When To Buy A Stock

[SensibleInvesting]

What do you guys look for when you buy a stock, and when do you decide to pull the trigger?

My preferred method of investing is "bottom feeding" - I love stocks that have been wrongly sold off by the market, but are solid businesses with solid underlying fundamentals. In this video, I cover two ways to "bottom feed" and go against the herd for maximum returns.

 

[brty]

What do you guys look for when you buy a stock, and when do you decide to pull the trigger?

My preferred method of investing is "bottom feeding" - I love stocks that have been wrongly sold off by the market, but are solid businesses with solid underlying fundamentals. In this video, I cover two ways to "bottom feed" and go against the herd for maximum returns.

When I first read your post and decided to kill a few brain cells by watching your video, the first thoughts I had were more rubbish from someone that can't distinguish between their own genius and a bull market. That is what your 'easy money' section really is, total BS IMNSHO.

However I kept watching and the second half of your video on things to look for from a FA point of view is not bad. It looks at some common things that people pay attention to and some less than common aspects.

BTW one of the easiest ways to make money in the market is exactly the opposite to what you have said. Going with the crowd as a stock or stocks in general is when you can make big money, but you have to jump off before everyone else does.

A couple of years ago I made an obscene amount of money on a penny dreadful that had nothing, was never going to have anything, but was caught in an 'industry' hype movement. This was one of the laggard stocks (because they had nothing but an idea, and I mean nothing!), in the lithium boom in late 2017. I bought millions of shares at a very low price, less than 2 cents, yet had a margin of safety as there were tens of millions in the buy queue just behind me. I basically bought everything at just above these huge buy orders for over a week.
Along came an announcement of them doing something that seemed positive and the share price took off like a scalded cat, basically because it was the laggard of the sector with some sudden promise. Plus every trader that was making heeps of money in that sector (pretty much everything was going up), started to pile in. Hot money, in a hot sector, driven by prior profits, and hype.

The stock went on to be a 20 bagger eventually in about 8 weeks. I sold mine and caused a pull back in the price, just from my selling, after about 8 bags. The stock still exists, they are still doing cap raises and still talk about their great idea, but the share price is well below where I sold and I still think the whole company has nothing worthwhile.

Basically trading with the crowd in that instance was what made lots of money, the direct opposite to what you originally were saying in the video.

The right time or correct time to buy any stock is when it meets whatever criteria you have tested that works during a certain period or phase of the market. There are all sorts of different methods for buying a stock and most of them will work in certain conditions but not in others, which is where just about every 'method' of making money in the market that I've ever read about or studied, seems to fall down.

The market is different and acts differently during different periods or phases. Treating stocks or a system, the same during a different phase of market just doesn't work, and most people that think they have all the answers, because they made money one way for the last few years, have to find out the hard way.

I love stocks that have been wrongly sold off by the market, but are solid businesses with solid underlying fundamentals.

Can you name one of these from Australian stocks, that would be a buy right now, and how exactly would you 'play it'? (position size, stop loss, etc.)

 

[SensibleInvesting]

When I first read your post and decided to kill a few brain cells by watching your video, the first thoughts I had were more rubbish from someone that can't distinguish between their own genius and a bull market. That is what your 'easy money' section really is, total BS IMNSHO.

However I kept watching and the second half of your video on things to look for from a FA point of view is not bad. It looks at some common things that people pay attention to and some less than common aspects.

BTW one of the easiest ways to make money in the market is exactly the opposite to what you have said. Going with the crowd as a stock or stocks in general is when you can make big money, but you have to jump off before everyone else does.

A couple of years ago I made an obscene amount of money on a penny dreadful that had nothing, was never going to have anything, but was caught in an 'industry' hype movement. This was one of the laggard stocks (because they had nothing but an idea, and I mean nothing!), in the lithium boom in late 2017. I bought millions of shares at a very low price, less than 2 cents, yet had a margin of safety as there were tens of millions in the buy queue just behind me. I basically bought everything at just above these huge buy orders for over a week.
Along came an announcement of them doing something that seemed positive and the share price took off like a scalded cat, basically because it was the laggard of the sector with some sudden promise. Plus every trader that was making heeps of money in that sector (pretty much everything was going up), started to pile in. Hot money, in a hot sector, driven by prior profits, and hype.

The stock went on to be a 20 bagger eventually in about 8 weeks. I sold mine and caused a pull back in the price, just from my selling, after about 8 bags. The stock still exists, they are still doing cap raises and still talk about their great idea, but the share price is well below where I sold and I still think the whole company has nothing worthwhile.

