Was today a strange day or was it just me?????
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tech/a
No Ordinary Duck
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Pretty similar 8 of Ten fell.
Not suprising support levels taken out after 3 days in the negative.
Support is just a level which price stopped at and reversed in the last move or moves.Its not set in concrete they are broken all the time.
According to statisticians around 50% of the time.Ive never tested the % figures though.
Pretty normal------- this is the correction we had to have.
Im sure it will have an upday sooner than later.
tech
Not suprising support levels taken out after 3 days in the negative.
Support is just a level which price stopped at and reversed in the last move or moves.Its not set in concrete they are broken all the time.
According to statisticians around 50% of the time.Ive never tested the % figures though.
Pretty normal------- this is the correction we had to have.
Im sure it will have an upday sooner than later.
tech
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Does the fact that we have lost 3900 today put even more pressure on the market? I would think that it can't be a good sign. But that's just a guess.
Tech, why do you think that the market will recover rather than go down further? When I look at what's happening out there then there's little that would make me think it's only temporary and that the general trend is still towards 4000.
Looking forward to your reply.
Happy trading
Stefan
Tech, why do you think that the market will recover rather than go down further? When I look at what's happening out there then there's little that would make me think it's only temporary and that the general trend is still towards 4000.
Looking forward to your reply.
Happy trading
Stefan
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Perhaps the question should be can the market justify holding the gains of the past few months? Personally I took some losses & profits today and am now holding a fair portion of my portfolio in cash.
Given that I'm uncertain about the market at the moment, I may not buy until the picture/direction is a little clearer
Given that I'm uncertain about the market at the moment, I may not buy until the picture/direction is a little clearer
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stock picking thread is looking pretty sick also 
tech/a
No Ordinary Duck
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Stef.
From a Fundamental veiw firstly and not being a funnymentalist im sure youll have more + and - on the Fundamental side than I do.
(1) Lowest un employment in many years.
(2) Low interest rates remain.
(3) Oil seems to now have found its high.
(4) The AU$ is strong but not over the moon requiring restraint.
Now some tech stuff.
Remember when I said most dont know when to holdem and when to foldem.
When I see or hear people selling after or during a week of sell off I know they arnet taking big profit.FEAR.
They reckon you cant go broke taking a profit.
Want a bet!!
From a Fundamental veiw firstly and not being a funnymentalist im sure youll have more + and - on the Fundamental side than I do.
(1) Lowest un employment in many years.
(2) Low interest rates remain.
(3) Oil seems to now have found its high.
(4) The AU$ is strong but not over the moon requiring restraint.
Now some tech stuff.
Remember when I said most dont know when to holdem and when to foldem.
When I see or hear people selling after or during a week of sell off I know they arnet taking big profit.FEAR.
They reckon you cant go broke taking a profit.
Want a bet!!
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Tech,
Excellent chart there. Thanks. I always like those comments you put in there. Yes, I know there are still some good fundamental points supporting a strong share market. What worries me for tomorrow is that usually a Friday tends to be rather sluggish as traders don't want to commit for the weekend. Not always the case but I think for the last couple of Fridays that was pretty much it. So now we lost 3900 and given that there are some uncertain points in our economy I'd say we have to wait for a recovery until next week. Now this is just a personal feeling and it may well be wrong as we have seen bottom fishing on some stocks today already. So it may start to turn around.
We'll see.
Happy trading
Stefan
Excellent chart there. Thanks. I always like those comments you put in there. Yes, I know there are still some good fundamental points supporting a strong share market. What worries me for tomorrow is that usually a Friday tends to be rather sluggish as traders don't want to commit for the weekend. Not always the case but I think for the last couple of Fridays that was pretty much it. So now we lost 3900 and given that there are some uncertain points in our economy I'd say we have to wait for a recovery until next week. Now this is just a personal feeling and it may well be wrong as we have seen bottom fishing on some stocks today already. So it may start to turn around.
We'll see.
Happy trading
Stefan
tech/a
No Ordinary Duck
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Stef
Id say I trade differently than 97% of traders here.
As you can see I dont care what happens tommorow(unless it comes off 200pts)or last week.
I know my portfolio wont increase in value every week infact it wont increase in value every month (although it has for over 12 mths!).
I used to trade like the 97% here and not only did I do very poorly(down 20K in 6 mths up to 15K in another 3 down to 8K in another 6 months blah blah) but I went nuts trying to predict TOMMOROW!
Now it takes me 10 mins a day ( I spend too much time talking to you guys!) and I dont have to repeat my results.Sanity returned.I actually dont look at my portfolio until Friday---Yes I have alerts on the work computer but thats only gone off 4 times this year.Contrary to opinion I have a life!
I wont stop trading UNLESS.
My historical Peak to Valley Drawdown is exceeded.
Even if Im bearish----cause while my Peak to Valley Drawdown parameter is intact I am within the limits I know
Id say I trade differently than 97% of traders here.
As you can see I dont care what happens tommorow(unless it comes off 200pts)or last week.
I know my portfolio wont increase in value every week infact it wont increase in value every month (although it has for over 12 mths!).
I used to trade like the 97% here and not only did I do very poorly(down 20K in 6 mths up to 15K in another 3 down to 8K in another 6 months blah blah) but I went nuts trying to predict TOMMOROW!
Now it takes me 10 mins a day ( I spend too much time talking to you guys!) and I dont have to repeat my results.Sanity returned.I actually dont look at my portfolio until Friday---Yes I have alerts on the work computer but thats only gone off 4 times this year.Contrary to opinion I have a life!
I wont stop trading UNLESS.
My historical Peak to Valley Drawdown is exceeded.
Even if Im bearish----cause while my Peak to Valley Drawdown parameter is intact I am within the limits I know
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A few thoughts, unrelated to any postings. Please take it as a brainstorm towards investment. It is not ment to pick on any member of this forum. It's just a a rundown of what I've experienced over the years to explain why I ended up becoming a long term investor.
This may well become my longest posting ever, so feel free to skip it
I'm not spending so much time on this board to get to 1000 postings ASAP. I'm here because I came along when it just started out and I liked the idea and the bloke who runs it (never met him). I thought it deserved my attention and my postings because that's what a new board like this one needs. Active posters who keep it alive. For me there is no problem when 99% of postings are not related to successful trading. Mostly because I'm not a day trader and as such do not care what tomorrow has in store or what hot tips are around. But if other members are discussing it, then I will participate if I feel like.
