Which one do you use? Technical or fundamental analysis [Archive]

mit

16th-June-2006, 09:05 AM

I use technical trading almost exclusively. After being involved in 3 major company acquisitions and having all of their books open in front of me I can tell you that even the most honest companies can have no idea of their value. In one company we found errors which revalued the company 25% down.

What chance do we have with the limited information we get from companies. I'm certain that if the market goes down a lot, then I'll become a value investor because to me value should hit you in the eye and not require complex valuation equations. An example was in early 2003 when banks dividends reached 10% (when franking credits were taken into account).

When I was running my first mechanical system, you sometimes get more signals than you can afford. I used to look at PE, PEG and brokers recommendations to pick. I found that I did worse than random selection of the choices. I've since seen a document that shows that picking a portfolio based on High PE values can out perform the market (I wish I kept the link).

With technical trading and in particular mechanical trading you have a very good idea of your total drawdown. The percentage return of a system does not have to be particularly crash hot because if the drawdown is small you can leverage up to the hilt.

I use a margin loan and my LVR ranges between 65%-70% just below the buffer. I have never had a margin call as I am usually stopped out of a stock before hand. My highest actual drawdown (Based on no leverage) is 4%. The highest theoretical system drawdown is 6.5%

I would assume that a person that buys and sells on fundamentals alone can not leverage as much as individual stocks can go down 50% or more but still maintain the same fundamentals. I have a friend (Masters in Finance) who has held IIN since $3 and still thinks it is fundamentally a good stock and even more so at 60 cents.

Anyway my 2cents

MIT

It's Snake Pliskin

16th-June-2006, 01:42 PM

You can't value a company from a chart, therefore a chart gives no indication if a company is undervalued. So true Fundamentalists can't use charts.

Value is a figment of the imagination.

True fundamentalists should use a chart to draw squiggly lines on when bored.

Realist

16th-June-2006, 01:46 PM

Julia

16th-June-2006, 02:39 PM

At the risk of over-simplifying the question, on the basis that we are in the market to make money, a company's "valuation" is pretty meaningless if the market doesn't regard it as good value at the time for whatever reason.
Does it really make sense to hold on to a company which you have decided is just terrific value if no one else thinks so and hence the SP doesn't rise?

Julia

Realist

16th-June-2006, 02:58 PM

Does it really make sense to hold on to a company which you have decided is just terrific value if no one else thinks so and hence the SP doesn't rise

The second richest man in the world thinks so.

Infact it is impossible to buy an undervalued company any other way.

How could you buy an undervalued company if people like it and its stock price is going up?

A popular undervalued company is an oxymoron. There is no such thing.

It's Snake Pliskin

16th-June-2006, 03:39 PM

A popular undervalued company is an oxymoron. There is no such thing.

How true!

Happy

16th-June-2006, 07:17 PM

But, you don’t have to be contrarian, with some preparation you can hop on a bandwagon after they are off.

Guppy’s idea not mine, but it makes sense.

Julia

16th-June-2006, 10:16 PM

bunyip

17th-June-2006, 12:31 AM

The second richest man in the world thinks so.

Infact it is impossible to buy an undervalued company any other way.

How could you buy an undervalued company if people like it and its stock price is going up?

A popular undervalued company is an oxymoron. There is no such thing.

No, the second richest man in the world definitely does not think so. Buffet doesn't simply buy stocks that are fair value or undervalued, then sit on them forever and a day in the hope their share price will come good.
What he's done for decades is buy companies that have great prospects but are currently struggling for whatever reason....usually because of poor management.
Having aquired the entire company, or at least the majority share, he then uses his expertise as a business man to pull the compnay into shape, make it lean mean and efficent so that it starts realising its potential.

This strategy is very different to that of an investor who buys a non performing stock because his assessment is that it's cheap or is fairly valued, then he sits on it sometimes for years, hoping that one day it will start rising.
This is the 'BHP' strategy....BUY, HOLD, PRAY.....and it's one of the main reasons that so many stockmarket players barely keep their heads above water.

A far better strategy is to only buy stocks that are already performing strongly, and to hang on to them only as long as they keep performing well.
To implement this strategy you don't need to concern yourself with fair valuation or any other form of fundamental assessment.

Nick Darvas started with a $3000 stock investment in 1952 and by 1959 had made more than 2 million dollars from the stockmarket. In todays values his 2 mill would be worth somewhere around 50 to 60 million.
For the first couple of years Darvas got nothing but frustration from his efforts to make moneyfrom stocks.
He bought stocks on tips from taxi drivers, waiters, and just about anybody else who told him that such and such was a great buy. He lost money.
He employed the industry 'experts' (brokers) to tell him what to buy. He lost money.
He did his own comprehensive fundamental research with the aim of assessing the value of stocks, and he bought those he considered undervalued. He lost money.
He was just about at his wits end, thinking that he'd never crack the stockmarket game, when one day in the quote pages he came across a stock called Texas Gulf Producing. He knew nothing about this stock...he simply noticed that its price was rising strongly.
Darvas thought to himself "What the hell...everything else I've tried has failed - this one might be worth a punt, at least it's going up.
He bought the stock, and his subsequent profits were enough to recoup more than half his losses of the last couple of years.
This was the turning point in the stockmarket career of Nick Darvas. His success with this stock made him question the value of examining company reports, studying the industrial outlook, the PE ratio, the Net Tangible Assets, whether or not the stock was fairly valued. He came to the conclusion that fundamental research was a waste of time.....the most important thing in selecting stocks was to buy only those that were already rising strongly.
Darvas put his new found discovery into practice from then on....rather than attempting to assess the fundamentals of a stock, he invested purely on the basis that a stock was strongly uptrending.
The rest is history.

Bunyip

nizar

17th-June-2006, 01:42 AM

tech/a

17th-June-2006, 06:46 AM

bunyip.

Buffets business ability to re build a failing company into a power house is way understated.If he had simply bought at "Undervaluation" and done nothing the result would have been similar---Nothing.
Another big difference is he didnt just buy shares---he bought the company.
With that sort of investment you can and he did make a difference.

Nizar.
Darvas is a great read.
Although a techie myself there are just as many horror stories.
Jack Schwagger reputedly lost badly when he attempted to trade futures---his favorite topic.
Turtle Traders Blew up.
Depending on who you wish to believe Gann died either a porper or rich---no one seems to be able to find his riches.

I agree that its better to buy a rising stock.
But I also believe that being out of the market at times (Completely) is a strong position to have and may well be one of a traders most profitable.

happytrader

17th-June-2006, 07:20 AM

I just thought I would add to this discussion afew overlooked facts.

'Charts don't lie, people do'
'The body never lies, the mouth does'

Cheers
Happytrader

Realist

17th-June-2006, 09:15 AM

First of all I am glad no-one agrees with me.

If most people invested my way I'd have to change. ;)

Secondly trying to convert someones method of trading /investing is like trying to convert someones religion - why bother, it's probably in your interest that they don't invest like you anyway.

True Story...

I saw a pair of jeans in David Jones a couple of years ago, man did I love them. I tried them on, they were perfect - even if I gain a bit of weight they fit perfectly, made in Italy, real good quality tough denim, they'd last forever. But they were very expensive. Far too expensive for my liking. But you get what you pay for and they'd last forever. They were $360! I reckon I'd wear them over 1000 times that's only 30 cents a wear - excellent value maybe?

I did not buy them, but seriously I'd wander in that DJ's in Chatswood at least once a month looking at them and wondering. They were too expensive though. About 10 months later I wandered in and they were on sale, marked down by about 40%. I bought them without even trying them on - I'd done my research already.

I still have those jeans - and they fit perfectly and I wear them at least 2 or 3 times a week. I still love them. Last time I saw in DJ's they were $360.

I got them at a discount by being very patient. Was that a good buy or not?

I'm waiting to buy shares in Woolworths the same way. An excellent company that I'd love to own a piece of.

Let me know when they are on sale - I want some!! It may be years away but it will happen.

bunyip

17th-June-2006, 09:42 AM

Thats right Tech.....Buffet is without equal in his ability to turn underperforming companines around and convert them into financial powerhouses. That's why his appraoch is nothing even remotely similar to the approach of someone who employs the BHP (Buy Hope Pray) strategy. Buffet takes aggressive action once he buys a company, whereas the BHP brigade sit back and do nothing. The BHP strategy isn't really a strategy at all, it's merely an example of an investor being paralysed by indecision, a bit like the deer caught in the headlights of a car and being frozen to the spot, unable to make the decision to get out of the way.

Agreed about Darvas's book, it's well worth reading. But he was better at dancing and trading than he was at writing. For anyone wanting to learn more about the Darvas trading method, I suggest reading Frank Watkins book "Exploding The Myths". He devotes an entire chapter to Darvas methodology and he explains it very well, better in fact than Darvas himself explained it.

Regarding the discussion about technical analysis vs fundamental analysis, it's worth relating something that Frank Watkins said during his presentation to an ATAA meeting recently.
Frank started his presentation by asking a confronting question....."How many of you have made a return of 35% or greater from the stockmarket over the last year or so"?
Only two hands went up among the audience of more than thirty people.

His next question was "Well, why haven't you? 35% has been the rise of the All Ords over the last year or so. You could have easily outperformed the All Ords if you'd only bought stocks that were outperforming the All Ords, and you'd hung on to them only as long as they continued outperforming. And every time one of your stocks stopped outperforming, if you'd dumped it and replaced it with another outperformer. No fundamental analysis, no assessment of fair value, none of that other time consuming stuff that so many stockmarket players waste their time on.....just buy strongly uptrending stocks that are well and truly outperforming the market average ."

There is just so much wisdom in Frank's advice, yet so few investors follow it.
Perhaps the reason they don't follow it is that they tell themselves "Everyone would be doing it if it was that easy".
Perhaps the reason most investors shun this approach is that it seem just too simple, not complex enough to be any good.

I'm not sure what the reason is.....all I know is that it never ceases to amaze me that so many investors use complex analysis to achieve mediocre results, when they could be using simple analysis to achieve spectacular results.

Simple analysis can be simplified even further if you use decent trading software that enables you to overlay one chart on top of another. Decent software can also analyse hundreds of stocks in just a couple of minutes and tell you the percentage gain or loss of each stock over whatever time period you nominate.
Decent software will also allow you to scan for stocks that have a high ADX or ROAR rating. Both ADX and ROAR are trend strength indicators.
Such software enables a technical analyst to quickly and easily find the best performing stocks in the market.
While the poor old fundamental analyst is spending hours poring over company reports and doing his time consuming fundamental analysis in the hope of finding some stock worth investing in, the technical analyst sets his software scans in motion, and within a couple of minutes is presented with a list of stocks that are performing well RIGHT NOW. Not stocks that might (or might not) perform at some time in the future, he finds stocks that ARE PERFORMING WELL RIGHT NOW.

Take any strongly performing stock of the last year or two...lets use WPL as an example. If you had good scanning software it would have alerted you to WPL shortly after it started performing strongly. You coud have then overlayed the All Ords chart on the WPL chart to confirm that WPL was indeed heading north at a steeper angle than the All Ords.
You could have overlayed the WPL chart on a chart of its sector to see how it was performing relative to its sector.
Your software would have given you a report on WPL's gain over your nominated time period, so that you could compare its performance with other stocks.
The possibilites are endless when you have good software. It makes stock selection easy and efficient, and sure beats the hell out of time consuming fundamental analysis that doesn't produce anywhere near as good results.

The debate about fundamental analysis vs technical analysis is a no brainer as far as I'm concerned. If you want to consistently outperform the market then technical analysis is the way to go. But it has to be simple technical analysis, based primarily on price performance. Forget all these complex indicators that only give you a headache.

The cardinal rules are...
*Only buy rising stocks, or short falling stocks.
*Set a performance benchmark, and dump any stock that falls below that benchmark.
*Control losses but let your profits run as long as the stock keeps performing well.

Bunyip

Realist

17th-June-2006, 09:45 AM

unless you have 50 years to wait and billions of dollars to spend, can u afford to sit on a stock YOU THINK is undervalued waiting for the market to realise its value ??

I've got 30 years to wait and thousands of dollars to spend - that's enough for me to wait.

What he's (Buffett) done for decades is buy companies that have great prospects but are currently struggling for whatever reason

Exactly, he buys them when they are on sale. And holds onto them forever.

A far better strategy is to only buy stocks that are already performing strongly, and to hang on to them only as long as they keep performing well.

So trading is better than investing? :rolleyes:

Tax, brokerage, effort, time, slippage and stress are 6 reasons why I don't trade.

Buffet has clearly stated that "The Intelligent Investor" is the best investment book ever written. He said he is 85% Graham (Intelligent Investor) and 15% Fishcer.

He learnt from Fishcer not to be afraid to pay a fair value or slightly too much for something that is truly excellent. Graham only buys at discount.

Here's Buffet's quote from page 548 of the Intelligent investor..

"Adding many converts to the value approach will perforce narrow the spreads between price and value"

Like I said I'm glad you don't do it.

"I can only tell you that the secret has been out for 50 years, ever since Ben Graham and Dave Dodd wrote Security Analysis, yet I have seen no trend towards value investing in the 35 years that I have practiced it. There seems some perverse human characteristic that likes to make easy things difficult"

To me it is like Womens magazines having different weight loss secrets and diets every week.

To me it is absurd that they don't just write "Eat and drink healthy, eat less, and exercise alot" and then the subject is closed.

They could then say "eat fruit and vegetables, drink water, and run/walk alot, play a sport if you can" if they really wanted to go into detail.

I mean there is no other secret to weightloss for christ sakes - people just make it hard for themselves.

People like to make easy things difficult. People will not accept that weightloss is that easy, and they will not accept investing is as easy as buying shares in a great company and mostly forgetting about them. If they want to make more pay less initially, wait for a sale.

I have no doubt that anyone who just bought some Woolworths, Fosters, Westfield and BHP shares today and reinvested the dividends and forgot about them for 30 years would end up richer than most, if not all of you on this board.

