When To Buy A Stock

[SensibleInvesting]

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.

These are some great questions StockGuy,

Perhaps I should have specified more clearly in the video - if I buy a stock, and the fundamentals clearly don't match the trajectory, and it goes down, I simply buy more. FB kept dipping after my first buy, so I bought a second time - it then bottomed at $10 lower and went back up to ~$200 - $205 before Trump opened his Twitter again. My re-entry for FB is around $150 (if it gets there).

As long as fundmentals point the opposite way of SP, I'm happy to hold, but if they deteriorate then I will cut my losses. In FB's case, the fundamentals weren't just holding but improving, so there was no reason not to hold.

Typically I'll do first buy ~25 - 40% on first drop, and then buy more if it goes down another 25 - 30%, with one more buy if it goes down another 25 - 30% after that.

 

[SensibleInvesting]

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?

Hey Will, if you're pure TA, you won't get any value from this video. Let's use Qudian and WW as an example - I know you said you only do ASX, so you might not have all the data, but let's look at the key points.

QD:
1) They dipped huge when China cracked down on Microlending, except they froze their own P2P license when the new bill was still being decided on, and shifted 100% to institutional funded capital - the market didn't care and sent it down to the bottom
2) They dipped huge when Alipay (their partner) said cap all deals at 24% APR, or we cut ties - so they did - market thought this would effectively half their profits - it didn't, but the stock fell off a cliff nevertheless
3) They dipped huge when Alipay said we won't renew the partnership agreement - despite <3% of their total revenues coming from Alipay referrals. Furthermore, when the relationship was not renewed, QD's sales & marketing expense decreased by 49% YoY without giving Alipay kickbacks and they raised their NPAT guidance, and reaffirmed it throughout the year - the market didn't care and sent the stock down
4) QD were getting 1 - 2 million users per quarter (new users) on their app, and their sales & marketing expense was ~5% of total sales - the market didn't believe them, and sent the stock down
5) They lifted their NPAT from 2.5b RMB to 3.5b RMB - the marketing didn't care

By the time I had found QD, they had gone from ~$24 down to ~$4, I entered at $5.07. One of their major holders (Kunlun) had dumped all their shares on the open market. They tanked >80% in one year.

QD is now ~$9 - they recently bumped their NPAT guidance up from 3.5b RMB to 4.5b RMB - the market now believes them. Check out the volumes and the upwards momentum on Yahoo Finance.

My target price for QD is 10 - 12 PE multiple of it's NPAT converted to USD. After assessing their short 3 month of share price stability before the Alipay "bad news", and their closest competitor and the oldest microlender in China (YRD), it looked like the market was willing to pay a 10 - 12 EPS multiple during times of positivity. QD are currently trading at a forward PE of ~4 based on today's prices.

WW - I haven't finished my research yet, but this is what I know:

1) WW had been bleeding since 2014 when their 50-year old weight loss programs were no longer working - people were detracting from them at a huge rate
2) Their online service was also antiquated
3) In 2015, WW brought on Oprah as a chairperson of the board, with the aim to turn the business around
4) They invested heavily in revamping their digital marketing and digital services experience
5) Subscriber trends turned from negative, to neutral, to positive
6) The business made an all time high in 2018 of $100, before dropping 80% back to ~$20
7) They made an execution error by trying to re-brand as a wellness company, and people became confused - they always thought it was a weight loss program, and believed wellness defeats the purpose if it doesn't emphasize weight loss
8) WW then fired their VP of USA Sales and Marketing, and amended their value proposition - weight loss is still the focus, but wellness comes after
9) They also resumed advertising and marketing efforts they previously put on hold, and recruited other influential celebs like Robbie Williams, DJ Khaled, Kate Hudson, along with having Oprah take a very active role in promoting WW
10) Their quarter one showed subscriber churn trends reversing, with new member recruitment way up - the market didn't care
11) I found WW around this point and entered around $20.71
12) On their Q2 earnings call, the CEO and CFO detailed exactly what they did to turn things around in Q1 and detail where they made sales and marketing blunders. They also detailed their new advertising and member recruitment campaigns - I then used SEMRush to verify the web traffic and mobile traffic data, and it seemed to coincide with how they were investing and recruiting with these new campaigns, so I bought more
13) Q2 earnings were far better than the market had expected, and WW was up >43% in one day. The gains have held so far
14) They lifted their EPS up from $1.5 - $1.55 to $1.55 - $1.70
15) Their next focus is to revamp their studio experience, as digital is now firing on all cylinders
16) If this studio revamp is successful (and based on my research there doesn't seem to be any evidence showing it'll flop), then this could see their EPS go up to where it was back in early 2018
17) During times of optimism, the market (on average) was happy to pay an EPS multiple of 22.5 - 24 for WW
18) If the same holds true this time around (which there isn't any reason why it wouldn't), then I'm expecting a target exit price of ~$48
19) The WW business could also deliver some positive surprises e.g.: they've just revamped their entire WW suite of frozen and ready to eat meals, and have signed new distribution partnerships
20) They've also revamped their services and product offerings, designed to support the revamped digital and studio experience
21) I'll be watching the stock and earnings calls closely, as if they execute on all the side projects as well as the main one, perhaps the SP could even go north of $60

Hope this helps?

 

[StockyGuy]

These are some great questions StockGuy,

Perhaps I should have specified more clearly in the video - if I buy a stock, and the fundamentals clearly don't match the trajectory, and it goes down, I simply buy more. FB kept dipping after my first buy, so I bought a second time - it then bottomed at $10 lower and went back up to ~$200 - $205 before Trump opened his Twitter again. My re-entry for FB is around $150 (if it gets there).

As long as fundmentals point the opposite way of SP, I'm happy to hold, but if they deteriorate then I will cut my losses. In FB's case, the fundamentals weren't just holding but improving, so there was no reason not to hold.

Typically I'll do first buy ~25 - 40% on first drop, and then buy more if it goes down another 25 - 30%, with one more buy if it goes down another 25 - 30% after that.

Adding to a losing position is dangerous. It's not to say the exceptional individual cannot prevail with your type of approach. Giving the same discretionary system to various people will produce varied results over time. Also, remember smart money may know stuff you don't, even with your diligent research. Their closing may trigger a sell off that appears unjustified...at first.

 

[SensibleInvesting]

Adding to a losing a position is dangerous. It's not to say the exceptional individual cannot prevail with your type of approach. Giving the same discretionary system to various people will produce varied results over time. Also, remember smart money may know stuff you don't, even with your diligent research. Their closing may trigger a sell off that appears unjustified...at first.

Not too sure about this one - take my example about QD. Even if you bought it when it was dropping from $6 to $4, you'd still be up 50% based on today's prices, as there was nothing wrong with the company, and they continue to disprove fears and woes - yes perhaps the smart money does know something we don't, but that would constitute as massive insider trading.

This is part of the reason why I like the ASX far less than the US markets - there seems to be so many leaks which regulators turn a blind eye to. I'm yet to come across one on the US markets.

 

[willoneau]

I traded with BBY (futures) before they failed and no one saw that coming , guess cooking the books helps.

 

[SensibleInvesting]

I traded with BBY (futures) before they failed and no one saw that coming , guess cooking the books helps.

Best Buy? They seem to still be up and running

 

[willoneau]

Best Buy? They seem to still be up and running

BBY futures broking firm.

 

[SensibleInvesting]

BBY futures broking firm.

Sorry to hear man... are you using the Beneish M score now? I think that's the one which detects earnings manipulation