When I was a daytrader I almost went mad. I spent hours and hours in front of level II screens on the NASDAQ and in chat rooms trying to find a quick gain. After 2 years I had to realise that this would not be sustainable. There were good days and bad days and overall it never added up substantially. Would I have calculated my hourly rate based on the time spent researching and trading, I would have been better off working a late night shift. Not to mention the social impact when you come home from work only to spend hours trading the market. God bless my wife who took it all with ease.
Then I started looking at it in a different way. Why spending hours and hours on end trying to make a quick profit when you may just as well hold a few shares you know a lot about for a year or even longer with a much better result? Sure, still no guarantee for a profit but there is no such thing and at least you have your life back. So I started changing my strategy and today I'm holding around 6 stocks in a portfolio with longterm goals. I had to keep a high risk stock to satisfy my "need for speed gambling soul". I leave it up to the reader to guess which one.
I do not trade most of the days I spend here. I hardly sell anything but do accumulate on pull backs like this one. It may be risky to average down but there is one big advantage I found in my way of trading. If you know why you put your money into a company then the risk of a substantial loss is minimal. If you know what a company is worth, then you know when to buy. I always found it rather amazing when people scan boards for hot tips and put their money into stocks they only just heard about. The only way to achieve long-term success in the market is by investing and not by gambling. You can however still have a gamble if you don't mess with the rest of your investment.
Anyway, there is room for all sorts of trading. Daytrading may well be a successful way to make money but not for me. It does not fit into my way of life anymore.
I'm running a business and doing so requires my attention. When I finish up work I have NO interest whatsoever to spend time searching for hot tips. I do read a lot about the companies I have my money in (including their respective industry sectors) but that's it. When I see a post about a new company that catches my interest I do my homework and read up. Mostly it will not lead to an investment. I must admit it has a lot to do with how Warren Buffett put it. You don't need to bat constantly to hit a high score. You just need to make sure the ones you hit are worth it.
Easy said, I know. However, I found that the time you spend finding your favorites is well spent while the time you spend trying to follow hot tips or quick runners during the day is not. It just adds up too quickly and you get lost. There are too many stocks out there. You need to focus and stick to what you know. If you chase stocks, then that's what you do. Chasing something that's already running as fast as it can. Good luck catching it.
If you have 20 stocks or more on your watchlist then you can't possibly follow them seriously enough to trade them successfully. It happened to me too. You hear about this stock and that one and you add them to your list. They start running in all sorts of directions and you catch yourself frantically trying to follow them.
- Quick excursion... -
Look what happened to the Australian market. 2 years ago nobody was looking at it. In fact, There is an old newspaper page on top of my freezer to protect it from whatever stuff I put on there and it says "Who want's to buy shares?". It goes on about the bearish market and how everybody is better off buying property. It is further proof to my point that you will not get anything useful out of newspapers, TV or other medias. They do not tell you how things are, but they rather tell you what you want to hear. After all they are after market shares and they will do anything it takes to get their audience. They have to keep them happy or they will switch channel or buy another paper. So better tell them what they want to hear. Why tell them that properties are over valued when so many readers just bought their 2nd and 3rd investment? Better show and glorify those who "own" 30 or 100 properties on a current affair or today tonight. Because that's the stuff people want to see. They want the comfort that they did the right thing.
Right now you can buy many books about people who built a 100 million dollar property portfolio in just a couple of years. They try to tell you that you can do it as well. Unfortunatelly now is not the time to do it but the guy who wrote the book is not going to tell you that. He just wants to make money out of his book. In 2005 you will see books about people who built a 100 million dollar share portfolio in just a couple of years. And so the stories go on and on. Traders are getting hammered with those sort of things and they try to follow by frantically jumping in and out of stocks chasing the big one. The only one who wins is the broker who's happily making money each time a trade is made. Whether the trader will lose or win, the broker will profit.
- End of excursion ... -
Having stop losses and that sort of thing in place is important. It does however not lead to success. It only prevents you from suffering a big loss from which you may never be able to recover. If you have to constantly sell because stocks hit the stop loss, then something is seriously wrong with your investment. Now setting a stop loss is much more complicated than just putting up a % figure. Which brings me back to my way of investing. If you know the current and possibly the future value of a company then you can set a stop loss but there should be no need for it. If a stock is falling there are two reasons for it. It's either not worth the money or it's being dumped because the market is nervous. Now if it's not worth the money then I should not have bought it at that level and following my strategy I therefore should not hold it. If I do then maybe I was wrong which can be quickly evaluated and rectified. If it turns out that I'm wrong then the stock needs to go. But hardly ever will the fundamentals of a company change overnight. Remember that I'm not talking days or weeks here.
In case the stock gets sold because the market is nervous then I will happily buy more, knowing that this is a temporary dip from which I can profit because basically nothing has changed except that the market is a bit shaky.
This is where the theory comes from that holding on to an investment in a down market rather than selling it will pay off. It only ever works if your investment actually has something to rely on. Otherwise holding a loser will never turn into holding a winner.
Remember that the reason you're doing an analysis in the first place is because
you're trying to protect yourself from overpaying, not to justify your surplus of enthusiasm.
The market is a strange beast and hard to predict. But what's not so hard is to know why you put your money in a company. The stock market is a longterm thing. If you try to make a quick profit then that's possible but it is against the fact that solid gains take time.
Now how do I pick a company for my portfolio?
First of all it needs to be in a growth phase.
Why? Because I for myself found that most companies who are passed their growth phase tend to be too expensive. It's a personal thing really.
It needs to have solid fundamentals backed by some achievement by management in the past.
Even a company in its growth phase can have solid fundamentals and a reasonable management behind it.
And most importantly it's price earning ratio needs to be reasonable.
Now I know Warren Buffett is doing a similar thing but this guy never had the guts to tell me his formula. So I decided to keep it simple for a start, following his way of thinking. There are many websites out there who explain it more detailed than I do here. Remember this is not magic science or my very own theory. I just found that is one works for me and that's all that matters.
