Fundamental help for a Tech. Analyst
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     pse
Member
Username: pse
Post Number: 37
Registered: 10-2007Rating: N/A
Votes: 0
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| | Sunday, November 11, 2007 - 09:09 am: |  
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Good day Fundamentalists.
I have had a slight paradigm shift recently re the prospect of including the "fundamental" perspective into my typically prejudiced tech. anal. approach.
It all began when I took the time to look at the best performing companies in the best performing sectors. And of course I gravitated to the names we are all familiar with - BHP and RIO.
I then calculated, that had I taken advantage of the recent August correction, today BHP and RIO would have generated a very satisfactory return.
It was at this point that a light went on. "Why dont I find a couple of fundamentally strong companies with good prospects for the remainder of 07 and into 08?! I could have them plodding along in the background whilst I continue to indulge my technical interests."
This brings me to my questions for the fundamentalists amongst you.
1) How do I establish the sectors that are expected to continue doing well for the remainder of 07 and through 08?
2) How do I sift through those sectors, targeting only the best - what are the criteria? should I focus only on say the top 50 Aus. stocks?
3) Are years ending in "8" traditionally bullish years?
4) Any stock codes to whom it would be wise to direct my attention would be appreciated - [and dont worry I wont hold it against you if it doesnt go to plan!!]
your insight in this regard will be appreciated.
- Peter.
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mum
Member
Username: mum
Post Number: 184
Registered: 08-2005
Rating: N/A
Votes: 0
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| | Sunday, November 11, 2007 - 11:25 am: |
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Peter , read the "our daily bread " thread. Under the Hilarious Hall of Fame. This is what these guys are on about and they post regularly with their thoughts .
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hilarius
Member
Username: hilarius
Post Number: 3188
Registered: 04-2004
Rating: N/A
Votes: 0
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| | Sunday, November 11, 2007 - 02:13 pm: |
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Peter
The paradigm shift for me came from two events
(1) My wife did better than me. She held BHP and WPL from about $9 and $ 12 respectively while I traded with less success
(2) The following from a book by William O'Neil "Whether you're a new or experienced investor, I would advise against buying any stock that doesn't show earnings per share up at least 18% or 20% in the most recent quarter versus the same quarter last year" [Note: for Australian stocks substitute half year for quarter]
"In our study of the greatest winning companies we found that they all had this in common PRIOR to their big price moves. Many successful investors use 25% or 30% as their minimum earnings parameter. To be even safer, insist that both of the last two quarters show significant earnings gains." [Note: this is automatic in Australia where half yearly reporting applies]
If you refer to the thread "Glad Tidings" in the hilarius hall of fame part of the forum you will see the monthly performance of two portfolios with EPS growth > 20% and EPS growth > 50%
Together with a group of researchers from IC we took this concept a stage further a came up with a database of 60 companies with FORWARD EPS GROWTH using analyst forecasts for 2007, 2008 and 2009
We are now in the process of upgrading the database to take account of 2007 Final Reports and analyst forecasts through to 2010
Forward EPS forecasts are being logged for each year out to 2010
The final step is to look at the current price relative to those forward earnings per share and to see which have the highest FORWARD EARNINGS YIELDS using current prices
An example of how 2 stocks can be compared using FORWARD EARNINGS YIELD % is shown in the chart which follows
As we have developed an intellectual property in the many man weeks which it has taken to create and maintain this database with frequent reviews since December last year we are not quite ready to share the results widely, as we consider that those who contribute to the workload of developing and maintaining the database are entitled to the first look at its possible benefits
Anyone is free to join on that basis. The average monthly workload might vary from a few hours to as many as people like to contribute. So the entry requirement is hardly onerous, though one person has accused us of operating as a secret email group ... even though the terms of entry are quite minimal. We are really no different to the many face to face groups that have been established by IC members other than the fact that we live in different states and so must rely on email contact.
While the setting up was very time consuming the ongoing maintenance is relatively light, so new members will benefit from much hard work by others.
Communication within the group has slowed recently, but may well resume as the new earnings outlook from Annual Reports becomes clearer
With Best Wishes
Hilarius
I come in peace to share my thoughts and to shine my candle light on possible long term opportunities
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hilarius
Member
Username: hilarius
Post Number: 3189
Registered: 04-2004
Rating: N/A
Votes: 0
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| | Sunday, November 11, 2007 - 02:16 pm: |
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PS I might add that I personally favour stocks which not only show strong forward earnings growth but also have excellent Stage 2 Weinstein charts
I find the combination of FA and TA to be superior to either on their own
Hilarius
I come in peace to share my thoughts and to shine my candle light on possible long term opportunities
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pse
Member
Username: pse
Post Number: 38
Registered: 10-2007Rating: N/A
Votes: 0
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| | Sunday, November 11, 2007 - 05:13 pm: |
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hello Hilarius
thank you for your detailed response.
it sounds as though a great deal of work has been channeled into the forward EPS project. You have sparked my imagination and curiosity.