Your tax is nothing, brokerage nothing, stress nothing, effort and time involved nothing, Price slippage on trades nothing. You don't actually have to do anything. But I have no doubt that none on you will do this. ;)

(speel over, apologies to all concerned ;) )

Realist

17th-June-2006, 09:50 AM

Bunyip,

How much tax going to have to pay this year for capital gains this financial year?
(just a percentage of total capital - I don't want to get too personal)

Say you have $100,000 invested and your tax will be $7000 - just say 7%.

Tax worries me.. :o

Realist

17th-June-2006, 09:54 AM

But, you don’t have to be contrarian, with some preparation you can hop on a bandwagon after they are off.

Guppy’s idea not mine, but it makes sense.

You can indeed, but when do you sell?

MichaelD

17th-June-2006, 09:56 AM

You could have easily outperformed the All Ords if you'd only bought stocks that were outperforming the All Ords, and you'd hung on to them only as long as they continued outperforming. And every time one of your stocks stopped outperforming, if you'd dumped it and replaced it with another outperformer. No fundamental analysis, no assessment of fair value, none of that other time consuming stuff that so many stockmarket players waste their time on.....just buy strongly uptrending stocks that are well and truly outperforming the market average ."

There is just so much wisdom in Frank's advice, yet so few investors follow it.
Perhaps the reason they don't follow it is that they tell themselves "Everyone would be doing it if it was that easy".
I hate to be a naysayer, but this methodology, despite its allure and seeming simplicity, is demonstrably untrue by (my own extensive) backtesting. Picking the outperformers for a given recent period is less profitable than random selection, and the more the stock outperforms the index, the less profitable the methodology becomes.

bunyip

17th-June-2006, 10:08 AM

Realist

Nice buy on the jeans. One of the differences between a pair of jeans and a stock is that no matter what happens to the price of jeans after you buy them, it's not going to affect you one way or another.
Different story with stocks. A bad decision such as buying at the wrong time could end up being very costly indeed.
Many investors who buy a stock because it's 'on sale' are dismayed to find that it's even more 'on sale' a few months later when it's dropped another 30 or 40%
A better approach is to buy a stock you like after it's bottomed out and has recently begun a new uptrend. That way you're still buying it at a cheap price, perhaps cheaper in fact than if you'd bought it while it was falling. Furthermore, there's every chance your investment will start performing well for you almost immediately, rather then you having to possibly wait ages for it to turn around and start performing well, if you'd bought it while it was falling.

Indicentally my friend....I'm not trying to convert you to my way of thinking, I'm just expressing my views because that's what this forum is all about....interchange of ideas.
Whether or not you do things my way is of no interest to me. I just like helping people, and I've had many investors come to me over the years and tell me that they turned their trading results around after implementing my approach. I always find this very rewarding, which is why I continue trying to help people.
Who knows, even you might one day tell me that you've boosted your returns by incorporating some of my ideas into your own trading.
But if you don't want to go down that road...not a problem. As you said yourself, it's a good thing that we don't all attempt to do things the same way.

Bunyip

BSD

17th-June-2006, 10:12 AM

bunyip

17th-June-2006, 10:22 AM

I hate to be a naysayer, but this methodology, despite its allure and seeming simplicity, is demonstrably untrue by (my own extensive) backtesting. Picking the outperformers for a given recent period is less profitable than random selection, and the more the stock outperforms the index, the less profitable the methodology becomes.

With all due respect Michael, what you're saying is wrong.
I'm not interested in the results of backtesting. I've traded this strategy with real money for years, so have my students, and we've consistently outperformed the market. And not just by a little bit either, I mean we've well and truly outperformed it.

Forget about backtesting, put some real money on the line and see how you go. It is simply not possible to underperfom the market if you buy only stocks that are outperforming the market, and sticking with them only as long as they continue outperforming the market.
Random selection over the long term will not outperform the market average, over the long term your stocks, when their performance is averaged, will only be of similar performance to the market average.

Bunyip

Julia

17th-June-2006, 10:25 AM

Ho Ho, I hope nobody paid for that 'advice'.

I will put my 2 cents into this discussion later, but Icouldnt help but laugh reading this.

BSD

Holding my breath here, waiting for the 2 cents worth!
Why the delay??

Julia

cuttlefish

17th-June-2006, 10:40 AM

There is a compilation of Buffets letters to shareholders in the Berkshire Hathaway annual reports over the years:

http://beginnersinvest.about.com/cs/warrenbuffett/a/aawarrenletters.htm

I read them all in detail about 6 years ago, and my memory is that buying and turning around underperforming companies is not part of his strategy. Buying and holding undervalued but good companies, with good management, and retaining that management to manage the business as they always have, seems to be more aligned with his strategy. A quick skim through a few of the letters just now seems to confirm that opinion.

I'd be curious to hear examples the opposite scenario of where he's gone the opposite way and bought companies then turned them around. (apart from his original textile company purchase).

Realist

17th-June-2006, 10:49 AM

Buying and holding undervalued but good companies, with good management, and retaining that management to manage the business as they always have, seems to be more aligned with his strategy.

YEP.

You are correct.

Realist

17th-June-2006, 10:52 AM

You could have easily outperformed the All Ords if you'd only bought stocks that were outperforming the All Ords, and you'd hung on to them only as long as they continued outperforming.

I might try this at the horse track.

Bet on the horse that is winning the race and change my bet if another horse takes the lead.

I'd never lose!! :D

tech/a

17th-June-2006, 11:12 AM

Ho Ho, I hope nobody paid for that 'advice'.

I will put my 2 cents into this discussion later, but Icouldnt help but laugh reading this.

Well its easy to judge and have a laugh when you havent experienced EXACTLY wht the guys talking about.

I HAVE---I DO

http://lightning.he.net/cgi-bin/suid/~reefcap/ultimatebb.cgi?ubb=get_topic;f=74;t=000029

Ive been trading like this for 4 yrs. The results are public and have been all that time.

12 mths ago the portfolio was $220,000 today and during this corrective phase the portfolio balance is $305,000 which is 38% growth on portfolio.
AllOrds 20/6/05---4262 All Ords 16/6/06---4932 Growth----15.72%

http://tools.afr.com/apps/mkt/indexHistory.ac?idx=XAO&sy=afr

If you wish to check.
So thats a 142% out performance.

Pretty funny.

I have a Laugh myself

And its at all the thorists who have nothing more to offer than hypothesis and "this is how it should be" with no evidence to their theoretical trading practices.

There is a lot of hot air on forums and very little practical hard core case studies to verify theory.
Duc's doing his best to show his Fundamental approach which is full of IF's Could be's and maybe's,the results at this point show a nett loss.

Very few have the guts to do what Duc and I are doing---simply failure in the public forum environment isnt palatable.
I say if your so sure then RUN IT and SHOW all how smart you really are!!
You may well learn something in the process.

Bet on the horse that is winning the race and change my bet if another horse takes the lead.

Funny as hell on a racecourse,yet you CAN do exactly that on the stock market
But people laugh like hell and never do it!!

Experts---drips under pressure!!

Realist

17th-June-2006, 11:24 AM

12 mths ago the portfolio was $220,000 today and during this corrective phase the portfolio balance is $305,000 which is 38% growth on portfolio.

Well done. Do you do this fulltime or you work as well?

But how much tax do you owe on it, and how much time and effort have you spent?

What are your brokerage fees and other related expenses? Were they taken out?

Have you taken every possible expense and tax out yet?

And do you believe you would have done better had you just spent $22000 on each of the ASX top 10 and reinvested the dividends and not sold any?

You get the year off from even bothering to look at the market if you do that.

I think you would have come close (don't forget dividends)....

Realist

17th-June-2006, 11:30 AM

And its at all the thorists who have nothing more to offer than hypothesis and "this is how it should be" with no evidence to their theoretical trading practices.

Well I have no new theories or hypothesis myself, I've not ever discovered anything truly successfull that was not known before. I just spout Ben Graham's theories, because I believe in them so strongly.

Have you invented any truly successfull theories yourself?

As for evidence whether my (Graham's) theories work or not? stupid question.

tech/a

17th-June-2006, 11:36 AM

Well done. Do you do this fulltime or you work as well?

But how much tax do you owe on it, and how much time and effort have you spent?

What are your brokerage fees and other related expenses? Were they taken out?

Have you taken every possible expense and tax out yet?

And do you believe you would have done better had you just spent $22000 on each of the ASX top 10 and reinvested the dividends and not sold any?

You get the year off from even bothering to look at the market if you do that.

I think you would have come close (don't forget dividends)....

I dont trade full time. I have 2 companies (One Civil Construction and one Property developement) and trading is part of my investment strategy.

As part of the whole tax is calculated upon the total business/s I have an Accountancy firm look after this. I dont mind tax as its a cost of being profitable,profit allows me to be in the position to employ professionals to minimise tax.

If you wish to answer questions like brokerage and dividends then take some time to trawl the site all info is disclosed in the 100s of pages.

Time spent-- around 10 mins a day on the 3 portfolios I trade---only one is public all are performing similarly.

Other methods---I dont know or care as I'm happy with the way i trade---however constantly looking at ways of improvement. Being a systems trader there are a few of us working on minimising drawdown--an on going challenge for all traders.

I trade margin so dividends pay the interest and levergae on initial capital fades the nett return on portfolio dramatically.
3 yrs ago I started with $30K on margin as you will see if you read the link.

Have you invented any truly successfull theories yourself?

As for evidence whether my (Graham's) theories work or not? stupid question.

No only placed in practice what really makes profit in any business and its NOT ANALYSIS fundamental OR technical

Grahams theories,Darvas's,Williams,Buffets all work for them but Ive not yet found one other who is applying any of these "FACTS" in live trading which allows verification of results.
Easy as hell to say your profitable because you mimick another traders success. Thats their success yours isnt guarenteed.
I dont see 100s of Buffetts,or replications of Darvas sucess---

Stupid question???
Stupid response.

MichaelD

17th-June-2006, 11:39 AM

It is simply not possible to underperfom the market if you buy only stocks that are outperforming the market, and sticking with them only as long as they continue outperforming the market.

I'm interested in a bit more precision here - could you define your entry/exit methodology more precisely. Since my backtesting of this proposition was based on a trailing ATR exit, it is certainly possible that a different exit methodology could produce significantly different results.

Realist

17th-June-2006, 11:58 AM

Hey tech/a - your link goes to a weird page - is it Reefcap.com your website? :confused:

Do I have to login or something?

tech/a

17th-June-2006, 12:01 PM

No Its not my site its Nick Radges.

Yes you'll have to log on.
Its a very knowledgable site with some no nonsense contributors.
More for the serious established trader/investor.

Ive just directed you to the Tech Trader site which Nick separated from main stream about a year ago.

Realist

17th-June-2006, 12:13 PM

It is simply not possible to underperfom the market if you buy only stocks that are outperforming the market, and sticking with them only as long as they continue outperforming the market.

Okay Bunyip, or anyone else that agrees with this theory...

To prove this please advise me of the last share you bought, or the next you intend to buy. Assuming I buy it this Monday morning 11am.

I'll tell you 2 ASX shares to buy on Monday morning and we'll see what happens.

Okay my shares are FGL ($5.55) and WDC ($17.20) - and I recommend you hold them for 30 years minimum and reinvest dividends.

Why buy them? Great companies, great brands, they pay dividends, worldwide market leaders, property and wine is a bit out of fashion at the moment but will surely be back in fashion sooner or later. They are fairly valued. And I firmly believe people (mainly Aussies but worldwide as well) will shop at Westfield and buy beer and wine in 30 years time.

It'll be interesting to see what you recommend.

We'll meet back here on June 17th 2036 to compare. (just kidding ;) )

But I am keen to see what you would recommend. As I've said before here I am not even adequate at trading or charts and don't try so I'd be interested to see what stocks traders are recommending and buying right now. I don't want to hear about the past I want to know about now!

What can I buy Monday morning that is trending up?

tech/a

17th-June-2006, 12:34 PM

What can I buy Monday morning that is trending up?

This is part of the equation.
Seriously I suggest you FIRST look at and understand how to run a Trading or Investment business. No matter how small it is. If you dont look at how you place your hard earned in this manner (as a business) then you'll have a similar dis jointed result.
Do you think Buffet or Graham approach their finances any different?

Why wouldnt you or anyone else?
Would you rather spend time building a sound boat to cross the Pacific or just dive in and swim---without even a life jacket!

Not a simple task but one which will ensure your around (financially) to compare your successes in 30 yrs!!!

You asked for an opinion--often the unexpected is worth more than the (seemingly) obvious.

Realist

17th-June-2006, 01:16 PM

Tech/a - did you think I was actually going to buy your stock recommendations? :eek7:

It is amazing that whenever you ask a tech what to buy they can't tell you.

Yet they can review historical price changes so expertly. They all have 20/20 hindsight :rolleyes:

All I was doing is proving a point. Anyone who thinks they can buy stocks that are outperforming the market, and sticking with them only as long as they continue outperforming the market is quite simply wrong.

If you or anyone disagrees then please tell me what stock I can buy on Monday that is outperforming the market and will continue to do so for a week or so at least?

If you can't tell me what to buy how can I use this theory, and if I can't use this theory what is the point of it?

tech/a

17th-June-2006, 01:34 PM

Im only to happy to play.
Your however missing the whole point of the post.
Doing so is only part of the equation.

Its about running a profitable portfolio over as long a period as you can.
One stock and its trading over the next week or month is hardly a full investment business stratagy.

Now if you wish to prove the point with a group of stocks (portfolio) starting as of Monday similar to that which has been run on Reefcap for the last 4 yrs then I'm happy to do that.

I'll simply start trading one of the mechanical methods I currently use from scratch.
So past performance will mean zip.

I will disclose the trade (when it triggers),the stop and the exit (when it triggers).
What I use technically to determine the trade I will not disclose---one is enough already on Reefcap.It will be similar though.

I will however disclose the methodologies (Systems) parameters.
IE
R/R,expected initial drawdown,position sizing,leverage (I trade margin at 2:1)
Plus anything else seen as relevant. Like universe used to trade.
All relevent as part of "the Business"

Dont expect it to be a power packed presentation as its as boring as hell and takes a few minutes.longterm methods trade like elephants.