Suppose I'm interested in a company that earned $10 per share over the last twelve months. Assume I expect the company to grow for the near future, so that its earnings will grow at a rate of 10% annually for the next 10 years; then, I make no assumptions about earnings after that, but just expect the company to stay at the same size from then on.
Now it's about finding out how much each year of profit in the future is worth to me in the present. I take a rate of 15%. The idea is that earnings of $1.15 next year is only worth $1.00 to me right now, since I could invest the $1.00 in a fund and do nothing expecting it to grow to $1.15 in one year's time. (Don't worry too much about the % figure. You can put it to whatever you like. It depends on your greed and how much you want to make out of your investment to make it worthwhile.)
So, $10 per share growing at 10% annually will grow to about $26 in 10 years. Easy, really. BUT: More importantly I need to know what $26 ten years from now is worth NOW assuming that I want to make 15% out of it. This happens to be $6.42.
Well, look at the amount of text I've put in here. I need to stop for now. Maybe I get back to it at some stage but I think it explains a bit more where I'm coming from and what sort of investor I am. I don't intend to elaborate on it too much. It's just an extract of what I believe is a reasonable way to invest. May others exist and you have to find one yourself. I know there's still a part missing but I have to run and you can find out yourself which is much more interesting than reading my 10000 lines.
Just remember this:
YOU NEED TO KNOW WHY YOU PUT YOUR MONEY AT STAKE.Best is to have a wife or a friend who thinks it's all just a waste of time and wants you to explain why you did what you just did. It will teach you a lesson or two. Because it's easy to justify something to somebody who is willing to believe you but it's quite a different story if the person is reluctant to accept your arguments.
I wish you all a nice weekend.
Happy trading
Stefan
This may well become my longest posting ever, so feel free to skip it
I'm not spending so much time on this board to get to 1000 postings ASAP. I'm here because I came along when it just started out and I liked the idea and the bloke who runs it (never met him). I thought it deserved my attention and my postings because that's what a new board like this one needs. Active posters who keep it alive. For me there is no problem when 99% of postings are not related to successful trading. Mostly because I'm not a day trader and as such do not care what tomorrow has in store or what hot tips are around. But if other members are discussing it, then I will participate if I feel like.
When I was a daytrader I almost went mad. I spent hours and hours in front of level II screens on the NASDAQ and in chat rooms trying to find a quick gain. After 2 years I had to realise that this would not be sustainable. There were good days and bad days and overall it never added up substantially. Would I have calculated my hourly rate based on the time spent researching and trading, I would have been better off working a late night shift. Not to mention the social impact when you come home from work only to spend hours trading the market. God bless my wife who took it all with ease.
Then I started looking at it in a different way. Why spending hours and hours on end trying to make a quick profit when you may just as well hold a few shares you know a lot about for a year or even longer with a much better result? Sure, still no guarantee for a profit but there is no such thing and at least you have your life back. So I started changing my strategy and today I'm holding around 6 stocks in a portfolio with longterm goals. I had to keep a high risk stock to satisfy my "need for speed gambling soul". I leave it up to the reader to guess which one.
I do not trade most of the days I spend here. I hardly sell anything but do accumulate on pull backs like this one. It may be risky to average down but there is one big advantage I found in my way of trading. If you know why you put your money into a company then the risk of a substantial loss is minimal. If you know what a company is worth, then you know when to buy. I always found it rather amazing when people scan boards for hot tips and put their money into stocks they only just heard about. The only way to achieve long-term success in the market is by investing and not by gambling. You can however still have a gamble if you don't mess with the rest of your investment.
Anyway, there is room for all sorts of trading. Daytrading may well be a successful way to make money but not for me. It does not fit into my way of life anymore.
I'm running a business and doing so requires my attention. When I finish up work I have NO interest whatsoever to spend time searching for hot tips. I do read a lot about the companies I have my money in (including their respective industry sectors) but that's it. When I see a post about a new company that catches my interest I do my homework and read up. Mostly it will not lead to an investment. I must admit it has a lot to do with how Warren Buffett put it. You don't need to bat constantly to hit a high score. You just need to make sure the ones you hit are worth it.
Easy said, I know. However, I found that the time you spend finding your favorites is well spent while the time you spend trying to follow hot tips or quick runners during the day is not. It just adds up too quickly and you get lost. There are too many stocks out there. You need to focus and stick to what you know. If you chase stocks, then that's what you do. Chasing something that's already running as fast as it can. Good luck catching it.
If you have 20 stocks or more on your watchlist then you can't possibly follow them seriously enough to trade them successfully. It happened to me too. You hear about this stock and that one and you add them to your list. They start running in all sorts of directions and you catch yourself frantically trying to follow them.
- Quick excursion... -
Look what happened to the Australian market. 2 years ago nobody was looking at it. In fact, There is an old newspaper page on top of my freezer to protect it from whatever stuff I put on there and it says "Who want's to buy shares?". It goes on about the bearish market and how everybody is better off buying property. It is further proof to my point that you will not get anything useful out of newspapers, TV or other medias. They do not tell you how things are, but they rather tell you what you want to hear. After all they are after market shares and they will do anything it takes to get their audience. They have to keep them happy or they will switch channel or buy another paper. So better tell them what they want to hear. Why tell them that properties are over valued when so many readers just bought their 2nd and 3rd investment? Better show and glorify those who "own" 30 or 100 properties on a current affair or today tonight. Because that's the stuff people want to see. They want the comfort that they did the right thing.
Right now you can buy many books about people who built a 100 million dollar property portfolio in just a couple of years. They try to tell you that you can do it as well. Unfortunatelly now is not the time to do it but the guy who wrote the book is not going to tell you that. He just wants to make money out of his book. In 2005 you will see books about people who built a 100 million dollar share portfolio in just a couple of years. And so the stories go on and on. Traders are getting hammered with those sort of things and they try to follow by frantically jumping in and out of stocks chasing the big one. The only one who wins is the broker who's happily making money each time a trade is made. Whether the trader will lose or win, the broker will profit.