Please excuse my at best rudimentary understanding of the fundamentals. I have deduced from your response that when selecting shares to invest in for a longer term, look for 3 things:
A] 25/30% prior EPS - between last 2 half yearlies
B] a satisfactory "forward EPS" compared to current price
C] a stage 2 Weinstein set-up
could you please clarify for me:
1) stage 2 Weinstein is best characterised by:
a break out from an extended sideways consolidation/resistance and a rising 30-week moving average (MA) with the (rising) price having risen up through the MA and remaining above it.
2) have you tested the reliability and validity of forward EPS? For example, by determining the forward EPS of a group of stocks (say from the past decade) and then compared the projected EPS with the actual outcome. If so, did the results prove forward EPS to be reliable and valid??
Peter
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hilarius
Member
Username: hilarius
Post Number: 3193
Registered: 04-2004
Rating: N/A
Votes: 0
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| | Sunday, November 11, 2007 - 06:09 pm: |
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Hello Peter
Answering your last question first the idea of backtesting over a decade is attractive
While intuitively it would seem right that those stocks which earned most (relative to price) would have provided the best returns it does require proof
For the present we are testing "live" without the benefit of backtesting and you can see the performance of paper portfolios selected in July at this link :-
http://forum.incrediblecharts.com/messages/427230/1147263.html
The results are shown in the chart in Post 3057 on 1st October
The latest month's results are currently being compiled
You have correctly defined early Weinstein Stage 2 and a an upward strengthening curve in any part of Stage 2 is generally encouraging, until it reaches an unsustainable degree of steepness, which can take many years or can happen quickly
Your points A B and C accurately summarise the project, as illustrated in the ABY v SRS chart ... with our cutoff for further research currently being those stocks with EPS growth in excess of 20%
Some of us like to see that minimum growth in every forward year, and I personally like to see it in the nearest two years out ... after which the crystal ball seems to me to get a little fuzzy
I hope that covers your queries but please don't hesitate to ask if you have any more
I regard all queries as constructive
With Best Wishes
Hilarius
I come in peace to share my thoughts and to shine my candle light on possible long term opportunities
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pse
Member
Username: pse
Post Number: 39
Registered: 10-2007Rating: N/A
Votes: 0
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| | Sunday, November 11, 2007 - 06:51 pm: |
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So then,
Am I correct in stating that each participant is using
A] 25/30% prior EPS - between last 2 half yearlies and,
B] a satisfactory "forward EPS" compared to current price,
when making selections for submission to the "experiment",
as well as using other analytical persuasions they favour, in combination with A] and B]?
Furthermore, the chart at post 3057 shows that some have made a loss applying criteria A] plus B] (in combination with their own analytical preferences)??
- Peter
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hilarius
Member
Username: hilarius
Post Number: 3195
Registered: 04-2004
Rating: N/A
Votes: 0
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| | Sunday, November 11, 2007 - 08:48 pm: |
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Peter
The chart researchers were not all members of the EPS research group and so each used their own criteria ... only the >50% and >20% EPS growth portfolios used the forward EPS filter in its pure form ... and without consideration of the relative cheapness or expensiveness of the price
So in effect it was a test of high EPS growth alone versus other methods
Some chart participants were EPS researchers and some were not. The extent to which they used the EPS research is unknown to me.
Some buy on retracements in real life but were not able to apply that technique when selecting their paper portfolio at a given date
I think the key point in the chart is that selecting the top earners in the > 50% forward EPS group and > 20% forward EPS group clearly seems to give an edge in that particular project
When combined with other techniques that edge may be enhanced or diminished
Speaking for myself I need these added factors :-
(1) FA ... dividing EPS by share price to get the earnings yield and ranking the results from highest to lowest EY
(2) TA ... buying after a convergence of Guppy multiple moving averages in a Weinstein Stage 2 uptrend
The effect of incremental addition of these added factors needs to be measured scientifically
Rome wasn't built in a day. It remains a work in progress
With Best Wishes
Hilarius
I come in peace to share my thoughts and to shine my candle light on possible long term opportunities
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