Archive through May 14, 2008

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cat_lady

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Post Number: 448
Registered: 10-2006

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Wednesday, May 14, 2008 - 09:00 am:

Ody
just briefly, and going on your usual habit of cutting the dogs quickly while letting the winners ride, it seems to be me you would have been laughing all the way to the bank.
cat lady

Without my morning coffee I might as well be a dog

eblode

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Post Number: 773
Registered: 11-2002

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Wednesday, May 14, 2008 - 09:30 am:

Ody,
I give you 5 stars as a most interesting experiment, one that so many of us plan to do but never get around to do it. What I find the most important factor is that contrary to so many people who say that if you buy good "star" companies you can forget about them, it's simply not true. If you buy good companies you must be able to watch them and never assume that they will continue to climb north forever, so many investors do just that and suddenly find themselves in trouble. Even excellent stocks must be watched, regardless of their reputation or product.

Eugenio.

ody

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Post Number: 2448
Registered: 10-2006

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Votes: 0


Wednesday, May 14, 2008 - 09:33 am:

CATLADY: 10 STOCKS PORTFOLIO (13 MAY 2007)

That is a very constructive and helpful point to make, cat lady. In a bull market, that is undoubtedly what would have happened: I would have sold the losers very quickly and would have kept the winners.

However, what your comment also leads me to think is that perhaps this is a habit which I should keep up all the way through. That is not what I would have done in practice, because - as you know - I tend to exit when there is the likelihood (or beginning) of a bear market. So by doing that, I during my "absence" don't lose on the bad stocks, but also miss out on the rise in the good ones. The facts would seem to show that if I had just sold the losers quickly, and calmly kept the ones that were performing, that strategy would have paid off handsomely. One thing I shall do is look at the graphs and consider whether I would actually have had the strength to keep the winners. If so, I might have to give thought to revising my habit of leaving the market altogether at certain times. For as you imply the strong ones have actually performed remarkably well.

Which reminds me of another point. I cannot remember the author, but a few years ago I read a book which told one how to make "one's first million". The investor did it in a very different way to my own: he selected what he thought, on a Buffett principle, were good "value" stocks. At the end of the day - to my mind not surprisingly - 9 out of the 10 were, even after years of keeping them (can't remember how long!), in essence non-performers or poor, as the investor was nothing marvellous, and certainly no Warren Buffett. However ONE stock completely outperformed all the others and did deliver his million: Westfield Holdings. So, bizarrely, the method "worked".

Again, one could from this conclude that so long as there is no REAL reason other than a general market decline to sell an INDIVIDUAL stock that is going well, one probably should not do so. FOOD FOR THOUGHT!! It would be a matter, obviously, of being quite selective, and continuing consistently to support strength and punishing weakness.

ody

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Post Number: 2449
Registered: 10-2006

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Votes: 0


Wednesday, May 14, 2008 - 09:43 am:

EUGENIO: SELLING IN TIME (TEN STOCKS)

I completely agree with you on the point of selling and monitoring: it would have made no sense to keep all ten, and very clearly someone selling the duds (which usually show themselves up early enough for one still to rescue one's money) would have done far better than someone who bought on a set-and-forget principle. Obviously, going by some seemingly sound principles like buying fundamentally strong companies (by SD criteria), with large forecast earnings, etc. does not by itself guarantee success - and even if e.g. Credit Corp were to come back in years to come, I don't see any point in hoping for that to happen: to sell it when it was only slightly down would have been preferable.

I find myself "shaken" more by the opposite possibility: the idea that, if one does keep watching, one might be well off keeping the stocks that are going well, even if the market or the economy in general might suggest otherwise: obviously IPL, as the standout example, looks like a stock that one should keep, despite any general unpleasantness, so long as it delivers such a performance as in fact it has done. This is where T/A (along with F/A) should vitally deliver: in helping one to decide which ones to sell and which to keep.

rdumas

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Post Number: 1409
Registered: 11-2006

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Votes: 0


Wednesday, May 14, 2008 - 11:23 am:

Hi Ody,

Having a look at IPL which is by far the best of your stocks. I would suggest that you would have gone out of the stock on at least 3 occasions during the last 12 months in spite of the fact that it has been in a bull channel over that period.

One of the problems with using a semi logarithmic chart is that the absolute value of any retracements (or upward moves for that matter) is not obvious.

On the 2nd July 2007 IPL had a high of $80.518. On the 16th August 2007 it went down to $60.222, a drop of 25.2%.

On the 4th January 2008 IPL had a high of $127.24. On the 22nd January 2008 IPL had a low of $98.22, a drop of 22.8%.

On the 6th March 2008 IPL had a high of $174.01. On the 11th March it dropped down to $120.11, a drop of 31.0%.

As you are aware I bought into IPL recently as part of my strategy of averaging into the market over the next 3 ~ 6 months. As you and I have a some what similar trading strategy I would suggest that we have two options.