- End of excursion ... -
Having stop losses and that sort of thing in place is important. It does however not lead to success. It only prevents you from suffering a big loss from which you may never be able to recover. If you have to constantly sell because stocks hit the stop loss, then something is seriously wrong with your investment. Now setting a stop loss is much more complicated than just putting up a % figure. Which brings me back to my way of investing. If you know the current and possibly the future value of a company then you can set a stop loss but there should be no need for it. If a stock is falling there are two reasons for it. It's either not worth the money or it's being dumped because the market is nervous. Now if it's not worth the money then I should not have bought it at that level and following my strategy I therefore should not hold it. If I do then maybe I was wrong which can be quickly evaluated and rectified. If it turns out that I'm wrong then the stock needs to go. But hardly ever will the fundamentals of a company change overnight. Remember that I'm not talking days or weeks here.
In case the stock gets sold because the market is nervous then I will happily buy more, knowing that this is a temporary dip from which I can profit because basically nothing has changed except that the market is a bit shaky.
This is where the theory comes from that holding on to an investment in a down market rather than selling it will pay off. It only ever works if your investment actually has something to rely on. Otherwise holding a loser will never turn into holding a winner.
Remember that the reason you're doing an analysis in the first place is because
you're trying to protect yourself from overpaying, not to justify your surplus of enthusiasm.
The market is a strange beast and hard to predict. But what's not so hard is to know why you put your money in a company. The stock market is a longterm thing. If you try to make a quick profit then that's possible but it is against the fact that solid gains take time.
Now how do I pick a company for my portfolio?
First of all it needs to be in a growth phase.
Why? Because I for myself found that most companies who are passed their growth phase tend to be too expensive. It's a personal thing really.
It needs to have solid fundamentals backed by some achievement by management in the past.
Even a company in its growth phase can have solid fundamentals and a reasonable management behind it.
And most importantly it's price earning ratio needs to be reasonable.
Now I know Warren Buffett is doing a similar thing but this guy never had the guts to tell me his formula
. So I decided to keep it simple for a start, following his way of thinking. There are many websites out there who explain it more detailed than I do here. Remember this is not magic science or my very own theory. I just found that is one works for me and that's all that matters.Suppose I'm interested in a company that earned $10 per share over the last twelve months. Assume I expect the company to grow for the near future, so that its earnings will grow at a rate of 10% annually for the next 10 years; then, I make no assumptions about earnings after that, but just expect the company to stay at the same size from then on.
Now it's about finding out how much each year of profit in the future is worth to me in the present. I take a rate of 15%. The idea is that earnings of $1.15 next year is only worth $1.00 to me right now, since I could invest the $1.00 in a fund and do nothing expecting it to grow to $1.15 in one year's time. (Don't worry too much about the % figure. You can put it to whatever you like. It depends on your greed and how much you want to make out of your investment to make it worthwhile.)
So, $10 per share growing at 10% annually will grow to about $26 in 10 years. Easy, really. BUT: More importantly I need to know what $26 ten years from now is worth NOW assuming that I want to make 15% out of it. This happens to be $6.42.
Well, look at the amount of text I've put in here. I need to stop for now. Maybe I get back to it at some stage but I think it explains a bit more where I'm coming from and what sort of investor I am. I don't intend to elaborate on it too much. It's just an extract of what I believe is a reasonable way to invest. May others exist and you have to find one yourself. I know there's still a part missing but I have to run and you can find out yourself which is much more interesting than reading my 10000 lines.
Just remember this:
YOU NEED TO KNOW WHY YOU PUT YOUR MONEY AT STAKE.Best is to have a wife or a friend who thinks it's all just a waste of time and wants you to explain why you did what you just did. It will teach you a lesson or two. Because it's easy to justify something to somebody who is willing to believe you but it's quite a different story if the person is reluctant to accept your arguments.
I wish you all a nice weekend.
Happy trading
Stefan
tech/a
No Ordinary Duck
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Dwib.
Not a one line answer purely as I would have to explain what it is and how it comes about and then go into why its important to your trading and then how it can be misleading with open positions and how to overcome that.
Im sure as we work through other issues on other threads this will come up and be explained.
In the meantime a Google search may come up with some definitions for you.
The short answer is.
The amount of Profit or capital sacrificed from the peak of a tested period to a valley where profit gaining resumes its upward trend.(Thats my description and its not so elegant).
If over a tested period of say 10 yrs I have a maximum P to V D/D of $15000 within that test period and Im trading the same Positions sizing in the tests.
All of a sudden I have a P to V Drawdown of $17000.
Somethings not right.
Has never happened but if it did Id be out of that trading methodology.
Happened to the Turtle Traders I believe.
tech
Not a one line answer purely as I would have to explain what it is and how it comes about and then go into why its important to your trading and then how it can be misleading with open positions and how to overcome that.
Im sure as we work through other issues on other threads this will come up and be explained.
In the meantime a Google search may come up with some definitions for you.
The short answer is.
The amount of Profit or capital sacrificed from the peak of a tested period to a valley where profit gaining resumes its upward trend.(Thats my description and its not so elegant).
If over a tested period of say 10 yrs I have a maximum P to V D/D of $15000 within that test period and Im trading the same Positions sizing in the tests.
All of a sudden I have a P to V Drawdown of $17000.
Somethings not right.
Has never happened but if it did Id be out of that trading methodology.
Happened to the Turtle Traders I believe.
tech
tech/a
No Ordinary Duck
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Stef.
Thanks for the insight.
Would you mind if I commented on a few points (well actually quite a few).Only as a constructive look at how you could improve your method.
One Question.(well again quite a few).
When you pick a stock do you.
(1) Know it will "Eventually be profitable"
(2) If so how?
(3) Do you average down then if the stock moves against your initial entry price.
(4) At what point do you stop averaging down.
(5) At what point if any do you cop a loss?
(6) At what point do you take a profit (Ive seen evidently a 600% profit not taken).If ever.
(7) Other than MUL have you ever been wrong (actually your werent wrong and possibly may not be wrong yet)just in efficient.(in my veiw)
(8) What over a time would make a stock in your portfolio out of favour and the position closed?
tech
Thanks for the insight.
Would you mind if I commented on a few points (well actually quite a few).Only as a constructive look at how you could improve your method.
One Question.(well again quite a few).
When you pick a stock do you.
(1) Know it will "Eventually be profitable"
(2) If so how?
(3) Do you average down then if the stock moves against your initial entry price.
(4) At what point do you stop averaging down.
(5) At what point if any do you cop a loss?
(6) At what point do you take a profit (Ive seen evidently a 600% profit not taken).If ever.