Actually it would be best started when I get back from the UK.

I leave in 4 weeks for 6 weeks so would be a little pointless and to difficult to do properly now.

Let me know and Ill get it going say September.
Perhaps I could run it parallel to duc's!

Julia

17th-June-2006, 01:42 PM

Realist

You mention WDC. I also hold this but not for much longer.
It started the year at around $17.50 and is currently below that.
If you have a 30 year time frame as you have suggested, then the odds are that this company will make you money, but where are your profits coming from in the meantime?

Could I suggest that you are being a bit too black and white in your definitions of trading vs investing. My own preference is to own stocks which will show steady and sustained growth. I'm not interested in short term trading, partly because I lack the necessary technical skills, and I'm also conscious of the increased costs of brokerage etc. Consequently my portfolio is mainly blue chips across all sectors.

However, if a stock is simply not performing, i.e. Westfield Group, it will be sold and the funds used to buy something which IS going up. Why? Because I am in the market to make money and I am not making money holding stocks which are standing still or decreasing. This doesn't make me a "trader".

In the end, surely it just comes down to whether or not your philosophy is allowing you to actually make money, as Tech and Bunyip and others have suggested.

Julia

ducati916

17th-June-2006, 01:55 PM

tech/a

I will however disclose the methodologies (Systems) parameters.
IE
R/R,expected initial drawdown,position sizing,leverage (I trade margin at 2:1)
Plus anything else seen as relevant. Like universe used to trade.
All relevent as part of "the Business"

12 mths ago the portfolio was $220,000 today and during this corrective phase the portfolio balance is $305,000 which is 38% growth on portfolio.
AllOrds 20/6/05---4262 All Ords 16/6/06---4932 Growth----15.72%

Which of course means that TT results mimic almost exactly the ALLORDS, okay, you added 0.28%

Let me know and Ill get it going say September.
Perhaps I could run it parallel to duc's!

jog on.

With regards to buying undervaluations very rarely will you find the so called "blue chips" selling at a *true* undervaluation.
I would suggest that currently there is nothing on the ASX that is a blue chip designate, that even remotely approaches an undervaluation The only times tend to be at the bottom of Bear markets.

However, if other *fundies* wish to examine this closer, we can all *value* say BHP and place a price that represents an undervaluation, and the techies can identify *support* points if they choose.

It would be interesting to me anyway, to see the results.

jog on
d998

MichaelD

17th-June-2006, 02:10 PM

If you can't tell me what to buy how can I use this theory, and if I can't use this theory what is the point of it?
You do not make money buying stocks. You make money when you sell them. Working out what to buy is the least part of the equation. It's how you manage the trade from there onwards that makes the money (or otherwise).

There is much experienced wisdom in this thread for those that wish to see it.

Any technician could offer you a list to buy on Monday. 50% of these trades or more would be losing trades, however, the technician would still make money because they know what to do after buying. The short-sighted would point at the 50% losers and proclaim the list a failure.

ducati916

17th-June-2006, 02:18 PM

Michael

Any technician could offer you a list to buy on Monday. 50% of these trades or more would be losing trades, however, the technician would still make money because they know what to do after buying. The short-sighted would point at the 50% losers and proclaim the list a failure.

Fundies actually have a much clearer understanding of the selling part of the equation.

Techies rely upon *the market* to exit them.
We, conversely do not. We have an exit at *fair value*
Should you be a little greedier, after fair value is reached, just trail a technical stoploss.

The advantage of the fair value+ exit, is that to truely qualify as *undervalued* your purchase price must be 50%+ below your fair value calculation.

jog on
d998

tech/a

17th-June-2006, 02:36 PM

Which of course means that TT results mimic almost exactly the ALLORDS, okay, you added 0.28%

Duc you disappoint me.

Same period All Ords rose 15.72%
TT out perfromed the ords by 100%+ --A little better!

Have a closer look I even posted the link.

MichaelD

17th-June-2006, 02:46 PM

Fundies actually have a much clearer understanding of the selling part of the equation.
I see very few indications in this thread of the importance of the exit (with several exceptions), regardless of the entry methodology.

Techies and fundies will disagree on the details of the entry and the exit, but on the necessity of having a pre-planned management and exit strategy BEFORE a trade is entered there is agreement.

No pre-planned exit strategy = inconsistent profits = loss in the long run.

ducati916

17th-June-2006, 02:46 PM

tech/a

You must compare apples with apples.
If you use leverage, which you do,[2:1] then you must compare the unleveraged return. Of course, your return, when you eventually realize it, will reflect the leverage.

Therefore, TT's unleveraged return,[19%] is more or less the same as the ASX. Again this does not truely represent the return, as the losses realized, and the #of trades in total are not reported. Therefore, based on "open equity" which I disagree with, your results are circa 19% as of the closing prices
This simply demonstrates that outperforming the Averages is no mean feat, and why so many people struggle.

This is the underpinning of my questioning your methodology.
In a Bullmarket, yes, you see good results, but, nothing much more than the market return.

In a Bearmarket, would you outperform, or return much the same?
In the recent correction....drop, TT dropped almost the identical % as the ASX.

jog on
d998

ducati916

17th-June-2006, 02:50 PM

Michael

I see very few indications in this thread of the importance of the exit, regardless of the entry methodology.

True, but the discussion has thus far centered, as far as I can see on the merits/demerits of the underlying philosophies.

Techies and fundies will disagree on the details of the entry and the exit, but on the necessity of having a pre-planned management and exit strategy BEFORE a trade is entered there is agreement.

I think that is about all we agree on.

No pre-planned exit strategy = inconsistent profits = loss in the long run.

jog on.

jog on
d998

MichaelD

17th-June-2006, 02:53 PM

A plea to Duc and Tech/A.

Can we please keep the Duc vs TT argument over at Reef. This is a potentially interesting thread and it would be sad to see it go off on a tangent.

ducati916

17th-June-2006, 03:02 PM

Michael

The results must be accurately reported.
If they are not, then the whole result is nonsense.

The only way that you can evaluate the success or failure of any method, system etc is via relative results.

To achieve tech/a results, you MUST LEVERAGE by the same margin as he used, in this case 2:1.............if you do not, then your results are equivalent to the ASX returns

This is just common sense.
jog on
d998

tech/a

17th-June-2006, 03:04 PM

Michael.

The posts are relevent.
TT is the only technical method offered up with verifiable results in an effort to show that Bunyips post about the ATAA presenter arent as laughable as Realist and BCD would have people believe.

DUC

Your having a bad day.

The results I gave are NETT void of leverage.
Portfolio went from 220K to 305K

Relativity 1:1

Comparing ONLY to nett portfolio value NOT initial capital.

ducati916

17th-June-2006, 03:11 PM

MichaelD

17th-June-2006, 03:22 PM

SURELY the more important point here is NOT "my plan is better than your plan". The point is you must have a PLAN. The plan must have entry, exit, risk and money management. Miss any of these points and there will be pain sooner or later.

I would suggest that the majority of market participants here have worked on the following plan over the last couple of years;

Buy and make profit when it goes up. Feel good about self and consider self a market mastermind.

It's a plan that worked...until now.

Now what?

tech/a

17th-June-2006, 03:29 PM

I have $220K worth of stock and in one year it rises to a value of $305K

Thats a 38% rise.

Whats leverage got to do with it?

Other than allowing you to buy more stock with less initial capital.

Go for another jog!

ducati916

17th-June-2006, 03:29 PM

tech/a

You seem to have a basic misconception on how to report results.
If you list your results in $won/lost, the results will reflect the leverage.

If you report your results in the %+/- of each positions change in price, you will eliminate the effect of margin.

Therefore TT currently reports 8 open trades.
Take one example,

BIL
Opened 27/05/2004 .......26months and currently open
Average Purchase Price = $5.94
Current Price = $10.68
% Return = 79.7%
Annualised return = 36.8%

SFE [the best one]..........currently open
Opened 6/08/2003
Average Purchase Price = $3.69
Current Price = $16.14
% Return = 337.4%
Annualised = 119%

Therefore to get a true apples against apples, you need to calculate all your trades for the aggregate return. It may well turn out that you *HAVE* outperformed the ASX on that basis, but the method that you have illustrated tells us nothing of value.

jog on
d998

BSD

17th-June-2006, 03:40 PM

Julia the reason for the delay is I was going to the Casino to play some hands.

There are many strategies available and congrats to those who are happy with the performance of their own strategy.

I start to laugh though when I am told that making money in the market is a simple matter of leveraging 2-1 and buying stocks that have outperformed or have strong momentum. It is the same in a bear market when we hear nothing but Buffett and writing covered calls.

All strategies will have their time in the sun. But beating the market over a few years gives no statistical inference of success. As someone (who was shouted down) said - backtesting these strategies offers no significant outperformance.

Quant teams full of physics and maths gurus who are paid heaps and manage 100s of millions (of house money) have 'outperformance' (over various periods) and 'momentum' in their multi variable models - but the ability of these two (of many) indicators to forecast future outperformance both varies depending on market environment and is never absolute. The models are dynamic and designed to change with the market.

If momentum and past performance were all that was necessary, why do the quants add many more variables to their models?

From time to time, the market rewards factors like mean reversion, value, yield, low beta - these are all not very good for the guys who have riden the recent bull market. Over time however, the market is more random than anybody assumes.

The momentum players had their backsides tanned over the last fortnight. Pity the seminar attendees of May!

Congratulations on making $100K in a year Tech - it looks like such a performance is what you were looking for.

But it doesnt:

a. Mean anything
b. Float my boat enough to want to trade the way you do

It doesnt mean anything because it is:

Not statisically significant. Your excellent returns have come from a bull market. Your strategy needs to be tested over decade of different market before you can say you have cracked any code.

If you had of bought BHP shares on the open June 17 last year at $18.36 you would be up 47.5% now. Geared at 66%, the same trade is up 76%.

Is that proof of the amazing skill of a persons ability? Of course not, it doesn't mean anything.

In my 'trading portfolio' (currently spread across 1 company and 1 options series) I have one stock that has fallen by 40% in a month, but it is still almost 6 times more than where I accumulated it.

This performance (and the subsequent fall) can both be put down to fundamental analysis. But does it prove the acendency or stupidity of such a strategy?

No, not in the slightest. It doesnt mean anything

Some further comments:

A lot of the tech strategies sound great but are not quantifiable. Is the stock going up (?) is a favourite.

At the end of June BHP was 'going up' on the yearly and monthly charts. On the daily and weekly it had started to fall.

It is now going up (sort of) on the daily, but down on the weekly and all others.

Is it going up or down?

Many say the charts dont lie, but this is total rubbish.

Every other day I see some terrible execution of a tiny order where a large spread is crossed or a mechanical stop is set-off in an illiquid stock and the little candlestick stays there for perpetuity for some chartist to draw a trend line from.

The break outs and support failures in micros are often evidence of some poor mug stuffing up on execution to save $100 doing his own trades.

The main thing that grabs me on this site is the interest in complete dross stock with no liquidity or insto interest. You could manipulate such stocks with a 100k and get the graph folk believing all kinds of things.

This leads me to my final point, a lot of the tech strategies do not lend themselves (outside of derivatives) to swing a decent sized line of stock. A lot of the very small margins guys use in their targets ups and stops down is impossible to use if you need to buy a couple of hundred grand in a position.

When you are moving the market by 4% in accumulating your line in a mid/small cap fundamentals become almost the only tool you have.

This is why the sharp bloke like Wayne trade futures.

In any case, in share trading I believe INFORMATION is the key.

Sitting a watching a chart does not tell you who owns the stock, how much the stock is worth, who is buying who is selling and why a stock is doing what it is doing on the chart.

Why dont the seminar gurus talk about fundamentals? Because it isnt conducive to get rich quick dreams not requiring hard work.

Why dont the investment banks just hire a team of chartists with etrade accounts and margin loans?

tech/a

17th-June-2006, 03:47 PM

Rubbish.
$220,000 worth of stock regardless of leverage or no leverage rose to a value of $305,000 thats a 38% rise.

Leverage in this context has absolutely no bearing.
I'm not comparing it to anything other than a nett initial start value and a final finished value.

If I divide the initial value by 2 and the final value by the same---38%

if I multiply it x 2 same deal.

$110 as against 167.5
440 as against 610

Ive taken the DEFINED period 20/6/05 to 16/6/06 not the whole 4 yrs.
in 20/06/05 the value of the portfolio was $220,000
as at 16/06/06 it is $305,000 rise over that period 38%.
Rise in all Ords over the exact same period 15.7%

No need to annualise anything.

Forget the jog take a nap.

I'm out the door myself for a real jog.

ducati916

17th-June-2006, 04:24 PM

tech/a

Taking the previous example,

BIL
Opened 27/05/2004 .......26months and currently open
Average Purchase Price = $5.94
Current Price = $10.68
% Return = 79.7%
Annualised return = 36.8%

SFE [the best one]..........currently open
Opened 6/08/2003
Average Purchase Price = $3.69
Current Price = $16.14
% Return = 337.4%
Annualised = 119%

First lets argue that these were the only trades taken, then the aggregate result would be; 77.9%

But if you had taken 10 trades, 8 were stopped out at 10% [your stoploss]
then, we would have the following result;

Aggregate result = 7.5%
Big difference.

Conversely, if only 5 trades taken, and 3 stopped out;
Aggregate result = 25.2%

By reporting the results in $ terms, we cannot see the true results, because that does not take into effect the total # of trades required to generate the $ returns.

If you believe that leverage makes no difference in your results, so be it.
From an alternate view;

If you had of bought BHP shares on the open June 17 last year at $18.36 you would be up 47.5% now. Geared at 66%, the same trade is up 76%.

If you're happy at 38%, I'm happy.
jog on
d998

cuttlefish

17th-June-2006, 04:38 PM

Many say the charts dont lie, but this is total rubbish.

Every other day I see some terrible execution of a tiny order where a large spread is crossed or a mechanical stop is set-off in an illiquid stock and the little candlestick stays there for perpetuity for some chartist to draw a trend line from.