The first option is to continue to have a medium term trading strategy and move out of the stock if it has a correction that we feel will be significant and then move back into it when a bottom is clearly indicated.

The second option is to stay in the stock long term and remain in it as long as it stays within the bull market channel. One of the problems we face however is that based on current prices it would require a drop of around 24% before it would break through the bottom of the channel. As time goes on however this required drop would diminish in size. I suspect that any drop would probably be due to a significant problem in the overall market or a specific fundamental problem with the stock itself. Based on its fundamentals at this stage it does appear that it should be able to accomplish this feat.

My strategy with this stock will be the second option. At this stage I have committed 50% of my allocation for this stock and will add to it during any market or price weakness as part of my averaging strategy.

In the event of a problem in the overall market I will stay in the stock but a significant and seemingly permanent change it its fundamentals would cause me to exit the stock.

rdumas

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Post Number: 1410
Registered: 11-2006

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Votes: 0


Wednesday, May 14, 2008 - 11:49 am:

The US and Australian Markets Show Weakness

Looking at both the charts of the ASX200 and the S&P500 I can see that they are both showing signs of weakness.

At the time of writing this post both markets are in a short term bull channel but both are in the bottom half of their bull channels and losing puff. I suspect that tonight's CPI result in the US will probably be worse than they expect providing of course that they discontinue their practice of averaging their figures downwards to get a more optimistic result.

Should the market go down it will give those in the market who are wanting to average into the market the opportunity to do so at better prices. Having said that, watch the market make a liar out of me tomorrow and shoot up 300 points!!!

ody

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Post Number: 2450
Registered: 10-2006

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Votes: 0


Wednesday, May 14, 2008 - 12:26 pm:

RUDY: MOVING IN AND OUT (WITH INDIVIDUAL STOCKS)

That is an extremely interesting post, about IPL (and similar cases). You are right: I would not normally stay in a stock if it is in the process of falling significantly: so in practice I would - given the time to do it - have sold out in all three instances, and probably at around the time that the stock was down something like 7% (at most). That would have been particularly so if the market in general looked poorly, or - definitely - if there was a fundamental change in or affecting the company.

I have no trouble dealing with the latter, and having sold in such instances (those of fundamental trouble). I do think, however, that I must learn to opt for your second strategy when stocks fall on sentiment. As IPL is such a strong stock, I would undoubtedly have bought back in after exiting, and that is actually not that smart, as you might, with a stock of this nature, get some of your timing wrong. In other words, I think I must learn to accept a strong stock's volatility more. I HAVE actually accepted falls of about 20% or so in the case of stocks I thought I knew well enough to feel confident about their returning to their former level, e.g. several times in the case of banks, BHP, QBE, WOW, or stocks of that nature.

IPL would be a good example - notably because it is so "gung ho" anyway! - of a stock I would NOT have had the guts to stay with. But obviously, what you say about your second option makes excellent sense, and I shall definitely pursue that.

Thanks for yet another most useful post. You deserve TWO slaps on the back this time, if not more - for I had never seen these matters quite as sharply before. As you are aware, I am hoping to concentrate very strongly on stocks that are absolutely first class and least need selling: the more confident I feel fundamentally, the more I shall also be able to practise the required T/A discipline. It has not been a HUGE handicap to sell stocks too early and then to go back in again, but I do think I should be able to do quite a bit better again if I do what you suggest. So this message will not fall on deaf ears.

dug

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Post Number: 3144
Registered: 07-2005

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Wednesday, May 14, 2008 - 12:27 pm:

Rudy,
When you're going thru the Fundamentals as laid out by d'Doctor do you go into some of the Mechanics IPL as well?
I mean it's Industry Fertilizer is being well covered as a Scenario.There's a Mike Moore Fear Campaign going on about We're going to run out of Food! Bleeding Ethanol in the First World is a Disaster Maker.etc etc.

As for trying to pick timing for Retraces of 20%+,you should identify exactly where the IPL field is outside Mt Isa and watch the Weather Reports as well as Railway Industrial Action.Don't wait for the Company to tell you about any Flood.You see it's Raining up North and get twitchy.Remember BOL!!

So I'll be real interested to read of your FA method but you have to realise IPL is floating Blue Sky on Fertilizer Sentiment to a large degree.Really if you're going Medium Term 6monthish you should keep close watch on this Sentiment Factor Fundamentally.
Also I'd look at the chances of IPL doing a Share Split to put these into the Budget of the lil ozzie battler working families DYO Superers.$20,000 don't buy one too many at the current price let alone a 5grand dabble.
The cfd'ers,rudy are very useful in Blue Chips for Liquidity but scare or take profits much sooner usually than a Own Money In pilgrim.Wonder if you can find out How Many/What Volume is CFD generated in IPL?

regards.

Even 'til Jaded.