(7) Other than MUL have you ever been wrong (actually your werent wrong and possibly may not be wrong yet)just in efficient.(in my veiw)
(8) What over a time would make a stock in your portfolio out of favour and the position closed?
tech
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Tech,
Surely I don't mind your questions.
But I should probably mention this:
My current investment is based on the following plan:
- Not generating income (except for a very small part held in my company name)
- Long term focused (8 years to go)
- Low maintenance
I'll explain. I'm currently running my business and it's creating enough money to keep me going so my investment does not need to create an income. I do save money in an ING account at the highest possible interest you can get in a cash account. (yes, citibank may offer slightly more but that's not the point). This cash is what I live of. This is to insure that I do not have to touch my investment at the worst possible time.
The time frame is based on my plan to become independent in 8 years. By that I mean my investment will have grown to an amount that will allow me to live happily ever after. (Not saying that I'm unhappy. Just an expression.)
Now to your points:
(1) Know it will "Eventually be profitable"
All of my stocks already are profitable or cash flow positive when I put my money in. Yes, MUL is not but that's because it is my high risk gamble and has nothing to do with it. Being in a growth phase doesn't mean it's making a loss. In fact, if a stock is not making money, how am I supposed to find it's real value? Very difficult as I can only base my calculations on what has not yet eventuated and that is highly risky. I do occasionally put money into a turn around stock like ERG where I can see signs of a recovery. BUT only small amounts and with 3-5% stop loss in place. No averaging either way and probably not to run with it for the whole time frame of 8 years.
(2) If so how
An strong indication that the currently positive cash flow will turn into profit.
(3) Do you average down then if the stock moves against your initial entry price.
YES. If the stock moves lower than my entry price then I will buy more in almost any case as long as my valuation doesn't show weakness or errors. It happens mostly with stock that I just added because it is not my ultimate goal to buy at the bottom. If therefore the price goes lower I will keep adding mostly small amounts depending on the price I have to pay per share.
(4) At what point do you stop averaging down.
Mostly when a stock would exceed a threshold related to my total investment. I can not say that this is 15% or 20%. It can however be pretty high as I'm only holding very few stocks. For example HDR has reached a threshold which in that case is above 20%. I now have no more money to invest into it otherwise I would break the balance as HDR would become too much of a heavy weight in my basket. HOWEVER, if HDR starts climbing back above my average entry price, it is very likely that I may decide to buy more. I do NOT believe that there is a golden rule like "no more than 15% of a single stock". In fact I found that to be rather stupid. If a stock starts doing what I was looking for, why wouldn't I start putting more money into it. Important point is that I do stop averaging down but I may start averaging up regardless of what I already have.
(5) At what point if any do you cop a loss?
I will cop a loss at the "point of no return" which is when something unexpected happens that will significantly impact my initial valuation. There is always a chance that things go wrong. For example a new source of renewable energy may be discovered next week which will have a major impact on my oil shares. Should the stock impacted by this new fact fall or already be below 15% then I will cut it. Why? Because I do not believe that something will eventually recover just because time is your friend. But I do believe that the new investments will enable me to cover my loss quicker than holding on to the dog IF I'm still able to invest which depends on the fact that money is available. You have made that point yourself a few times and I'm very much supporting it. If you don't cut your loss then it will turn into a cancer. Growing slowly making everything else in your basket pretty worthless. We know how hard it is to get a constant return over a few years. With a cancerous stock in your portfolio it becomes just plain impossible. Check point 7 for an example.
I do allow for a rather big loss at times as long as my analysis is holding up,which is based on the long time frame I have in mind for my investment. Anyway, I've mainly set it to around 15% because that's what I regard as possible to make up with other investments. If it's set higher then I have a real problem reaching my goal because lots of money would flow into fixing this hole. If it's lower then I would have to dump too many shares just because of temporary pull backs. I will however consider my position in each case. If my smallest investment turns sour I would obviously not be as concerned if the rest is already making more than up for it. Nevertheless. I will cut a stock if I don't feel comfortable holding it.
(6) At what point do you take a profit (Ive seen evidently a 600% profit not taken).If ever.
Interesting point. Yes, I will take a profit but because I have some very specific goals I'm actually tending to hold on to my shares. I do hold some shares in the name of my company which I treat slightly different because I use them to create an additional income. I have however not sold anything in the last 12 months except for a loss on JHX. It is not based on % gain or any other number. I tend to hold stocks during their growth phase if everything goes to plan. This will ultimately mean that I may not always exit at the very top. However, that is not of a concern to me. My concern is to reach my goal in 8 years.
Clearly I have to state that I do hold some stocks which I regards as indefinite holdings.
(7) Other than MUL have you ever been wrong (actually your werent wrong and possibly may not be wrong yet)just in efficient.(in my veiw)
I have been wrong 2 times over the last few years. One was AMP. I have entered it at 4.60 I think and I sold it for 4.85. Anyway, I know I made 25 cents per share out of it which resulted in a spectacular net gain after tax of $1000. The reaon why I sold is because I did not trust my fundamentals. For me AMP was undervalued and attractive to buy based on a few fundamentals. But for the rest of the world AMP was about to die. Papers were full of bad news, brokers were calling foul seeing no end to the disastereous performance. News story after news story was about how people lost their savings and how bad it may still get. So I cut it short and headed for the exit.It shot up to $6 a few days or weeks later because NAB was trying to buy it out. Obviously not the whole world thought it would die...
The second time was with JHX where I got caught by surprise in the asbestos claims. Bad research? Maybe. I have cut my loss on this one based on the fact that when the asbestos story hit, it was already trading below my entry price and averaging down seemed like a foolish idea considering you never know how long these sort of scandals stick around. Not to mention that I considered this a growth stock in mid 2003. I just got it plain wrong.
(8) What over a time would make a stock in your portfolio out of favour and the position closed?
Keep in mind that I have a very specific time frame of 8 years to go. I'm guided by my ultimate goal of financial freedom at 45. I know I would need to elaborate on that but I won't. Basically this is the expectation my investment has to live up to. I have a goal and to reach this I need to perform accordingly. If a stock turns out to be falling behind (even though it still returns a profit) it will fall out of favour. I need to keep up the pace to reach my goal. I have certain criterias on which I chose my investment and over time things may change. More interesting opportunities may come along, enabling me to grow quicker by investing into other areas. This is why I spend considerable time reading about the company I invest in and the environment they are in.