Though that candle will at least reflect that on that day there was a large spread that could be crossed, and psychologically someone felt eager enough to either buy or sell (even if a small amount) to cross that spread. I think in moderate liquidity stocks it could still be argued as a valid reflection of a psychological situation (which is all charting is trying to study from my viewpoint).

I'm a firm believer in investing based on fundamentals. I'm still interested in understanding the charting viewpoint as well though because I think combining the two could possibly be used to accellerate returns. Its become second nature to me now though to not buy a stock without researching the fundamentals and I won't enter a stock that doesn't match a set of criteria.

I've been mucking about a bit with options the past 9 months trying to understand them better because I'm interested trying to use them to leverage the long term value investing approach and also to capitalise on overbought markets. (again judging overbought markets largely based on fundamentals but for shorting its important to get the timing and strategy reasonably right because hyped markets can jump so much at the end stage).

tech/a

17th-June-2006, 04:50 PM

Its a very simple mathamatical example made complex by the master himself.
Leverage was not mentioned and is not required in the example.

If you bought anything for $220,000 on 20/6/05 and sold it Friday 16/6/05 for $305,000 then you would have increased its value 38% on the sale.

Hell duc you argue and put forward arguement just to fill up space Im sure of it.

Realist

17th-June-2006, 04:53 PM

$220,000 worth of stock regardless of leverage or no leverage rose to a value of $305,000 thats a 38% rise.

It is not a 38% rise unless you have taken every possible expense out of the $305,000.

I do not believe you have. (please clarify??)

Have you taken out all of the below?

TAX
Brokerage
Your Accountants fees
Time spent (if it is significant time you could have spent working for other income)
Computer, software, subscriptions, magazines, phone bills, internet, all expenses...

I do not believe you got a 38% after all these expenses have been taken out.

If so well done!

The true beauty of buy and hold is there are no, or virtually none, ongoing expenses whatsoever. That is the one true indisputable advantage of investing over trading.

Realist

17th-June-2006, 04:55 PM

Im only to happy to play.
Your however missing the whole point of the post.
Doing so is only part of the equation.

I'm fully aware of the point. You are a trader, you can't (or wont) even tell me a stock you think is a good buy now. If this is incorrect - please list one?

I am also aware some traders can make money and it is a genuine occupation for some.

But in terms of investing it is laughable to think you can buy stocks to outperform the market then sell them before they underperform. Traders do do this though I agree.

I am fully aware traders lose on some trades and use stop losses to minimise this. But the original question was about investing - buying a share that outperforms the market and selling it before it underperforms, you have not shown me how this can possibly work in reality unless you are purely trading (not investing). It certainly is not an investment strategy.

An investor buys a good company and waits, A trader buys a stock price and watches. There is no in between in my opinion. You can't be a short term investor, you either invest with longterm goals or you trade/speculate - simple as that.

Realist

17th-June-2006, 05:03 PM

However, if a stock is simply not performing, i.e. Westfield Group, it will be sold and the funds used to buy something which IS going up. Why? Because I am in the market to make money and I am not making money holding stocks which are standing still or decreasing. This doesn't make me a "trader".

Julia, by my definition and that of many investors you just described yourself as a trader.

It is black and white - investors buy companies, traders buy stock prices.

If you buy a nice house, or investment property and it is revalued 6 months later for less than you bought it for would you sell it and buy a better performing house?

tech/a

17th-June-2006, 05:06 PM

But in terms of investing it is laughable to think you can buy stocks to outperform the market then sell them before they underperform.

Out of interest how do you think it is done?
How do traders and investors make a $?

I fail to see the humour in the trade below?

But the original question was about investing - buying a share that outperforms the market and selling it before it underperforms, you have not shown me how this can possibly work in reality unless you are purely trading (not investing). It certainly is not an investment strategy.

Hell if you dont call what Im doing longterm Trading/investing what do you call it.
In 4 yrs only about 20 trades (I havent counted them)

NettAssets

17th-June-2006, 05:13 PM

I don't think TAX can be taken as a cost of trade in your example realist.
the Investor hasn't made a tax free gain - merely deferred paying the tax.
The Investor will also have other costs if they wish to use the profit portion of equity in their holding which the trader is able to access free.
John

Realist

17th-June-2006, 05:13 PM

So you bought QBE in 2003 and still hold it?

Should you have done this? :confused: I thought you said no silly questions.

Well done an excellent purchase obviously.

What exactly does it prove though?

How about you show us one of your losing trades - what would that prove - nothing.

As I said traders love history - Please list a stock you suggest we buy now. DO NOT TELL ME ABOUT THE PAST I, AND EVERYONE ELSE ALREADY KNOWS IT.

TELL ME SOMETHING TO BUY NOW !!

Realist

17th-June-2006, 05:17 PM

I don't think TAX can be taken as a cost of trade in your example realist.

Okay everyone forget tax, lets just imagine it doesn't exist. :rolleyes:

the Investor hasn't made a tax free gain - merely deferred paying the tax.

Correct.

But the investors tax rate is halved AND the investor is making profits on the tax he is deferring.

How much do you think Warren Buffett has paid in tax on his shares, how much does he make off his defferred tax each year?

Billions!!

tech/a

17th-June-2006, 05:18 PM

It is black and white - investors buy companies, traders buy stock prices.

If you buy a nice house, or investment property and it is revalued 6 months later for less than you bought it for would you sell it and buy a better performing house?

You have much to learn.

You are looking at your theories through a tunnel.
I bought and still hold on one thing PRICE I dont care if the company is undervalued,Overvalued,I only care whether the share price remains above its exit.Infact some holdings I have no idea what the company does.

House.
WOW if only. If I could liquidate a house as quickly and as cheaply as I can liquidate a stock ---YOU BET I WOULD!

BSD

17th-June-2006, 05:18 PM

On QBE - nice trade, great company.

Where is your "trailing stop"?

Realist

17th-June-2006, 05:24 PM

House.
WOW if only. If I could liquidate a house as quickly and as cheaply as I can liquidate a stock ---YOU BET I WOULD!

:eek:

Well we are definately coming from completly different perspectives and will never agree or even meet halfway. You need investors in the market and I need traders. So it is a good thing.

I'm outta here off to the pub, have a great one guys. I'll continue this argument, I mean indepth discussion, later. :D

realist.

wayneL

17th-June-2006, 05:30 PM

:eek:

You need investors in the market and I need traders. So it is a good thing.

Indeed! That's why I've never understood the disdain investors have for traders and visa versa.

MichaelD

17th-June-2006, 05:37 PM

What exactly does it prove though?

How about you show us one of your losing trades - what would that prove - nothing.
I beg to differ. This trade shows you exactly what technical trading is on about.

Technical traders let their winners run (eg QBE) and cut their losses. For every QBE there will be another trade which was closed at a SMALL loss whilst the VERY LARGE gain is left to run until it stops performing. If Tech/A posts a losing trade chart you will see this in action.

With long term trading systems, hold times for winners are usually 6 months or longer. Personally, I see it as fishing for the big catch. Throw the minnows back and keep the blue marlins.

Realist - what is your exit strategy? (or do you simply buy and hold?)

Realist

17th-June-2006, 05:38 PM

I'm still here, off in 5 minutes.

I respect traders and want to learn from them and even dabble myself with a small part of my capital. Trading is very interesting. And I can see how you can make quick profits.

I am an investor though, through and through, and PROUD OF IT! :D

tech/a

17th-June-2006, 05:38 PM

BSD

The method has only a 180day EMA of the low exit any close below.
Which as you can see aint that far away.

Realist

17th-June-2006, 05:45 PM

Realist - what is your exit strategy? (or do you simply buy and hold?)

Okay off in 2 minutes.. :p:

My exit strategy is to sell companies that become too overvalued. That is it!

( can see the traders laughing already.)

If a company's profit starts to go down, or god forbid they make a loss, I'd review them closely. But probably still hold.

I have not sold any shares ever though... :D

I have some Nasdaq listed shares which worry me.

But for instance I see no reason to ever sell Fosters. Unless it becomes too overvalued (unlikely) in which case I'd sell it and buy back if/when they become fair or undervalued again.

Bear in mind I only buy companies that I see as having an excellent longterm future. No specs whatsoever.

I could not watch the market for a year and be safe my companies arew performing adequately.

tech/a

17th-June-2006, 05:49 PM

Ive just had a look at outperformers in the ASX100

There are quite a few.
2 that I like chart wise are.
CML,BHP

CML has out performed consistently.
BHP over longer timeframes of late underperformance (last week compared to this week) However last 3 mths compared to the previous 3 mths has out performed.

You get the picture.

My exit strategy is to sell companies that become too overvalued. That is it!

Was QBE ever over valued over the last 3 yrs?

Is it now?

Realist

17th-June-2006, 05:51 PM

There are quite a few.
2 that I like chart wise are.
CML,BHP

I bought more BHP about 9 days ago!! :D

We agree! WooHoooOOOO!

Off now !

Knobby22

17th-June-2006, 06:22 PM

Good on you Realist.
I think the main difference between a trader and an investor is patience.
Trader's want the zing!

tech/a

17th-June-2006, 06:44 PM

I bought more BHP about 9 days ago!! :D

We agree! WooHoooOOOO!

Off now !

That makes it at $29
Hmm The techie $25.6

Who has better value?

It's Snake Pliskin

17th-June-2006, 07:57 PM

Tech or fundamental it doesn`t matter.

Some find a guru and read their books and then think it is the code for life itself.

MichaelD

17th-June-2006, 09:18 PM

Tech or fundamental it doesn`t matter.

Some find a guru and read their books and then think it is the code for life itself.One of the most sensible things said in this thread.

Julia

17th-June-2006, 10:46 PM

Julia, by my definition and that of many investors you just described yourself as a trader.

It is black and white - investors buy companies, traders buy stock prices.

If you buy a nice house, or investment property and it is revalued 6 months later for less than you bought it for would you sell it and buy a better performing house?

Depends whether I am buying the house to live in myself or if it is an investment.

If I buy a house to live in, I am not in the least concerned with its subsequent market valuation.
This would only become of interest if I decided to sell it. I have bought the house for the pleasure of living in it, not as necessarily a means of making money.
If I buy an investment property, however, and it has appreciated in price over, say, a couple of years, but then market assessments indicate it has achieved its maximum likely capital gain in the foreseeable future, and I can see another property in an area which is beginning to show good appreciation, then, yes, I will sell my initial investment property and buy where I can expect further appreciation.

It's nothing more than maximising opportunities.

Julia

Staybaker

17th-June-2006, 10:51 PM

The true beauty of buy and hold is there are no, or virtually none, ongoing expenses whatsoever. That is the one true indisputable advantage of investing over trading.

I am going to dispute that statement, thus it is not "indisputable" :D

The lack of expenses associated with buy-and-hold investing is only an advantage over trading if it produces superior results.

Suppose investor "A" generates a long-term average annual return of 15% (i.e. greater than the general market return due to superior stock selection). This return is achieved after expenses, which are minimal.

Meanwhile, suppose trader "B" can generate a long-term average annual return of 25% before expenses, but expenses account for 5%, leaving him with a 20% return. He would still be doing better than "A" even after expenses are taken into account.

Now, it is clear from your many posts, Mr Realist, that you are tacitly assuming that the trader cannot outperform the investor - if you are correct, then clearly the trader is irrational if he continues to trade rather than invest. Traders, however, clearly believe they can outperform the buy-and-hold investor.

The real question, then, is whether traders can outperform investors over the long term. The "advantages" of investing that you continue to mention (low expenses, low tax, less time commitment, etc.) are really irrelevent without knowing the degree to which one group can outperform the other.

Furthermore, even if we can make a general statement about whether trading or investing gives a better result, it wouldn't necessarily translate to any individual's case. Maybe, in the aggregate, investors do outperform traders over the long term. (I'm willing to accept that that may be true.) But that doesn't mean that every investor outperforms every trader. (For example, it may be true that Americans, in general, are more overweight than Asians. But that doesn't mean that every American is heavier than every Asian. And you certainly couldn't conclude that every American should therefore be on a diet, while no Asian needs to watch their weight.) So even if investing outperforms trading in general (which is debatable), a talented trader would still be rational to stick to trading if he is sufficiently good at it. It really comes down to each individual finding out what works best for them, given their skills and experience and personality.

I know of traders who have made over 50% per annum consistently over the last four years (some nearer 100%), after expenses. You'd certainly be hard-pressed trying to convince them that they shouldn't be trading, because of the high expenses involved!

Cheers, Staybaker. :)

Realist

18th-June-2006, 02:46 AM

That makes it at $29
Hmm The techie $25.6

Who has better value?

Actually I bought more at 26.60 - even announced it on here at the time.

Did you buy any? No - tough luck...

I got the better value. :D

wayneL

18th-June-2006, 02:52 AM

:sleeping::sleeping::sleeping:

nizar

18th-June-2006, 02:58 AM

I am going to dispute that statement, thus it is not "indisputable" :D

The lack of expenses associated with buy-and-hold investing is only an advantage over trading if it produces superior results.

Suppose investor "A" generates a long-term average annual return of 15% (i.e. greater than the general market return due to superior stock selection). This return is achieved after expenses, which are minimal.

Meanwhile, suppose trader "B" can generate a long-term average annual return of 25% before expenses, but expenses account for 5%, leaving him with a 20% return. He would still be doing better than "A" even after expenses are taken into account.

Now, it is clear from your many posts, Mr Realist, that you are tacitly assuming that the trader cannot outperform the investor - if you are correct, then clearly the trader is irrational if he continues to trade rather than invest. Traders, however, clearly believe they can outperform the buy-and-hold investor.

The real question, then, is whether traders can outperform investors over the long term. The "advantages" of investing that you continue to mention (low expenses, low tax, less time commitment, etc.) are really irrelevent without knowing the degree to which one group can outperform the other.

Furthermore, even if we can make a general statement about whether trading or investing gives a better result, it wouldn't necessarily translate to any individual's case. Maybe, in the aggregate, investors do outperform traders over the long term. (I'm willing to accept that that may be true.) But that doesn't mean that every investor outperforms every trader. (For example, it may be true that Americans, in general, are more overweight than Asians. But that doesn't mean that every American is heavier than every Asian. And you certainly couldn't conclude that every American should therefore be on a diet, while no Asian needs to watch their weight.) So even if investing outperforms trading in general (which is debatable), a talented trader would still be rational to stick to trading if he is sufficiently good at it. It really comes down to each individual finding out what works best for them, given their skills and experience and personality.

