'm interested to learn if there has been any further progress as the prices of TAS/EDE have gone sideways.

peter2 said:

Have you continued this project Nioka?
I'm interested to learn if there has been any further progress as the prices of TAS/EDE have gone sideways.

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Yes. I am still trading and have made a couple of trades this week. During the day today there was volatility and volume that allowed a couple of interesting and profitable swap trades. Not as easy as it was when I first set this up as an example of what could be done while at the same time being a holder in the Technology.