Tech, I know I would need to explain a few details to make it more obvious and understandable but for now I've typed enough. A few spread sheets would obviously help to explain what sort of limits I have in place and what targets I try to reach. But in the end it comes down to a few simple points. It's all a number game and a matter of having a goal and a plan how to get there.
To all newbies:
If you know how to use a spread sheet then I suggest you put your trading idea to the test by using it. I found it especially helpful to do a reality check. You can always have an idea of making 4500% in 5 years but once you see what sort of figures you have to fill in to get there, it will get you thinking.
Have a nice weekend
Stefan
Surely I don't mind your questions.
But I should probably mention this:
My current investment is based on the following plan:
- Not generating income (except for a very small part held in my company name)
- Long term focused (8 years to go)
- Low maintenance
I'll explain. I'm currently running my business and it's creating enough money to keep me going so my investment does not need to create an income. I do save money in an ING account at the highest possible interest you can get in a cash account. (yes, citibank may offer slightly more but that's not the point). This cash is what I live of. This is to insure that I do not have to touch my investment at the worst possible time.
The time frame is based on my plan to become independent in 8 years. By that I mean my investment will have grown to an amount that will allow me to live happily ever after. (Not saying that I'm unhappy. Just an expression.)
Now to your points:
(1) Know it will "Eventually be profitable"
All of my stocks already are profitable or cash flow positive when I put my money in. Yes, MUL is not but that's because it is my high risk gamble and has nothing to do with it. Being in a growth phase doesn't mean it's making a loss. In fact, if a stock is not making money, how am I supposed to find it's real value? Very difficult as I can only base my calculations on what has not yet eventuated and that is highly risky. I do occasionally put money into a turn around stock like ERG where I can see signs of a recovery. BUT only small amounts and with 3-5% stop loss in place. No averaging either way and probably not to run with it for the whole time frame of 8 years.
(2) If so how
An strong indication that the currently positive cash flow will turn into profit.
(3) Do you average down then if the stock moves against your initial entry price.
YES. If the stock moves lower than my entry price then I will buy more in almost any case as long as my valuation doesn't show weakness or errors. It happens mostly with stock that I just added because it is not my ultimate goal to buy at the bottom. If therefore the price goes lower I will keep adding mostly small amounts depending on the price I have to pay per share.
(4) At what point do you stop averaging down.
Mostly when a stock would exceed a threshold related to my total investment. I can not say that this is 15% or 20%. It can however be pretty high as I'm only holding very few stocks. For example HDR has reached a threshold which in that case is above 20%. I now have no more money to invest into it otherwise I would break the balance as HDR would become too much of a heavy weight in my basket. HOWEVER, if HDR starts climbing back above my average entry price, it is very likely that I may decide to buy more. I do NOT believe that there is a golden rule like "no more than 15% of a single stock". In fact I found that to be rather stupid. If a stock starts doing what I was looking for, why wouldn't I start putting more money into it. Important point is that I do stop averaging down but I may start averaging up regardless of what I already have.
(5) At what point if any do you cop a loss?
I will cop a loss at the "point of no return" which is when something unexpected happens that will significantly impact my initial valuation. There is always a chance that things go wrong. For example a new source of renewable energy may be discovered next week which will have a major impact on my oil shares. Should the stock impacted by this new fact fall or already be below 15% then I will cut it. Why? Because I do not believe that something will eventually recover just because time is your friend. But I do believe that the new investments will enable me to cover my loss quicker than holding on to the dog IF I'm still able to invest which depends on the fact that money is available. You have made that point yourself a few times and I'm very much supporting it. If you don't cut your loss then it will turn into a cancer. Growing slowly making everything else in your basket pretty worthless. We know how hard it is to get a constant return over a few years. With a cancerous stock in your portfolio it becomes just plain impossible. Check point 7 for an example.
I do allow for a rather big loss at times as long as my analysis is holding up,which is based on the long time frame I have in mind for my investment. Anyway, I've mainly set it to around 15% because that's what I regard as possible to make up with other investments. If it's set higher then I have a real problem reaching my goal because lots of money would flow into fixing this hole. If it's lower then I would have to dump too many shares just because of temporary pull backs. I will however consider my position in each case. If my smallest investment turns sour I would obviously not be as concerned if the rest is already making more than up for it. Nevertheless. I will cut a stock if I don't feel comfortable holding it.
(6) At what point do you take a profit (Ive seen evidently a 600% profit not taken).If ever.
Interesting point. Yes, I will take a profit but because I have some very specific goals I'm actually tending to hold on to my shares. I do hold some shares in the name of my company which I treat slightly different because I use them to create an additional income. I have however not sold anything in the last 12 months except for a loss on JHX. It is not based on % gain or any other number. I tend to hold stocks during their growth phase if everything goes to plan. This will ultimately mean that I may not always exit at the very top. However, that is not of a concern to me. My concern is to reach my goal in 8 years.
Clearly I have to state that I do hold some stocks which I regards as indefinite holdings.
(7) Other than MUL have you ever been wrong (actually your werent wrong and possibly may not be wrong yet)just in efficient.(in my veiw)
I have been wrong 2 times over the last few years. One was AMP. I have entered it at 4.60 I think and I sold it for 4.85. Anyway, I know I made 25 cents per share out of it which resulted in a spectacular net gain after tax of $1000. The reaon why I sold is because I did not trust my fundamentals. For me AMP was undervalued and attractive to buy based on a few fundamentals. But for the rest of the world AMP was about to die. Papers were full of bad news, brokers were calling foul seeing no end to the disastereous performance. News story after news story was about how people lost their savings and how bad it may still get. So I cut it short and headed for the exit.It shot up to $6 a few days or weeks later because NAB was trying to buy it out. Obviously not the whole world thought it would die...
The second time was with JHX where I got caught by surprise in the asbestos claims. Bad research? Maybe. I have cut my loss on this one based on the fact that when the asbestos story hit, it was already trading below my entry price and averaging down seemed like a foolish idea considering you never know how long these sort of scandals stick around. Not to mention that I considered this a growth stock in mid 2003. I just got it plain wrong.