I know of traders who have made over 50% per annum consistently over the last four years (some nearer 100%), after expenses. You'd certainly be hard-pressed trying to convince them that they shouldn't be trading, because of the high expenses involved!

Cheers, Staybaker. :)

Great post there Staybaker - on the ball... ;)

Realist

18th-June-2006, 03:03 AM

but then market assessments indicate it has achieved its maximum likely capital gain in the foreseeable future, and I can see another property in an area which is beginning to show good appreciation, then, yes, I will sell my initial investment property and buy where I can expect further appreciation.

It's nothing more than maximising opportunities.

Well Julia, in my opinion if you sold an investment property soon after buying it because its "value" had decreased then you made a mistake. Either in purchasing the wrong property, or in believing other peoples valuations.

Do not ever forget "values" are merely other peoples opinion. They change constantly depending on peoples moods.

Be a leader, not a follower in life! Make your own decisions, do not let other peoples judgement decide what you do. If you have a damn good house that you like - keep it!!

Surely no-one thinks real estate agents give fool proof valuations on properties?? Just like share prices are not fool proof valuations of a companies worth.

Sometimes they are wrong.

NettAssets

18th-June-2006, 04:10 AM

Hi Realist,
You said yourself that you would sell a company if the fundaments went bad and its the same in the housing market.
There needn't be anything wrong with the initial valuation but suddenly you get a freeway realignment or a flightpath change, things that are impossible to see a few years in advance because they are rarely mooted for this very reason.
Whats happened - the fundamentals have changed so you take the loss and move on.
I've never seen a jockey win on a dead horse.
John

ducati916

18th-June-2006, 06:27 AM

tech/a

Its a very simple mathamatical example made complex by the master himself.
Leverage was not mentioned and is not required in the example.

If you bought anything for $220,000 on 20/6/05 and sold it Friday 16/6/05 for $305,000 then you would have increased its value 38% on the sale.

Hell duc you argue and put forward arguement just to fill up space Im sure of it.

Not at all.
It is simply calculating the percentage return on open equity does not even remotely start to provide a relevant comparison, because you assume that every trade taken is a winning trade. This while it may be true, may also not be true. Therefore you must detail the total number of trades taken required to be left with the *winning* trades. The trades you used were currently your open trades, they have been open for variable time periods.
How many trades were required to be taken to be left with the current portfolio....................let's find out!

This thread is discussing the merits & demerits of predominantly two schools of thought, or philosophy, Fundamentals & Technicals.

Therefore, if you wish to utilize returns as an argument for the strength, or weakness within a methodology, you must present them accurately, or else they become misleading. Thus the only accurate way to gauge the *accurate* returns is to take all the results.

Ok, I have gone back to the results page [from "DL"] and calculated from these results the following;

http://home.iprimus.com.au/trono/Tech_Margin_System.xls

Total # of closed trades = 28
Losses = 14
Wins = 14
Current open trades = 8
Total trades taken = 36
Total time period 33mths

Now for the purposes of these results, I shall take all positions, open and closed, and annualise them for ease of comparison.

The ASX from Sept 2002 to the close on Friday returned 76% in total, or 27.6% annualised to date.

TechTrader from Sept 2002 to the close on Friday has a total return of 13.35%, or 4.85% annualised to date.

This is why Leverage is so important.
With returns unleveraged, the dollar return is not as exciting.
If it is leveraged, then suddenly the dollar returns start to become worthwhile

The exact same principal works in property with a mortgage.
Pay 10% deposit, borrow 90%
At an aggregate 4% long term return, it makes sense.

TechTrader started with $30K
Margin loaned $70K or utilised 2.3 leverage
Therefore the dollar returns are as follows;

Starting capital $30K + $70K = $100K
Finishing capital = $305K - $70K = $235K = 683% total return on $30K
Annualised return = 248% on capital

Leverage will supercharge moves to the upside, or downside.
The rather boring returns based on trading returns, become astronomical when leveraged.

My point however is this; the leverage can work if correctly applied to a number of trading methodologies. The question therefore reverts back to, what is the best trading methodology?

Is it a Technical system?
Is it a Fundamental system?
Is it a combination?
Or something else?

Realist

I bought more BHP about 9 days ago!!

We agree! WooHoooOOOO!

I am interested in your *valuation*
Would you be prepared to provide an analysis of BHP and your valuation?

I will also provide an analysis, and a valuation.
The two can then be compared to 2 other valuation methods, providing a total of 4 valuations..............Interested?
Of course if any other fundies would want to do the same, the more the merrier.

jog on
d998

tech/a

18th-June-2006, 07:40 AM

Honestly all too hard.

Doesnt help anyone.
The master of complex confuses the simple beyond normal understanding of those who have a genuine interest---the thread becomes impossible to understand.
On the other hand young in experienced people are chest beating --look at me look at me I'm clever.
Experience---zippo it shows in the posting.
Again of no value.

Trading/investing is simple,there are simple winning formulas.
These pointless arguements are time consuming and frankly tedious.

If everytime I or anyone else posts---and the master of the complex wants to turn the discussion into endless dribble---I'm afraid Ill be desisting.
As I will with kids who are simply wanna be's.

MichaelD

18th-June-2006, 08:45 AM

My exit strategy is to sell companies that become too overvalued. That is it!

( can see the traders laughing already.)

If a company's profit starts to go down, or god forbid they make a loss, I'd review them closely. But probably still hold.

I have not sold any shares ever though... :D
So what happens if the share price goes down by 10%? 20%? 50%? 90%? It can and will happen. Unless you have considered what to do in advance you are going to suffer a lot of pain when this happens.

I am not going to bag investing vs trading or fundamental vs technical here since the arguments are perpetual and circular, but am going to thump my chest about having a PLAN which covers every contingency. A written down and fully considered plan, not just a vague idea in the back of your head.

The sharemarket is an intriguing beast - in bull markets bad planning is usually rewarded with profits; not so in a bear market. It is a great humbler.

tech/a

18th-June-2006, 09:11 AM

The sharemarket is an intriguing beast - in bull markets bad planning is usually rewarded with profits; not so in a bear market. It is a great humbler.

Many if not most traders fail in Bullmarkets.They equate the odd win to consistant profit.
Bear markets bring stupidity from traders who design methods for bullish conditions and expect them to perform in bear markets.
Corrections arent bear markets.

MichaelD

18th-June-2006, 09:37 AM

Many if not most traders fail in Bullmarkets.
Is there any solid evidence for this? (genuinely interested)

BSD

18th-June-2006, 11:04 AM

On the other hand young in experienced people are chest beating --look at me look at me I'm clever.
Experience---zippo it shows in the posting.
Again of no value.

Trading/investing is simple,there are simple winning formulas.
These pointless arguements are time consuming and frankly tedious.

As I will with kids who are simply wanna be's.

Please name names.

bunyip

18th-June-2006, 11:18 AM

It's always interesting to observe the reactions you get when you outline a trading strategy that you know from personal experience can produce excellent returns. Some people , particularly those who have difficulty thinking outside the square, react with scorn and tell you it couldn't possibly work, even though you and many others (including some of the most respected people in the industry) have been using it for years to consistently outperform the market.
What these critics are telling you in effect is that you and the others who claim success with this method are fools and pretenders.
They challenge you to prove your method works. Personally I can't see any good reason to rise to that challenge. I've already proved it to the one person who matters most....myself. Others who have adopted the strategy after I showed it to them have also had excellent results. Some of them have told me it completely turned their trading results around. If you want something to be proven then the best suggestion I can make is that you put in the hard yards and prove it to yourself, just like I did.
I'm not interested in giving stock recommendations....I've never done it in my life and I certainly won't be doing it now just to comply with a request from someone I don't know from a bar of soap. Apart from that, the market is falling.....hardly the time to be making buy recommendations. I like to trade with the trend, not against it.
Making a couple of stock recommendations, regardless of whether they turn out to be good or bad, does not prove or disprove the validity of a trading or investment strategy.

Realist tells us that tax worries him? Why? Having to pay tax at least proves you're profitable. Long term investors still have to pay tax sooner or later anyway, they're just deferring it for a while. Only way I can think of to avoid tax is never to sell. I doubt very much if many of you will hold any stock for your entire lives. If you do, there'll be times when they perform terribly...no company performs strongly each and every year. The lost opportunity cost of tying up your capital for years in a non performing or plunging stock may well be a far larger expense than any tax you might pay by selling the stock and redeploying that capital in a strong performer.
Tax can be handled to some extent anyway.....if you're making great profits then some of those profits can be sunk into tax effective investments. Talk to your accountant.

Trading involves too much time? Rubbish......about an hour each weekend if you trade from weekly charts, or about 15 to 30 minutes a day if you trade from daily charts.

Brokerage bites into your profits too much? Not at all.....that might be the case with a day trader who is constantly jumping in and out of the market like a grasshopper, but a longer term trader who keeps riding strong trends as long as they continue will sometimes be in a trades for a year of even a couple of years. Such a trader might own only half a dozen or so stocks at any given time and his overall trading activity will be surprisingly light. Brokerage is not a major consideration in this style of trading.

Impossible to get out of an outperformer before it becomes an underperformer? Absolutely true, but I made no claims about getting out before it starts underperforming. The thing to do is set a performance benchmark and then sell the stock if its performance drops below the benchmark. This is the strategy employed by Alan Hull in his 'Active Investing' approach. It's very successful.
Another way to manage a trade is to trail a stop below the stock price so that if the trend runs out of steam, your stop hauls you out of the trade automatically.

MichaelD asked me to outline my entry and exit rules so that he can do further backtesting. Michael, while you're one of the doubters, I at least give you credit for not resorting to scorn and sarcasm to make your point.
As I told you in an earlier post, I don't think computer testing is of much benefit. So far your computer testing has brought you to the completely wrong conclusion that buying outperforming stocks is a poor strategy. This of course is utterly ridiculous. Computer testing will always come up with different results to real trading. There are just too many variables that a real trader will take into account, but a computer will not. Most systems have an element of discretion in them that make them impossible for a computer to backtest in a meaningful way.
Even a simple moving average crossover system can't be backtested meaningfully. The computer would test every single crossover of two moving averages, whereas a trader would reject some trades for any number of reasons, eg. he considers the market to be too choppy (like now for example), or he considers the price history of a stock to have been too erratic to be worth trading. Or maybe he gets a moving average crossover signal but he rejects the trade because there's strong overhead resistance that could put a ceiling on prices in the short term, and he'd prefer to wait for the stock to trade decisively above this resistance level before he starts watching it for entry signals from his crossover system.
There are just so many variables that an experienced trader takes into account. Computer backtesting just can't make allowances for these variables, and will therefore tend to come up with misleading results.
Another consideration is that a computer will test an entry strategy on say all 200 stocks in the ASX 200, whereas a trader who analyses the same block of stocks will select just two or three that he considers standouts.
Michael, I won't give you the finer details of my system that you've asked for....this thread is not about specific trading rules, it's about discussing whether we use fundamental or technical analysis, and our reasons for doing so.
What I'll do is summarise the strategy I've used for years to trade stocks.

1. Identify the weekly and daily trends of the overall market.
2. If both trends are bullish, identify which of the main sectors are bullish.
3. Run a computer scan on the stocks in those sectors to find those that are outperforming their sector, but are currently putting in a retracement.
4. Buy them once they finish their retracement and resume their uptrend.
5. Set a stop loss below the most recent swing low.
6. Trail the stop under the swing lows on whatever time frame chart you choose to trade from.

During a bear market, you can use the mirror image of this system to find good shorting candidates. You don't have to get mauled in a bear market. On the contrary, bear markets offer some amazing opportunities to a competent trader.

The system I've outlined is called the 'top down' trading approach. It's a robust and profitable strategy that has the ability to consistently outperform the market......providing it's implemented properly and with absolute consistency.
I didn't invent it, my strategy was formulated by borrowing ideas from people such as Weinstein, Hull, Guppy, Darvas, Bedford, Elder, Watkins, Landry. All of these people are highly respected in the industry and all use some form of a trend riding approach that identifies outperforming stocks and buys them on retracements.

I'm intrigued by the claims of those who dismiss this approach as unworkable.
Do you really believe I'll underperform the market by only buying stocks that are outperforming the market?
Are you really suggesting that the pople I've mentioned above are fools and pretenders who don't know what they're talking about and can't trade successfully?

Bunyip

Realist

18th-June-2006, 11:33 AM

So what happens if the share price goes down by 10%? 20%? 50%? 90%? It can and will happen. Unless you have considered what to do in advance you are going to suffer a lot of pain when this happens.

Okay so I have shares in Fosters - I think they are fairly valued now.

If the share price drops by 10% I ignore it.

If the companies fundamentals are the same (it makes a profit and has a future) and the price drops by more than 10% I'd probably buy more shares.

Simple as that. :D

I had BHP shares they went up to $32 I did nothing - they then dropped to $25 2 weeks ago, so I bought more. The company is the same just the share price was on sale for a short time only.

Shares in Fosters, Westfiled, CBA, and BHP can not go down 90% - basically impossible!!!

Maybe the company will go belly up ala HIH, Enron - it is a remote and ridiculous possibility. In which case I may lose all my money. But I diversify so well I'd lose maybe 7% of my money at most and calim that loss against a gain so really I'd lose 3.5% - woop de do. And the chances of it happening are so remote it is not worth thinking about. I do not need an exit strategy - hence I do not really have one. I do monitor fundamentals though, of course.

Share prices going down in a good company is a good thing for me, means I can buy more!!

Realist

18th-June-2006, 11:39 AM

There needn't be anything wrong with the initial valuation but suddenly you get a freeway realignment or a flightpath change, things that are impossible to see a few years in advance because they are rarely mooted for this very reason.
Whats happened - the fundamentals have changed so you take the loss and move on.
I've never seen a jockey win on a dead horse.

Hi John,

Correct.