Basically trading with the crowd in that instance was what made lots of money, the direct opposite to what you originally were saying in the video.

The right time or correct time to buy any stock is when it meets whatever criteria you have tested that works during a certain period or phase of the market. There are all sorts of different methods for buying a stock and most of them will work in certain conditions but not in others, which is where just about every 'method' of making money in the market that I've ever read about or studied, seems to fall down.

The market is different and acts differently during different periods or phases. Treating stocks or a system, the same during a different phase of market just doesn't work, and most people that think they have all the answers, because they made money one way for the last few years, have to find out the hard way.

Can you name one of these from Australian stocks, that would be a buy right now, and how exactly would you 'play it'? (position size, stop loss, etc.)

Your point about stocks going up just because they're in a bull market is valid e.g.: Tesla - that's something I would never buy. Your comments about not painting every stock with the same brush is also correct. Having said this, I can't think of a single stock which continues to tank whilst the business fundamentals continue to improve - can you?

I can't agree with your comments about the easy money section being BS. Case-in-point, when Buffett bought AMEX - the news was seemingly dire, but people still kept using AMEX - look at where it is today. Furthermore, buying Facebook at ~$125 and Apple at ~$150 was going against the crowd, not with it - not too sure how you got this idea?

A penny stock and a blue chip is completely different - let me flip this in reverse and ask you, why would people stop using Facebook and IG? If they were to stop using it, what would they use instead? Who has the ecosystem and social network to detract their user-base? Same question with Google.

Take AIA:ASX or AIA:NZX for example, that got sold off during the GFC, yet the fundamentals of the business never changed but only got stronger as NZ experienced population growth tailwinds and Asian immigration - this is an example of a solid blue chip that will do well, and I'll be topping up on every unjustified dip.

In terms of an ASX stock which is mispriced, unfortunately I haven't found any in the last couple of months, hence I've been focusing on USA listed Chinese stocks. I'll run a screen in the ASX this week - ASX stocks are very overpriced at the moment - lots of money chasing little gains. Alacer was a pretty good one, but it's up about 300% and is fairly valued at the moment.

 

[willoneau]

So nothing in ASX last couple of months yet bull move since beginning of year? But to cherry pick a stock in hindsight that has increased 300% and say it's fairly valued at moment in a raising market, please.

 

[brty]

Your point about stocks going up just because they're in a bull market is valid e.g.: Tesla - that's something I would never buy. Your comments about not painting every stock with the same brush is also correct. Having said this, I can't think of a single stock which continues to tank whilst the business fundamentals continue to improve - can you?

I can't agree with your comments about the easy money section being BS. Case-in-point, when Buffett bought AMEX - the news was seemingly dire, but people still kept using AMEX - look at where it is today. Furthermore, buying Facebook at ~$125 and Apple at ~$150 was going against the crowd, not with it - not too sure how you got this idea?

A penny stock and a blue chip is completely different - let me flip this in reverse and ask you, why would people stop using Facebook and IG? If they were to stop using it, what would they use instead? Who has the ecosystem and social network to detract their user-base? Same question with Google.

Take AIA:ASX or AIA:NZX for example, that got sold off during the GFC, yet the fundamentals of the business never changed but only got stronger as NZ experienced population growth tailwinds and Asian immigration - this is an example of a solid blue chip that will do well, and I'll be topping up on every unjustified dip.

In terms of an ASX stock which is mispriced, unfortunately I haven't found any in the last couple of months, hence I've been focusing on USA listed Chinese stocks. I'll run a screen in the ASX this week - ASX stocks are very overpriced at the moment - lots of money chasing little gains. Alacer was a pretty good one, but it's up about 300% and is fairly valued at the moment.

A penny stock and a blue chip is completely different

LOL Is that an assumption you make or a self delusion. Ho do you define a 'blue chip stock'?

You do realise that of the Dow30 stocks on 1/1/1900, not one of them exists today. The only Dow30 stock that existed in the 19th century that still exists is GE. As a blue chip, and in the year 2000 it was the bluest of blue chips, but has fallen in price from $55/sh to ~$10/sh. Your easy money would have lost money on it.
You use FB as an example in your video, showing 2 pullbacks, one of 23% the other 43%. When did you buy,or would you have bought?? At what percentage decline would you have bought?? 10%; 15%; 20%?? It obviously couldn't have been above 23% or you never would have bought the first decline. This means that during your second buy, at the same say 20% decline, you were prepared to hold on for a further 23% decline and been happy with making 'easy money'.
You mention that if it drops 50% or more then something is wrong, so if you had bought FB at 20% off the top, would you have used the 50% loss as your stop loss point?? In 2008 just about every 'blue chip' stock lost over 50% of it's value.