(8) What over a time would make a stock in your portfolio out of favour and the position closed?
Keep in mind that I have a very specific time frame of 8 years to go. I'm guided by my ultimate goal of financial freedom at 45. I know I would need to elaborate on that but I won't. Basically this is the expectation my investment has to live up to. I have a goal and to reach this I need to perform accordingly. If a stock turns out to be falling behind (even though it still returns a profit) it will fall out of favour. I need to keep up the pace to reach my goal. I have certain criterias on which I chose my investment and over time things may change. More interesting opportunities may come along, enabling me to grow quicker by investing into other areas. This is why I spend considerable time reading about the company I invest in and the environment they are in.
Tech, I know I would need to explain a few details to make it more obvious and understandable but for now I've typed enough. A few spread sheets would obviously help to explain what sort of limits I have in place and what targets I try to reach. But in the end it comes down to a few simple points. It's all a number game and a matter of having a goal and a plan how to get there.
To all newbies:
If you know how to use a spread sheet then I suggest you put your trading idea to the test by using it. I found it especially helpful to do a reality check. You can always have an idea of making 4500% in 5 years but once you see what sort of figures you have to fill in to get there, it will get you thinking.
Have a nice weekend
Stefan
tech/a
No Ordinary Duck
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Stef.
Thanks again.
Just a couple of comments and I really mean them in an effort to help you reach your goal.
(1) Your basically a buy and hold investor.
(2) It appears that you are basing your "Plan" on the nett gain on your portfolio in 8 yrs time (Or whatever period).This means that your beliefs "May" cost you the opportunity of taking what many would see as very sizable profits. (600% or 500 or 400 is an anualised return of 60% over 10 yrs).Bet youd like ING to pay you that sort of interest.!!
PLUS you get the opportunity of investing those funds into another long term prospect.
(3) While I see your methodology (Trading Plan) Admirable truth of the matter is that in 8 yrs time you may have 8 yrs of No return or very little.As your hypothosising what "Should" be your results.You dont know,its a quantified investment decision----not PROVEN.(More on this later.)
Time is not a replenishable resource so really to become financially independant we dont get many chances if adopting (and quite rightly) a long term veiw
Let me give you an unrelated example as you touched on one of my main investment stratagies.
Property.
You said that now isnt the time to invest-------great to hear---- people like me love to take advantage of lower prices and fear of loss while thinking out of the Square(A buy and Hold stratagy in property right now IS a good idea its the TIMING thats wrong!!)
To the example.
I have 2 options.
(1) Buy an Esplanade Property for $600K and subdivide it into 3 small villa blocks and sell at $295K each (a known value for Money Sale price).There is a huge hint on how to make This market pay!!!!
OR.
(2) I personally think that I could build a magnificent 3 Story dream home on the site with in my veiw a potential sale price in 5 years of $2.5 Million. Know one can tell me exactly the cost of building and there has never been a property like this offered for sale.
What do you do.
Stef Your doing (2).
tech
Thanks again.
Just a couple of comments and I really mean them in an effort to help you reach your goal.
(1) Your basically a buy and hold investor.
(2) It appears that you are basing your "Plan" on the nett gain on your portfolio in 8 yrs time (Or whatever period).This means that your beliefs "May" cost you the opportunity of taking what many would see as very sizable profits. (600% or 500 or 400 is an anualised return of 60% over 10 yrs).Bet youd like ING to pay you that sort of interest.!!
PLUS you get the opportunity of investing those funds into another long term prospect.
(3) While I see your methodology (Trading Plan) Admirable truth of the matter is that in 8 yrs time you may have 8 yrs of No return or very little.As your hypothosising what "Should" be your results.You dont know,its a quantified investment decision----not PROVEN.(More on this later.)
Time is not a replenishable resource so really to become financially independant we dont get many chances if adopting (and quite rightly) a long term veiw
Let me give you an unrelated example as you touched on one of my main investment stratagies.
Property.
You said that now isnt the time to invest-------great to hear---- people like me love to take advantage of lower prices and fear of loss while thinking out of the Square(A buy and Hold stratagy in property right now IS a good idea its the TIMING thats wrong!!)
To the example.
I have 2 options.
(1) Buy an Esplanade Property for $600K and subdivide it into 3 small villa blocks and sell at $295K each (a known value for Money Sale price).There is a huge hint on how to make This market pay!!!!
OR.
(2) I personally think that I could build a magnificent 3 Story dream home on the site with in my veiw a potential sale price in 5 years of $2.5 Million. Know one can tell me exactly the cost of building and there has never been a property like this offered for sale.
What do you do.
Stef Your doing (2).
tech
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NO. That would be true if I just went along, sat back with my shares and waited for the 8 years to pass. I thought I made it clear in point 8 that that's not what I'm doing. All my stocks have to perform within tight boundaries. You're again referring to MUL wich is not what you should do as it has nothing to do with it. I feel comfortable that I can reach my goals without MUL. I will eventually sell my MUL shares within a few months (My guess is the first round in about 4-5 months and the second round later in 2005). THEN I will report my performance and we will see what it looks like.
To keep it short this time:
My trading plan for these 8 years is made up of performance levels to which all my shares has to live up to. If they don't then yes, you're right I'm off looking for a better performance. Again I mentioned that in point 8.
What timing? You need to explain this a bit further. If you have a buy and hold strategy, what do you mean by timing?
Your point regarding the investment:
I would never build a mansion like that in the first place
. Whether or not you can subdivide your block of land is a matter of council laws. If you can, then even I would go for option 1. I do however not see where you take the believes from that you will get 295K other than when you already have a guaranteed buyer for it. But then I honestly don't see the relation between my investment and this example.I appreciate your feedback. But please leave MUL out of it. Otherwise we're not talking about the same thing and we will go on forever.
I have set my goals and I set them in a way that makes me feel comfortable. Whether or not I would be able to top it by doing something different is completely out of the picture. There always is another way of doing even more but honestly, I'm not after buckets of money that will create all sorts of other problems. I'm after a way of life that suits me perfectly fine.
I'll be out for most of next week. So don't expect anything back from me too soon.
Have a nice weekend
Stefan
tech/a
No Ordinary Duck
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OK.
I accept you have goals and presume you have quantified them.