If the fundamentals change then yes maybe you need to sell. You don't want to be riding a dead horse.

If just the valuation changes, and the fundamentals are sound - keep it!!

So if the price goes up or down who cares really, you are in for the longterm. But if the local bikie gang set up a headquarters next door it may be time to sell and quickly.

ducati916

18th-June-2006, 12:15 PM

tech/a

Honestly all too hard.

Doesnt help anyone.
The master of complex confuses the simple beyond normal understanding of those who have a genuine interest---the thread becomes impossible to understand.

Not really, in fact it's quite simple really;

ASX returned on an annualised basis 27.6% since Sept 2002
TT returned on an annualised basis 4.85% since Sept 2002

If you had simply bought the index in Sept 2002, and done nothing, your returns would have been outstanding, far in excess of TT.

Many if not most traders fail in Bullmarkets.They equate the odd win to consistant profit.
Bear markets bring stupidity from traders who design methods for bullish conditions and expect them to perform in bear markets.
Corrections arent bear markets.

Do any techies have the *vaguest* idea about the market?

Realist

Realist

Quote:
I bought more BHP about 9 days ago!!

We agree! WooHoooOOOO!

I am interested in your *valuation*
Would you be prepared to provide an analysis of BHP and your valuation?

I will also provide an analysis, and a valuation.
The two can then be compared to 2 other valuation methods, providing a total of 4 valuations..............Interested?
Of course if any other fundies would want to do the same, the more the merrier.

I take that as a not interested then?

jog on
d998

swingstar

18th-June-2006, 12:46 PM

1. Identify the weekly and daily trends of the overall market.
2. If both trends are bullish, identify which of the main sectors are bullish.
3. Run a computer scan on the stocks in those sectors to find those that are outperforming their sector, but are currently putting in a retracement.
4. Buy them once they finish their retracement and resume their uptrend.
5. Set a stop loss below the most recent swing low.
6. Trail the stop under the swing lows on whatever time frame chart you choose to trade from.

That is nearly identical to my system.

I agree regarding backtesting, in that it doesn't take in a huge number of factors such as market sentiment and news that a trader will take into account. Backtesting is only useful as a guide. For such a system like ours, it's probably best to paper trade and note down any outside factors that may have affected the trade.

As George Pruitt said who has tested thousands of mechanical systems... in real trading the profit is half as much and the drawdown double of what backtesting showed.

MichaelD

18th-June-2006, 12:59 PM

So far your computer testing has brought you to the completely wrong conclusion that buying outperforming stocks is a poor strategy.
No, that's not precisely what I found nor what I asserted. In more detail;

1. Take a given universe of stocks.

2a. Filter them such that the CLOSE compared with the CLOSE 12 months ago has increased by a given x% i.e. essentially find stocks uptrending at a given % per annum.

2b. An alternate filter which is even better at finding outperforming stocks selects those that would not have breached a given trailing stop loss in the last 12 months.

Looking at the charts produced by entry filter 2b shows stocks in sustained uptrend - exactly those that look juciest to select for trading; a straight line from bottom left to top right.

3. Use these as the entry for a trading system.

4. Use a trailing stop to exit.

What I found;
1. Such a system is profitable (and yes, index beating in bull conditions).
2. Increasing the % increase required from the entry filter DECREASED profitability. eg it was more profitable to select stocks rising at 20% PA than to select stocks rising at 35% PA.
3. However, to my unexpected surprise, random entry performed even better again.

So, I'm NOT saying your methodology is unprofitable - it most definitely is. My explanation for the observations I have made so far is;

1. Picking a stock in a long term uptrend and expecting the trend to continue is prediction, which is not possible. It may continue, or it may not. The end of the trend may be tomorrow or it may be 2 years from now. Either way, a significant period of the trend has already passed.

2. The EXIT of a system selects for the outperformers because it weeds out the underperformers, not because they are preselected by the entry strategy.

3. It is the EXIT which confers the profitability, not the ENTRY.

It is entirely possible that changing some of the testing parameters will completely change my results around and I acknowledge that.

It is entirely possible that an experienced trader using discretion could improve the methodology.

I do not claim to know everything about the market. I know almost nothing. The market is teaching me and I am learning its lessons. I am open to considering new and different concepts, even ones which initially seem like madness. However, I will only incorporate them into my trading system if I can prove that they are likely to improve my trading results. For me, that means provable over a range of stock universes and time periods via backtesting and then monitoring the results via system performance going forwards.

So far, the major two things I have found to improve my trading results are; 1. a trailing stop, and 2. an entry above a long term moving average. The great majority of other strategies I have tried have impaired system results.

Your beliefs and results may be different.

BSD

18th-June-2006, 01:22 PM

I'm intrigued by the claims of those who dismiss this approach as unworkable.
Do you really believe I'll underperform the market by only buying stocks that are outperforming the market?
Are you really suggesting that the pople I've mentioned above are fools and pretenders who don't know what they're talking about and can't trade successfully?

Bunyip

How much to attend your seminar Bunyip?

You are peddling simple answers to extremely complex systems that NOBODY has an answer to. I am not attacking you, just the apparent simplicity and passiveness in which you frame your strategy to meet the holy grail of beating the market.

You say the methods works undeniably "providing it's implemented properly and with absolute consistency". But how does this match up to the claims it can't be backtested because it requires trader's intuition?

You are picking 'outperformers' bull markets, I assume you need to seek 'underperformers' in bear markets. Do you have a formula to work out what type of market we are in?

How much do your bull market strategies have to lose before you switch to a bear strategy? Or does the same strategy work in bull and bear markets?

As I discussed earlier, quant models typically prove that in a bear market factors like mean reversion, value and yield will be more than likely to be predictive than momentum. Thus, the high flyers all fall and the boring yielders (who may only go sideways) beat the market.

Quant models use maths to actually quantify the things you are looking for in charts (outperformance, momentum etc)

By definition, if you are in stocks that ARE outperforming, you beat the market. But simply choosing stocks that HAVE been outperforming and buying them because they have dropped a bit is not going to outperform consistently.

ZFX over the last fortnight is a great example. A large manager (a Quant I understand) places a bucket of stock through Citigroup at $10.80 and the broker can't get it away.

A stock that HAS been outperforming and has a RETRACEMENT. Your strategy ignores the FUNDAMENTAL factors (zinc price and placement overhang) and buys $50,000 worth in the mid $10s

Subsequently, the overhang of stock, the falling zinc price and momentum traders selling pushes the ZFX price down.

One day it opens down over 10% on the OPEN as stop losses are triggered. A massive gap is created because everyone wants to get out at the same time. The stops set at 5% under the previous close get matched well below the plan and the punters lose 20% of their invested capital.

If Geared 2-1 the $50,000 of equity is turned into $150,000 and loss of 20% in two days loses $30,000 of initial capital.

The punter now has to get a trade that does 150% to get his $20,000 back to $50,000.

Another reason I don't think you will beat the market consistently is the fact you must hardly ever be fully invested. With all the pre-requisites for a buy in your strategy,

Have you got some numbers that analyse the level of risk in your portfolio?

You mention that you and your subjects beat the market, but how much is due to gearing or taking more risk than the benchmark. What is the volatility like compared to ASX200 or similar benchmark?

Would gearing-up an index fund beat your strategy? On an after tax basis?

Finally,

I dont agree 100% with the way realist works, but the tax point is far from mute. Regularly paying full rate CGT has enormous effects on long term compounding, making the break-even level of outperformance from a trading strategy to meet a buy and hold a lot higher.

Simplistically:
If Realist makes an average of 8% per annum and never pays tax for 15 years. His $100,000 turns into $317,000

If a trader paying 40% gets 12% per annum and turns over his portfolio once per annum he only accumulates $284,000. At 30% the trader accumulates $335,000

You need to have pretty incredible outperformance (50%) to beat the buy-hold guy.

And while the buy-hold investor has simply delayed tax, he has delayed it to the extent where:

a. he is now potentially on a lower tax rate, he gets full 50% discounting
b. is probably living off the dividends anyway.

The buy and hold guy takes 50% less risk along the way too.

If you are an expert on managing money, you would not make such offhanded comments regarding tax.

I have no real view on the folk you refer to. Some of them are highly successful managers of large amounts. Other make their money selling books and courses training people to use charts and such.

As I said before though:

If it is so easy, why don't investment banks have rows of guys trading like you do and sack the floors of fundamental research analysts who guide the investment decisions of trillions of dollars globally?

nizar

18th-June-2006, 01:54 PM

BSD - agree 100% with what your saying

The best post on this thread by far

Julia

18th-June-2006, 02:33 PM

Well Julia, in my opinion if you sold an investment property soon after buying it because its "value" had decreased then you made a mistake. Either in purchasing the wrong property, or in believing other peoples valuations.

Do not ever forget "values" are merely other peoples opinion. They change constantly depending on peoples moods.

Be a leader, not a follower in life! Make your own decisions, do not let other peoples judgement decide what you do. If you have a damn good house that you like - keep it!!

Surely no-one thinks real estate agents give fool proof valuations on properties?? Just like share prices are not fool proof valuations of a companies worth.

Sometimes they are wrong.

Realist

If you are going to respond to a post it's probably best to read it properly so that your response makes sense.

Here is what I said:

Depends whether I am buying the house to live in myself or if it is an investment.

If I buy a house to live in, I am not in the least concerned with its subsequent market valuation.
This would only become of interest if I decided to sell it. I have bought the house for the pleasure of living in it, not as necessarily a means of making money.
If I buy an investment property, however, and it has appreciated in price over, say, a couple of years, but then market assessments indicate it has achieved its maximum likely capital gain in the foreseeable future, and I can see another property in an area which is beginning to show good appreciation, then, yes, I will sell my initial investment property and buy where I can expect further appreciation.

It's nothing more than maximising opportunities.

Julia

We are talking about the investment property, yes? I suggested the said property had appreciated in price over, say, a couple of years.
You have "translated" this to it having decreased in value. No such thing.
I have made money on this property.
My own assessments of recent selling prices of similar properties in the area indicate that the appreciation my property has enjoyed has peaked.
I have nowhere mentioned using the views or advice of real estate agents.
My own research on prices in another area, plus my own assessment of all the factors affecting that area, indicates that a purchase of an investment property in that area will be likely to provide me with a capital gain I will not experience by staying with the existing property.
Therefore, imo it makes sense to move the funds from the one into the other.

Whilst I am grateful for your generosity in offering me advice about how to make decisions, I think I'll stick with my present criteria.

Julia

Realist

18th-June-2006, 05:38 PM

You have "translated" this to it having decreased in value. No such thing.

Hi Julia, my original question was would you sell a property if it decreased in value soon after you bought it?

Matt123

18th-June-2006, 07:08 PM

Technical analysis works, but for what timeframe, you can't work out for how long. For the simplest example, find a stock with an upward trend, buy in, and it will continue on it's upward trend. But for how long. No one can predict this and this one of the biggest flaws of technical analysis that I can see. Fundamental analysts look to see which stocks are over/under valued. Problem with that is that lots of people have already done this and so the current SP is likely a good indication of a shares actual value. If you find that a share is undervalued, providing that it is a share that more than a few people have looked at, you have likely missed some piece of information or done a calculation wrong. In the end the only way to perform consistently is to diversify across many industries and hope the economy does well, which is usually does in the end.

However this does not mean that you cannot outperm the average investor. If you wait for the right time, such as when the market rebounds as it did last friday you can make money. However it is still a question of timing and it is still impossible to predict. However I have found one share that still seems to be below the price before the downturn and I will be buying it on monday. Opportunities like this will occasionally present themselves and it is possible to make substantial returns. However this is far from the norm.

If you meet someone who claims to be making squillions by following a particular strategy, and tells everyone what this strategy is, then even if the strategy works everyone will be applying it and so the original investor must be able to get in and out before everyone else. This is another reason why neither technical or funamental analyis's work, everyone uses them and so the only real way to succeed in using them (if it works at all) is to be able to get in and out before everone else which is pretty much impossible. The claim that you can beat the market by using a particular strategy is ridiculous since if other people also use the strategy then you must be able to beat them first. Only one person win can do this and it is likely he is able to able to do this consistently.

So, my recommendation is to diversify and do research into companies that are likely to succeed. It is likely that over a long time period you will only earn a return that is the average of the market return for that period, but since this is usually a decent return relative to interest rates etc, trading does have its appeal.

wayneL

18th-June-2006, 07:29 PM

The problem with fundamental analysts is that they fundamentally misunderstand the fundamentals of technical analysis. (pun intended)

The problem with most technical analysts is precisely the same. That why most fail. Those that understand what they are doing outperform the market standing on their ear.

Now extrapolating that out to investors and traders (as most investers us FA and most traders TA) and we have a similar problem. Investors don't understand the fundamentals of trading.

I won't go through it again, I've said it (as have others) many times.

The two should not be compared. If you wanna be a pretend Buffet, fine, go do it. If you wanna be a pretend Soros, thats fine too. But I doubt Buffet would continuously denigrate George Soros because he is a trader.

Sheesh these threads are so tiresome!!!!!

It's Snake Pliskin

18th-June-2006, 07:35 PM

Okay so I have shares in Fosters - I think they are fairly valued now.

If the share price drops by 10% I ignore it.

If the companies fundamentals are the same (it makes a profit and has a future) and the price drops by more than 10% I'd probably buy more shares.

Simple as that. :D

I had BHP shares they went up to $32 I did nothing - they then dropped to $25 2 weeks ago, so I bought more. The company is the same just the share price was on sale for a short time only.

Shares in Fosters, Westfiled, CBA, and BHP can not go down 90% - basically impossible!!!

Maybe the company will go belly up ala HIH, Enron - it is a remote and ridiculous possibility. In which case I may lose all my money. But I diversify so well I'd lose maybe 7% of my money at most and calim that loss against a gain so really I'd lose 3.5% - woop de do. And the chances of it happening are so remote it is not worth thinking about. I do not need an exit strategy - hence I do not really have one. I do monitor fundamentals though, of course.

Share prices going down in a good company is a good thing for me, means I can buy more!!

Pure dribble :sleeping:

No exit strategy?