Your 'easy money' stocks/trades never mentioned entry points, exit points, nor stop losses, so yes total BS.

 

[SensibleInvesting]

So nothing in ASX last couple of months yet bull move since beginning of year? But to cherry pick a stock in hindsight that has increased 300% and say it's fairly valued at moment in a raising market, please.

I did buy AIA when it was around $8 NZD and am happy with the return. If you compare Alacer's move vs. the broader goldies like NST, EVN, etc. you'll see it outperformed them. For good reason too - it was quite mispriced because the negativity surrounding it didn't justify the 20+ year mine life and steady operations

 

[SensibleInvesting]

LOL Is that an assumption you make or a self delusion. Ho do you define a 'blue chip stock'?

You do realise that of the Dow30 stocks on 1/1/1900, not one of them exists today. The only Dow30 stock that existed in the 19th century that still exists is GE. As a blue chip, and in the year 2000 it was the bluest of blue chips, but has fallen in price from $55/sh to ~$10/sh. Your easy money would have lost money on it.
You use FB as an example in your video, showing 2 pullbacks, one of 23% the other 43%. When did you buy,or would you have bought?? At what percentage decline would you have bought?? 10%; 15%; 20%?? It obviously couldn't have been above 23% or you never would have bought the first decline. This means that during your second buy, at the same say 20% decline, you were prepared to hold on for a further 23% decline and been happy with making 'easy money'.
You mention that if it drops 50% or more then something is wrong, so if you had bought FB at 20% off the top, would you have used the 50% loss as your stop loss point?? In 2008 just about every 'blue chip' stock lost over 50% of it's value.

Your 'easy money' stocks/trades never mentioned entry points, exit points, nor stop losses, so yes total BS.

I mentioned entry points: 25% - 40% drop for the blue chips, and 60 - 70% for the 500m - 3m. My FB first buy was $170, and second buy was $140. My sell was $202. I'm targeting a re-entry first buy price of ~$155 - $160 for FB. Unfortunately I didn't buy Apple because I only had enough money to buy one - Apple would have been a good buy - Tobias Carlisle started tweeting Apple was undervalued around the high $150's. My exposure on any single stock never exceeds 5% of total portfolio, so I'm not sure what the purpose of stop losses would be. Perhaps if you're going big on a stock, options might be better than stop losses.

As mentioned in the video, a blue chip is a solid stock with a proven history and has an ecosystem that will allow it to outperform moving forward, with a solid management team. Facebook is only one example - there are about 50 on my watch-list waiting for dips.

Perhaps I should have clarified GE - that was an example of something wrong e.g.: plenty of accounting problems, excessive amounts of good will, taking on excessive leverage to buy businesses which didn't compliment the core offering - I'm sure if you compare GE's balance sheets vs. the companies mentioned in the video, you'll see the difference.

You're absolutely right about the Dow30 point, but let's look at the situation in reverse. How much profit would you have made before these stocks left the Dow30? Keep in mind FB swung 30 - 40%+ in the space of 6 months. Do you see FB or Appple or Google leaving the index in the next 6 months - 3 years? Are they more likely to get better or get worse in this period of time? Will there be more drama and noise surrounding these stocks in that period?

 

[SensibleInvesting]

So nothing in ASX last couple of months yet bull move since beginning of year? But to cherry pick a stock in hindsight that has increased 300% and say it's fairly valued at moment in a raising market, please.

If it helps, I bought APT when it first dipped from ~$28 at ~$23.20, and bought more when it dipped again from ~$28 at around ~$23.50; I believe the AUSTRAC noise will not materially affect its overall business health - it looks set to sell off for a bit due to the most recent Trump tweet, so will be topping up again if it gets to my buy price. I believe the AUSTRAC issue won't result in anything dire.

If you track its uptake in USA and UK, and couple that with the hyperbolic social media follower growth, and how many stores these people are tagging on IG to use APT, you'll see why I've come to this conclusion - let's revisit this in about 6 - 12 months though - happy to be wrong!

 

[tech/a]

All good
Put a few up going forward to demonstrate your theory/method.
4-6 over the next 6 mths would be great.
Don’t care which Market.

Do you have any exit criteria.
Any stop?

This is a very old methodology.
But it seems to me that not everyone sees the same miss pricing.
In stock that’s suggested as a great value stock.

Hindsite examples are the easiest thing in the world to analyse.
Real-time tends to fall in a screaming heap.