However as there is no past history(of your method) its at best a calculated investment risk.
Fine you maybe comfortable with that ---I wouldnt be ---8 yrs is a long time to wait to see if Im right!!
Re timing.
Buying and holding property is a very sound investment plan.
6 yrs ago the timing was perfect 5 yrs before that it wasnt so but compared to now property was cheap.
But 5 yrs is a long time to have capital tied up and its NOT GROWING!!
Buy and hold now and chances are very good that youll have a long wait!
The example I gave is a real example a choice I made myself.
The Property subdivided has knowns---------what Ill get and have got for 1 already.
option 2 was something I have done Build and sell later.But then building was $750/meter but now $1000/meter for average specs.Housing prices rose monthly!!
The cost to build and the projected return were only estimates and best case so because of reasons above 1 was selected.Even though profit was potentially considerably more.
Trading is very similar there is an opportunity cost if your trading an inefficient unknown in performance plan.
Re MUL.
I accept that this is your bottom draw stock and your doing your best with it.
Im not suggesting that everything I write is right and everything else wrong.
Its up to the individual to judge that.
What Iam hopefully doing is getting you and others to THINK about how and what your doing!
If your happy with what your doing then fine.
If you get something that increases your bottom line from my writings even better.
tech
I accept you have goals and presume you have quantified them.
However as there is no past history(of your method) its at best a calculated investment risk.
Fine you maybe comfortable with that ---I wouldnt be ---8 yrs is a long time to wait to see if Im right!!
Re timing.
Buying and holding property is a very sound investment plan.
6 yrs ago the timing was perfect 5 yrs before that it wasnt so but compared to now property was cheap.
But 5 yrs is a long time to have capital tied up and its NOT GROWING!!
Buy and hold now and chances are very good that youll have a long wait!
The example I gave is a real example a choice I made myself.
The Property subdivided has knowns---------what Ill get and have got for 1 already.
option 2 was something I have done Build and sell later.But then building was $750/meter but now $1000/meter for average specs.Housing prices rose monthly!!
The cost to build and the projected return were only estimates and best case so because of reasons above 1 was selected.Even though profit was potentially considerably more.
Trading is very similar there is an opportunity cost if your trading an inefficient unknown in performance plan.
Re MUL.
I accept that this is your bottom draw stock and your doing your best with it.
Im not suggesting that everything I write is right and everything else wrong.
Its up to the individual to judge that.
What Iam hopefully doing is getting you and others to THINK about how and what your doing!
If your happy with what your doing then fine.
If you get something that increases your bottom line from my writings even better.
tech
- Joined
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That's fine Tech. I have nothing to argue against a few questions and hints.
Hm, what makes you think that there is no past history of this method? I don't think this is anything new that I've invented. And I've not just started with it. When I say 8 years then I'm referring to what's left. As I mentioned before, I came to this conclusion a while ago and so far I'm meeting my targets with ease. It's been done before and I must say I have seen plenty of other history that made me switch to this method. I have selected this way to invest my money with very specific goals in mind. It is of course always a risk involved but that's how it is. The world has yet to see a method that works without risks in any case.
I mean even your own method (whatever it is) will have to be based on something. I don't know what makes you so sure that it works in any case or why it may be a "PROVEN" strategy. Maybe we should elaborate on this a bit. When do you call a method proven? When it has performed for a few years? When it has survived all sorts of market conditions? When it continues to return the same performance even if the market is down? How many times does it have to do that?
I'm off for the weekend. Talk to you sometime next week.
Have a nice weekend
Stefan
tech/a
No Ordinary Duck
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""Hm, what makes you think that there is no past history of this method?""
The reasons and the timing and the Stocks chosen have no history of your conditions for investment.
The only time youll know or even have an idea if your trading methodology is correct will be after the effect.
While we can argue till we are blue in the face,Past history can asertain feasability of a trading method over a very long in somecases lookback period and or 1000s of tests.
In your case this cannot be done as the company has never been where it is now and thats why youve included it in your portfolio.
All methods I trade (The whole 2 of them!!) Have a proven track record that can be and is checked against live trading portfolios.I know what to expect and how to react to live action----BullMarkets/Bear Markets/Extreme price movements/months of the year/you name it ill have a stat I can compare with.
If its way out of Whack I know somethings wrong.How can I be so sure my stats are accurate-------well exhaustive testing and Montecarlo analyisis of my method/s tested over 50000 portfolios (all different) over the test period gives me a pretty good idea.(Results available happy to post and will eventually when people come up to speed and understand what Im posting.).
You have nothing specifically to compare with.No point in comparing it with another company as it isnt that company.
Anyway your happy with it!
Not saying your wrong just that I wouldnt be happy doing what you are.
As I could only guess a possible return i couldnt say If I did this with XYZ then over 50000 tests it returned a 100% success rate.
Before you ask yes I can show a 100% success rate over 50000 portfolio tests (all different) with both methods.
But thats what Im happy to trade.
tech
The reasons and the timing and the Stocks chosen have no history of your conditions for investment.
The only time youll know or even have an idea if your trading methodology is correct will be after the effect.
While we can argue till we are blue in the face,Past history can asertain feasability of a trading method over a very long in somecases lookback period and or 1000s of tests.
In your case this cannot be done as the company has never been where it is now and thats why youve included it in your portfolio.
All methods I trade (The whole 2 of them!!) Have a proven track record that can be and is checked against live trading portfolios.I know what to expect and how to react to live action----BullMarkets/Bear Markets/Extreme price movements/months of the year/you name it ill have a stat I can compare with.
If its way out of Whack I know somethings wrong.How can I be so sure my stats are accurate-------well exhaustive testing and Montecarlo analyisis of my method/s tested over 50000 portfolios (all different) over the test period gives me a pretty good idea.(Results available happy to post and will eventually when people come up to speed and understand what Im posting.).
You have nothing specifically to compare with.No point in comparing it with another company as it isnt that company.
Anyway your happy with it!
Not saying your wrong just that I wouldnt be happy doing what you are.
As I could only guess a possible return i couldnt say If I did this with XYZ then over 50000 tests it returned a 100% success rate.
Before you ask yes I can show a 100% success rate over 50000 portfolio tests (all different) with both methods.
But thats what Im happy to trade.
tech