GreatPig

18th-June-2006, 09:03 PM

Shares in Fosters, Westfiled, CBA, and BHP can not go down 90% - basically impossible!!!
That's right... even AMP only went down 80%...

GP

It's Snake Pliskin

18th-June-2006, 09:14 PM

swingstar

18th-June-2006, 09:20 PM

If it is so easy, why don't investment banks have rows of guys trading like you do and sack the floors of fundamental research analysts who guide the investment decisions of trillions of dollars globally?

I don't consider myself an expert, but I've read enough and from personal experience to conclude that the trader is the most important aspect of any 'system'.

Marty Schwartz says in Market Wizards that he tried to train some employees, but none of them were any good... it shows that he didn't have a proven technical or fundamental system that worked for anyone, but was still able to amass millions.

bunyip

18th-June-2006, 09:25 PM

BSD

By all means attack the simplicity of my system if you want.....that's exactly the reaction I expected from at least a few people. There's always opposition from those who just cannot accept that excellent trading results can be achieved by simply hitching rides on strongly trending stocks, and jumping off when they stop trending strongly. And that this strategy can be applied in both bull and bear markets.

You've challenged me with a host of questions to put me on the defensive. But the fact is that when you have a simple system as I do that consistently outperforms the market year after year, you don't feel much obligation to defend your methods. I have very little interest in what you think. I'm not the slightest bit interested in spending my time in answering your questions, refuting your arguments or pointing out where you're wrong, or throwing a heap of challenging questions at you. And even if I did, I wouldn't have much interest in your answers.
I'm not interested in trying to change your beliefs or convert you to my way of trading. On the contrary, I want you to keep doing what you're doing.

I've outlined my system, explained how it works, told you how it performs. If you remain unconvinced that this system really can outperform the market, then so be it. I really don't have much more to add.
However, I'll make a couple of brief comments in relation to some of the issues you raised.

Forget about leverage....the stocks I've invested in have, on average, made far larger percentage gains than the All Ords. In the bear market of 2002 I continued making good returns by shorting the market.

I've only traded the blue chips.

The students I referred to were not paying students....some were friends who I helped out, a couple were strangers who rang me and asked if I'd help them. I don't run seminars or a trading education company and I don't derive one single dollar of income from trading education.

I'm not a expert on managing money and I'm not a tax expert either.....nor did I claim to be. But I do have tax effective, wealth creation type investments that have some effect in reducing tax. Don't bother asking me what they are......I have no intention of discussing my personal business on a public forum.

Why isn't everyone, including the investment banks, trading this way if it's so simple? Probably for the same reasons that not everyone is looking after their health by eating lots of fruit and vegetables and getting lots of exercise. Probably for the same reason that not everyone is creating personal wealth through buying investment property on borrowed money, then letting the rental imcome and the tax deductions pay most of the bank committments.
Probably for the same reason that most people waste thousands of dollars each year on takeaway food, when it'd be much much cheaper to pack a sandwich or two and a couple of pieces of fruit, and take them to work.
If you subscribe to the theory that 'everyone would be doing it if it was this easy', then you are showing just how little you know about human nature.

Bunyip

It's Snake Pliskin

18th-June-2006, 09:29 PM

..for some reason people think that banks should be competent at trading. There may be individuals capable, but.........

..or do banks do well on the in?

Realist

19th-June-2006, 12:17 AM

That's right... even AMP only went down 80%...

AMP made big losses in 1998 and 1999 I would not have bought them. I do not buy companies that make losses, simple as that.

And if I had bought earlier and the Fundamentals changed so dramatically. I would have sold them

But if I held them over the whole time I'd be only down a bit after dividends anyway. They are down about a 3rd now.

Sure I could buy shares and they go belly up, I diversify widely for this very reason. I'd lose 8% at most of my total capital, and claim that back against a gain - reducing my losses further.

ducati916

19th-June-2006, 07:04 AM

enzo

As usual total nonsense.
Technical analysis can be summarised in one sentence.
Technical analysis seeks to TIME the market. Fundamental analysis seeks to VALUE the market

Now extrapolating that out to investors and traders (as most investers us FA and most traders TA) and we have a similar problem. Investors don't understand the fundamentals of trading.

Based on what evidence?
As usual, lots of opinion, very little factual basis supporting the opinion.

What becomes very apparent from observing traders, or investors, that place their trades into the public forum, is that generating these fantasy land returns is a very much more difficult proposition than you would have been led to believe if all you listened to were the *claims* of the hindsight traders club.

What we do see a lot of however is, oh my returns are XYZ, but my system is secret, you wouldn't understand my system, posting live interferes with my psychology, and excuse after excuse.

There is no real requirement to disclose your method if you choose to keep it secret........post the trades.

If, your method could be extrapolated from an analysis of the posted trades by second parties.........guess what......your system ain't nothing new.

What will become very apparant, is that beating the market is not as easy as is made out by all the hindsight traders. You beg to differ.......post your trades and demonstrate that you can outperform the market.

And you are one of the people most guilty of this.
I see much braggadicio, very little action.
Every trade commentary is a classic hindsight, no real time trades from you.

There are others that place their trades in the public forum, on a real time basis, and irrespective of their results they deserve respect for actually trading their methodology. It is these results that actually demonstrate the likely success or failure of the underlying strategies, and or philosophies.
These are the results that would generally be achieved or are achievable by others.

jog on
d998

ducati916

19th-June-2006, 07:32 AM

And as an afterthought, as your post seemingly implies that investor's not only can't trade, but don't even understand trading, well, time to put that to the test.

We both *trade* the US Market, so pick an Index, a lively one, IWM, or DJIA or pretty much whatever you want and we can trade one of them live over the next year or so.

Use whatever instruments you want, Options, Futures, Common, long, short, hedged, anything goes.

You can pontificate theory with the best of them.
Lets see if there is substance to the theory.

jog on
d998

GreatPig

19th-June-2006, 08:42 AM

Realist,

Sure I could buy shares and they go belly up, I diversify widely for this very reason. I'd lose 8% at most of my total capital, and claim that back against a gain - reducing my losses further.
Whether I agree with it or not, it's good to see that you have a plan and have obviously thought all this through.

Taking solid companies and simply adding to the portfolio when the price drops is not such an unusual strategy. The AIM algorithm works on that principle, as does Navra's DCT system (which I think is also based on AIM).

As long as your time frame is long enough to cover potential extended low periods, then this may well give reasonable returns. From my study of the AIM algorithm though, it rarely gives outstanding returns, but then that algorithm involves regular selling during price rises as well. If you basically just hold forever while the stock is looking good, then your short-term return is essentially just the dividend yield.

Cheers,
GP

Realist

19th-June-2006, 10:30 AM

If you basically just hold forever while the stock is looking good, then your short-term return is essentially just the dividend yield.

Not even that - I always reinvest dividends when I can.

I'm not interested in short term income or returns anyway, I've still got 30 odd years of working to do unfortunately. :(

Shares are investments for me, not income.

I worked out the other day if I can start with $70K invested and add another $40K a year to the pool for the next 22 odd years and make 10% a year after tax (I don't sell so mostly no tax anyway) I'll have $4 Million. That should be enough. ;)

And adding $40K a year in 10 years will be easy - not so easy now but I still do it....just.

10% return should be fairly easy as well as all my shares pay dividends. And I reduce my tax. If I get 4% in dividends I only need a 6% price gain.

So $4M in 20 years is a good aim, and very realistic and possible. The one problem is I need to buy a house. Or do I? Should I just rent forever - yet to decide.

If house prices drop another 15% I'll buy though.

bunyip

19th-June-2006, 11:26 AM

1. Picking a stock in a long term uptrend and expecting the trend to continue is prediction, which is not possible. It may continue, or it may not. The end of the trend may be tomorrow or it may be 2 years from now. Either way, a significant period of the trend has already passed.

I do not claim to know everything about the market. I know almost nothing.

Michael

Your comment about prediction is interesting. If there's one way to get a spirited debate going, it's to raise the question of "Does technical analysis attempt to predict the market"?

Buying a strong stock that's starting to take off again after pausing briefly, is simply a case of the trader reacting to what the market is doing. There are no predictions involved. I don't know what the stock will do in future. As you say, it might go a long way or it might quickly run out of steam. If it goes a long way then I'll attempt to ride it for all it's worth. If runs out of steam shortly after my entry, then I'll cop a small loss when it hits my stop.
But although I don't know what it'll do in future, I do know what the probablilities are.
Strong trends tend to last longer than we think they'll last. Momentum breeds momentum....people pile into stocks in increasing numbers when they see a hot performer.
The main reason a strong stock takes off again after a pause, is that lots of buying pressure is coming into the stock and pushing it higher. If we can recognise a strong performer relatively early in its trend, and we buy it after it pauses, then takes off again, odds are that it will run far enough to give us a profitable trades. No guarantees of course, and no predictions either......just a realistic assessment of the probabilities, and the potential for big profits if we're right, or a small loss if we're wrong.

You've stated "Either way, a significant period of the trend has already passed."

My answer is sometimes, and sometimes not. The trend strength tools I use do a pretty fair job in most cases of giving me a timely alert that a strong new trend has emerged.
In any case, missing the first part of a trend is not such a bad thing. Trends frequently stuff around initially before really starting to build up a head of steam. The last two thirds of a trend is where the real strength tends to be.
No trading system can consistently get you in right at the bottom and out right at the top. If you know one that does, please tell me about it and I'll start using it immediately.
If you look at some big trends of the past, and you chuck one of the trend strength indicators on the chart (ADX or ROAR), you'll see that in most cases these indicators started reading 'strong trend' in plenty of time for you to get in the trade and take a substantial bite out of that trend.
And that, in a nutshell, should be our objective.....to take large bites out of big trends.

You've admitted you know almost nothing about the market. So let me give you a few tips that I believe can help you.

Realise that you don't need to know much in order to profit consistently from the market. Too much information and knowledge can be detrimental to trading results. There's a colossal amount of information out there, both technical and fundamental.
Most of it is pretty damned useless in my experience.
The important things in trading are...
* Identify strong trends.
* Have one or two simple setups to signal an entry into these strong trends.
* Use stops and money management to strictly control your losses.
* Have an exit strategy that's designed to keep you in the winning trades as long as they keep performing well, and take you out when the party is over.

In other words, keep it simple and be consistent.

Bunyip

It's Snake Pliskin

19th-June-2006, 12:14 PM

ducati916

19th-June-2006, 12:20 PM

It's Snake Pliskin

19th-June-2006, 12:44 PM

Snake

Sure if you like.
But then I guess you'd rather listen to all the stories.
You obviously think beating the market is easy, I see precious little evidence, but plenty of claims..................all in hindsight.

jog on
d998

Duc,

It`s all entertainment whether it`s fiction or fact.

Beating the market is not easy but earning a healthy income off it is not as difficult as one might think. As far as evidence it is not relevant.Perhaps you want some losses posted to make you feel better about your own losing system?

I`m not playing your game and find your consistent attack on enzo, most know him as WayneL, silly.

It`s part of the mindset one must have: don`t listen to crap.

If you want bananas go to the store.

Snake

GreatPig

19th-June-2006, 12:58 PM

for the next 22 odd years and make 10% a year after tax (I don't sell so mostly no tax anyway) I'll have $4 Million. That should be enough.
Will $4m be enough though in 22 years?

Even now I think they say you really need $1.5m or so to retire comfortably. In another 20 odd years, I imagine that would be somewhat more than $4m.

However, you'll probably still have good dividend income, which in itself might be enough.

Cheers,
GP

bunyip

19th-June-2006, 01:13 PM

Duc

You've mentioned the lack of evidence to support the claims about beating the market.
I'm one of the blokes who has made such a claim. Not only that, but I've clearly outlined the system that's enabled me to do it.

Now, my question to you is this.........'Why should I feel obliged to provide you with evidence"?

Incidentally, the use of the word 'simple' to describe a trading methodology does not in any way mean that beating the market is easy.
No matter how simple the system used, there are various factors that ensure that beating the market will never be easy. Overcoming emotion and implementing self discipline are two that spring to mind. Neither of them is easy to achieve, hence trading itself is not easy.

Bunyip

bullmarket

19th-June-2006, 01:15 PM

Hi GP

I think $4M in 22 years time should still be more than enough to generate sufficient income to allow someone to live a comfortable lifestyle......but of course that depends on what they see as 'comfortable' :)

eg.......if in 22 years time you invest that $4M and receive a yield of 7% (which is pretty easy today with LPT's at least) then you'l have an income of $280k pa.

If you than assume average inflation of 3.5%pa for the next 22 years and use it to discount the $280k back to today's dollars you get:

NPV of that $280k = 280000 x (1 - 0.035)^22 = $127867

So everything else being equal, $280k pa in 22 years time should have the same buying power as ~$127k pa today.

cheers

bullmarket

ducati916

19th-June-2006, 01:17 PM

Snake

Duc,

It`s all entertainment whether it`s fiction or fact.

Beating the market is not easy but earning a healthy income off it is not as difficult as one might think. As far as evidence it is not relevant.Perhaps you want some losses posted to make you feel better about your own losing system?

I`m not playing your game and find your consistent attack on enzo, most know him as WayneL, silly.

It`s part of the mindset one must have: don`t listen to crap.

If you want bananas go to the store.

Well if it's entertainment that you're looking for, my mistake, you have undoubtably found it.

Regarding beating the market, you think beating the market is hard, yet earning an income from the market is easy, or easier..............I have yet to see consistent evidence from any but a select few. And enzo is most certainly not one of them.

As regards my *system* time will tell.
But more importantly, so will you.
You won't have to take my word for it, guess what you can follow it each week, and you'll see any disasters, how they are managed, or not as the case may be, and you can make an informed judgement.

Without that accountability, I could claim anything I choose, and who's to gainsay me?.....................This is the situation currently with this debate, discussion..........we have multiple people claiming all sorts of results, but not a shred of accountability.

If you are happy with that situation, then jog on.....................
I personally would like to see some evidence of profitability if profitability is claimed. If it is a discussion on *theory* that's fine, I enjoy discussing theory as much as the next person.

jog on
d998

Realist

19th-June-2006, 01:19 PM

Actually I just worked it out again.