 

[SensibleInvesting]

All good
Put a few up going forward to demonstrate your theory/method.
4-6 over the next 6 mths would be great.
Don’t care which Market.

Do you have any exit criteria.
Any stop?

This is a very old methodology.
But it seems to me that not everyone sees the same miss pricing.
In stock that’s suggested as a great value stock.

Hindsite examples are the easiest thing in the world to analyse.
Real-time tends to fall in a screaming heap.

Sure, the one's I'm currently long on are QD:NYSE and WW:NASDAQ, in the $500m - $3b category. I'm targeting ~$21 for QD and ~$35 - $38 for WW. As per my reply above, I bought APT at ~$23 when it dipped from ~$28 twice - I believe it should reach ~$40 in the next 12 months based on uptake in new markets.

Happy to revisit in 6 months to see how these 3 play out. Exit criteria is what the market is willing to pay during times of optimism, but for a trivial reason they're currently pessimistic, despite the fundamentals and the story not having changed - I'm betting on them reverting back to optimism when they see the business is still in tact and healthy.

FYI - I was buying FB on the dips, hence this is not a hindsight example.

 

[willoneau]

If it helps, I bought APT when it first dipped from ~$28 at ~$23.20, and bought more when it dipped again from ~$28 at around ~$23.50; I believe the AUSTRAC noise will not materially affect its overall business health - it looks set to sell off for a bit due to the most recent Trump tweet, so will be topping up again if it gets to my buy price. I believe the AUSTRAC issue won't result in anything dire.

If you track its uptake in USA and UK, and couple that with the hyperbolic social media follower growth, and how many stores these people are tagging on IG to use APT, you'll see why I've come to this conclusion - let's revisit this in about 6 - 12 months though - happy to be wrong!

So APT should look like another buy for you in next few days maybe if around $23?

 

[SensibleInvesting]

So APT should look like another buy for you in next few days maybe if around $23?

Correct - I've got one more bullet left to fire - it looks like they've been incorrectly sold off on the Trump tweet and etc. - have a look at their IG follower numbers increasing, web-traffic data, relevance vs. peers like Sezzle, Klarna, Facebook follower increase, app store rating increase, and what the followers on IG are saying

 

[SensibleInvesting]

So APT should look like another buy for you in next few days maybe if around $23?

Hey Will, check out WW:NASDAQ - I used the buy criteria in my video to find the stock when it had fallen over 80% - it's up 42% since last night; the market was expecting a disaster from them, and they posted a great Q2 with an even better earnings call - I love it when negative sentiment doesn't correlate with business fundamentals!

 

[willoneau]

View attachment 96668
Hey Will, check out WW:NASDAQ - I used the buy criteria in my video to find the stock when it had fallen over 80% - it's up 42% since last night; the market was expecting a disaster from them, and they posted a great Q2 with an even better earnings call - I love it when negative sentiment doesn't correlate with business fundamentals!

Hi SensibleInvesting,I am only trading AU stocks and don't have stock data for USA.

 

[SensibleInvesting]

Hi SensibleInvesting,I am only trading AU stocks and don't have stock data for USA.

That's a shame - limiting to one market might affect returns in the long run

 

[willoneau]

Capital constraints dictate at moment were I trade.

 

[StockyGuy]

Good presentation, sir. Pleasantly surprised. I think tech/a's question re exit remains a little bit unanswered. I expect you are good at getting it right, but no one has a crystal ball. Eventually a black swan event may occur and a stock you buy may fall continuously. It does happen with stocks - while it doesn't really happen in eg forex as that is mean reverting by nature, a currency basically cannot go to zero of another currency, but a stock can go to zilch (even a blue chip). What happens if you're wrong? Eg, would you close if it halved in value after your purchase? Would you double down and buy more at the further "discounted" price?

If you're skilled and lucky you may never experience a black swan. Or your profits overall over time may be good enough to allow for the rare occasion where a stock price goes down for the count and doesn't get back up again, ever.

 

[willoneau]

Gee StockyGuy now I'm going to have to look at his vid thanx mate ,

 

[willoneau]

I'm sorry after watching the vid, as I am TA based I didn't find any value in it. Telling me a stock dropping 40% is trivial shocked me as I wouldn't be holding it until then. I am watching on with facebook and google to see what happens once governments worldwide make them accountable for their platforms. Also you said why you were buying at bottom sort of but vague, then said you sold at top with not one reason why?

 

[willoneau]

you could always use your FA to pick the stock then the flipper system for entry and exit.