Dig for the sake of it.

ody

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Post Number: 2451
Registered: 10-2006

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Votes: 0


Wednesday, May 14, 2008 - 12:33 pm:

RUDY: PRICE WEAKNESS AND BUYING

You say, very understandably, that you'd buy more IPL on price weakness. At what point, though, would you regard the weakness sufficient to buy you second portion? Do you think it may be a feature of the stock periodically to go down by some 20% and would you wait for that, or would you act if the fall was, say, 10%? This is assuming (a) that the stock has no fundamental bad news attached to it, and (b) that the fall in the market - and its prospects - are not SO appalling that one would rather not be in the market anyway.

ody

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Post Number: 2452
Registered: 10-2006

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Votes: 0


Wednesday, May 14, 2008 - 12:47 pm:

DUG: WATCHING FUNDAMENTALS FOR IPL OR ANY STOCK

Rudy will answer for himself, I am sure, but, Dug, like you I too interpret the word "fundamental" very broadly. Indeed, one of the differences between the market now and say 20-25 years ago is that at that time there was so much less daily T/A info available (and quick reporting and analysis), that one really felt one did have to form an idea of the company's soundness not only on the basis of such figures as one can find in Stock Doctor, Huntley's, Shareanalysis, etc, but by getting to know as much as possible what the company was actually doing, and whether it was operating in an environment where it would be profitable to be active.

Apart from that, I find answering such questions very satisfying and interesting anyway, and I observe in the case of the ten stocks that I bought in May 2007 that some of my worst choices were also companies that I had no real interest in/affinity with. I don't imply that when they ARE congenial I necessarily do OK, but I seem to do better with those that my heart is in than those I feel don't inspire me.

In my own case, I certainly feel that the fact that I am interested both in the economy (economies, globally), and in just what companies do, is a real advantage to me, and it helps me to stay with more confidence in companies that I feel empathy with, while I chicken out more quickly if I don't, even if Stock Doctor tells me they are in radiant health! Conversely, with e.g. Noni-B - a company I loved for long - I realised very early on that it was in trouble, precisely because it interested me so much.

I add, of course, that one must nevertheless know the figures, and not buy just on "feel".

ody

Member

Post Number: 2453
Registered: 10-2006

Rating: N/A
Votes: 0


Wednesday, May 14, 2008 - 12:56 pm:

FOOTNOTE: DUG

Having agreed with your general drift, I should also say, though, that to me the most important things are that the price of - and demand for - fertiliser is continuing to go up and that IPL is very well placed to take advantage of that, with huge earnings predicted. The world IS finding it harder to produce enough, and what IPL sells is absolutely fundamental in helping the process along. I am sure that prices for rice etc. will vary like those for "hard" commodities, but soft commodities will continue to be affected by big demand and poor supply, and any attempt to meet demand (which will certainly be attempted) must, obviously, aim for good growing conditions, aided by companies like IPL. Yes, there is a lot of blue sky sentiment, but there also IS blue sky, economically, in this area!

rdumas

Member

Post Number: 1411
Registered: 11-2006

Rating: N/A
Votes: 0


Wednesday, May 14, 2008 - 12:58 pm:

Ody, Dug,

Ody, I would not wait for a fall of 20% in IPL before going back in as I believe that those previous falls were very much market condition inspired. We are around 10% from the bottom achieved by the ASX200 back in late March 2008. Therefore I would be happy to buy into IPL with anything around the 5% retracement mark. This morning we were around 4.5% down from the recent high. The only reason why I didn't add to my position is because I really anticipate a market pull back in the next next couple of days.

Dug,

I look at both short and longer term fundamentals for the stock. For example with IPL the average share holder returns for 3 years and 1 year were 133.65% and 184.44% respectively and this during a correction period !!! The PEG based on yesterdays price was 0.11 and the forecast earnings for September 2008 and 2009 translate into PEGs of 0.08 and 0.79 respectively. The ROA was 25.58% and trending up and the ROE was 81.23% and trending up. All these ratios tell me that this is a very sound stock with extremely good fundamentals.

I posted the 1 year chart in my last post but here is a longer term chart

You can see that the stock has been in a Weinstein stage 2 phase for over two years indicating to me that this is not a flash in the pan growth but based on longer term parameters.

(Message edited by rdumas on May 14, 2008)

mrlunch

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Post Number: 313
Registered: 09-2006

Rating: N/A
Votes: 0


Wednesday, May 14, 2008 - 01:27 pm:

BHP and RIO

Obviously something has lit a rocket under BHP today (Chinese whispers?).

Interestingly though it looked to me to be weakening in the short term with declining volume and some mild bearish divergences in momentum... so the immediate action is likely to be interesting at least.

However with BHP at $48.50 and RIO at $151.00... the ratio is 3.11. So is RIO looking like a "cheap" play now? At 3.4x BHP it is about $165 or 9% higher.

$151 Rio price is about $44.40 x 3.4 (i.e. BHP could fall 9% or so to $44.40 and RIO be price according to the offer on the table).

Personally I'm a bit weary of going short or long BHP because it seems short term vulnerable from a TA perspective except that it has just made an all time high... so a bit of conflict there. So if I were to do anything long RIO makes the most sense to me...