$70,000 invested at 10% a year, and topped up with $40,000 per annum extra would turn into $5M after 27 years.

Remember, this is not my super, this is an investement, I also have Super which could be another $@M.

How much tax would I owe in 27 years? If I never sold anything along the way :eek:

ducati916

19th-June-2006, 01:32 PM

bunyip

Duc

You've mentioned the lack of evidence to support the claims about beating the market.
I'm one of the blokes who has made such a claim. Not only that, but I've clearly outlined the system that's enabled me to do it.

bunyip,
Actually I do not really require disclosure of your methodology at all.
If you wish to claim results XYZ, I would like to see results from trades taken in real time that support your assertion

Now, my question to you is this.........'Why should I feel obliged to provide you with evidence"?

If you wish to claim the results, then provide the evidence.
If you do not wish to provide the evidence, save your breath claiming the results.

Incidentally, the use of the word 'simple' to describe a trading methodology does not in any way mean that beating the market is easy.
No matter how simple the system used, there are various factors that ensure that beating the market will never be easy. Overcoming emotion and implementing self discipline are two that spring to mind. Neither of them is easy to achieve, hence trading itself is not easy.

Agreed.
Which is why when people claim the ability to consistently beat the market, immediately my ears prick up.

Using TT as an example yet again, tech/a posts his trades and his results live. He made a lot of money.............but he didn't beat the market.
His is a technical methodology.
There are some live *traders* on REEF, I hate their methodology, but I would never criticise, as, they are doing it live, and are accountable.

People are giving Realist a bit of a hard time for advocating a buy and hold strategy............now I actually don't advocate a buy & hold, however he has some trades listed................yet all the *techies* jump in with a loud collective shout of how that method will not beat XYZ.

Really?
Where's the evidence?

I've followed a number of live traders through the years, only the odd one has made any serious money, most have struggled.

jog on
d998

swingstar

19th-June-2006, 01:36 PM

It`s part of the mindset one must have: don`t listen to crap.

Agreed. There's a lot of crap posted on this forum.

Perhaps there should be an ignore option?

It's Snake Pliskin

19th-June-2006, 01:39 PM

Duc,

Well if it's entertainment that you're looking for, my mistake, you have undoubtably found it.

yee, haa

Regarding beating the market, you think beating the market is hard, yet earning an income from the market is easy, or easier..............

a fabrication of what was actually written :nono:

As regards my *system* time will tell.
yes, time is on your side right?

Without that accountability, I could claim anything I choose, and who's to gainsay me?.....................This is the situation currently with this debate, discussion..........we have multiple people claiming all sorts of results, but not a shred of accountability.

Your accountability is important isn`t it?

If you are happy with that situation, then jog on.....................
I personally would like to see some evidence of profitability if profitability is claimed. If it is a discussion on *theory* that's fine, I enjoy discussing theory as much as the next person.

As I said don`t listen to the crap. If I do decide to post some realtime trades I`ll PM you to inform. Theory, love it.

Walk the plank...
Snake

ghotib

19th-June-2006, 01:41 PM

AMP made big losses in 1998 and 1999 I would not have bought them. I do not buy companies that make losses, simple as that.

And if I had bought earlier and the Fundamentals changed so dramatically. I would have sold them

But if I held them over the whole time I'd be only down a bit after dividends anyway. They are down about a 3rd now.

Sure I could buy shares and they go belly up, I diversify widely for this very reason. I'd lose 8% at most of my total capital, and claim that back against a gain - reducing my losses further.
Yabbut this is not Graham or Buffet. They do not diversify, they concentrate.

Not saying your approach is wrong, just as far as I can see that it's not the same as Graham or Buffet.

Ghoti

Realist

19th-June-2006, 01:49 PM

Yabbut this is not Graham or Buffet. They do not diversify, they concentrate.

Correct!! Buffett does concentrate and specialise. And I do not.

I'm no Warren Buffett, I'm not as smart as him, I don't do the research and have the knowledge he has. I know my weaknesses.

Both Graham and Buffett would recommend I diversify.

bullmarket

19th-June-2006, 01:53 PM

hi ducati

I think you'll find the vasy majority of people place no credibility or whatever in any claims of trades, profits etc etc in chatrooms.....I certainly don't ;)

I also haven't seen any claims of trades in real time, live or whatever else you want to call them.....I've only seen people make claims after they allegedly made a trade, albeit only by a few mins in some case but imo whether it is only a few mins or 6 hrs it makes no difference because anyone with access to the course of sales can look up a historical profitable entry point in the c.o.s and claim it is theirs and since you have no way of knowing who is actually siting at the keyboard at any particular time there is no way of verifying with 100% certainty whether a chatter's claim is true or not.

So the bottom line here is, don't get worked up when people make claims and then run away when asked to verify them.....it happens all the time for various reasons ;)

cheers

bullmarket :)

bunyip

19th-June-2006, 02:29 PM

Duc old mate, You've got 'evidence' on the brain.
If it was important to me that you believe me, then I'd be going out of my way to convince you, including providing evidence if need be.
If I was trying to sell my system commmercially, then once again I'd be providing evidence in an effort to convince people.

But I'm not selling my system, I'm sharing it in the hope that it will help othes.
And it's not important to me that you or anyone else believes me. I don't give a stuff whether you do or don't. Quite honestly, I couldn't care less.

If you want proof of the workability of a particular system, then I suggest you try out the system for yourself to prove or disprove its value.

I guess you've read a book or two on trading or investing? Maybe you should write to the authors and demand that they supply evidence to back up their claims in the book!

Bunyip

ducati916

19th-June-2006, 02:33 PM

Snake

If I make a claim,..........and I love making claims, I'll always be prepared to back it up by offering real time trades.

I'm aways interested in *live* trades from anybody, novice or expert.
Live trades expose you to the volatility of the market, **** happens, and the manner in which the market environment is managed is always a source of interest to me.

Therefore feel free to PM your trades to me.

As I said don`t listen to the crap.

There is however subtle differences within the offered stool.
We have the stool sample provided by the easily discerned novice.
Then we have the stool sample provided by the alleged *expert*

It is the second stool sample that I take issue with, as it masquerades as common earth soil, and is all the more dangerous due to the difficulty in running laborotory tests on said sample.

Therefore, to test the stool sample and gather evidence is important.
This is done in the scientific manner, and asking for a fresh stool sample, not one that was brought from home and is stone cold.

Mr bullmarket

I also haven't seen any claims of trades in real time, live or whatever else you want to call them.....I've only seen people make claims after they allegedly made a trade, albeit only by a few mins in some case but imo whether it is only a few mins or 6 hrs it makes no difference because anyone with access to the course of sales can look up a historical profitable entry point in the c.o.s and claim it is theirs and since you have no way of knowing who is actually siting at the keyboard at any particular time there is no way of verifying with 100% certainty whether a chatter's claim is true or not.

In essence I agree.
I am not unduely concerned about exact to the second timing.
I am quite happy to be generous............I am an extremely generous chap.
I have found that most posters who post trades in real time tend to be pretty genuine, and confident of their methodology.

This is especially true of *longer term* methodologies.
Day-trades..........hell a couple of seconds either side is fine.

jog on
d998

Realist

19th-June-2006, 02:42 PM

Some traders make alot of money Bullmarket. I've noticed the really smart traders make money the easy way....

By running $5000 courses, or $600 one-day seminars spruiking their revolutionary methods to unsuspecting newbies.

"The Director of Trading Secrets is Louise Bedford. Louise has more than a decade of trading experience and has profited in all types of market conditions"

Wow, someone that made some money in all types of market conditions. Where do I send my cheque? :rolleyes:

"For one week out of every month, Louise Bedford will take you through appropriate trading psychological theory and set a series of mental exercises to complete, sometimes on a daily basis."

Mental exercises, very useful. :cool:

"topics to be covered will include relaxation techniques, your inner child, how to create a morning journal and how to re-train your mind to derive superior trading results. These psychological techniques have stood the test of time,
and represent the culmination of over 2 years of research."

Relaxation. Hahaha. Give up trading. If you want to relax - invest!!

2 whole years of research. Oh dear :sly:

gimme a break, this angers me bigtime.. :swear:

(I am not against trading, I am totally against $5000 courses that teach relaxation, inner child, and mental exercises though)

ghotib

19th-June-2006, 04:55 PM

Correct!! Buffett does concentrate and specialise. And I do not.

I'm no Warren Buffett, I'm not as smart as him, I don't do the research and have the knowledge he has. I know my weaknesses.

Both Graham and Buffett would recommend I diversify.
I think they'd recommend that you buy into an index fund :)

I'm trying to figure out my own approach to value investing, same as you are, so I'd really like to understand how we've got to such different positions about it. As far as I can see, you're buying blue chips on price dips. I haven't seen anything about how you determine values, and hence how you know when the prices have dipped low enough for you to buy?

For instance, what made you decide to buy BHP recently instead of WOW?

Ghoti

wayneL

19th-June-2006, 05:20 PM

Dear Mr Ducster,

You do like to carry grudges don't you. :eek7:

I respectfully decline your offer of a trading challenge. I also decline, in accordance with the agreement both you and I made to Joe, to indulge in acrimonious discourse with you. I will be honouring that agreement.

Good Day and Best Wishes.

Realist

19th-June-2006, 06:28 PM

For instance, what made you decide to buy BHP recently instead of WOW?

The main reason is Woolworths almost has hit market saturation in Aus, and their P/E ratio is high at 21.4. I can't see WOW growing significantly, they have about 57% market share already from what I know.

I bought BHP a while back for $23 and they went to $32 then back down to $25 - I thought what the hell I'll buy some more while I can.

BHP dipped 21% recently and the P/E is only 12 (way less than WOW), WOW did not dip at all. I believe I got BHP at a discount. If WOW dipped 25% next week I'd buy them.

I'd be pretty sure BHP will rise more over the next few years than WOW will.

Only time will tell.

eddievanhalen

19th-June-2006, 08:43 PM

This thread cracks me up - I'm not sure whether to laugh or cry actually. We have a whole lot of one-upmanship here dominated by traders who refuse to believe that anyone has an approach that produces "mega returns" just because they cannot manage it themselves.

I am not going to even try and make any claims myself , but let's just say that I am in contact with traders all day every day and have seen trading statements/tax returns of my closer trading friends.

I'm not going to get myself into an argument with the usual suspects here but let me say that I talk from some experience - I in fact used to be a one eyed Buffet fan who believed that the returns he has produced over a very long period (say 20-25% pa ) were the ultimate and that technical analysis was akin to palm reading.

Over the years my opinions have changed.

Let me just make a few points to those who refuse to believe that there are possibilities beyond what their closed minds might suggest and I will leave it at that. I have no wish and no need to get into a philosophical argument or to prove anything to anyone other than myself. I get the feeling Bunyip is a bit the same and for mine I'd be guessing he's the most likely here to be making spectacular returns.

My points as follows:

-most beginning traders suffer from undercapitlisation and are not aware of what is possible until they trade more significant amounts (myself included).
- the key to making large returns on your "trading kitty" is to have no money sitting around doing nothing or dwindling in poor FA picks. I am as much a fundamentalist as I am a TA trader but I realise that I can outperform a buy and hold strategy with a certain amount of my funds by actively trading. The key is to understand how to trade sentiment and trends.
- the best traders I know have an open mind and use both TA and FA.
- the best traders I know are "discretionary" and have a system based upon experience and some concrete principles which cannot be punched into a system tester and "proven" - they are based upon a huge amount of observation , experience and hard work.

- there ARE a few traders who are making 50,60,70,80,90% returns on large sums of money. Quite obviously making 80% pa over a long period on billions is nigh on impossible and there must be diminishing returns as you get larger or we'd have new trading billionaires all the time. That's not to say that there's not traders out there making 80% pa on 6 and 7 figure sums - there are!! (and that's WITHOUT leverage, CFDs, margin loans,options , warrants,futures)

- people turning over large amounts in the market neither have the time nor inclination to try and compete with others and prove themselves.........or hang around forums in most cases. I personally trade AND invest.........turn over in excess of $1m/month most months. Do you think I could be stuffed posting my trades (around 70 positions currently) and trying to prove myself to some people on the internet I don't know. I actually spend a lot of my free time helping other traders with general queries and am all for pointing people in the right direction but as far as trying to explain my system and prove it to everyone?? Couldn't be bothered and it's actually nigh on impossible to teach a discretionary system anyway unless you sit with someone and "mentor " them for months on end. And then you come across another hurdle - getting them to THINK like a top trader is nigh on impossible unless they have the ability to teach themselves to leave emotion at the door. You can however teach some very important general principles that make up that system as Bunyip has indicated.

- most of the traders I know making really big money from the markets do it full time. TechA does a fantastic job using a low maintainence system - those who wish to do significantly better can expect to spend 40+ hrs a week on it.

- I am aware of the actual trading results of some of the overexposed seminar promoters out there and let's just say that most of their money must come from books and seminars.

That's my piece - make of it what you will. I have made no claims about my own results - I have been making a living fulltime from the market from the age of 27 (currently 32) and have no need to prove myself to anyone.

The only reason I bothered posting was to try and get across to some of those with a more open mind that YES .......a very small minority are making a killing from the markets. If you open your mind , forget conventional wisdom about what is possible and just get in there and try and come up with some unique ideas then you might just be one of them

The only way to seriously outperform everyone else is to do something everyone else isn't doing.

Over and out

Ed

It's Snake Pliskin

19th-June-2006, 08:51 PM

This thread cracks me up and was why (other than lack of time) I give many forums a wide berth - I'm not sure whether to laugh or cry actually. We have a whole lot of one-upmanship here dominated by traders who refuse to believe that anyone has an approach that produces "mega returns" just because they cannot manage it themselves.

I am not going to even try and make any claims myself , but let's just say that I am in contact with traders all day every day, have seen trading statements/tax returns of my closer trading friends.

I'm not going to get myself into an argument with the usual suspects here but let me say that I talk from some experience - I in fact used to be a one eyed Buffet fan who believed that the returns he has produced over a very long period (say 20-25% pa ) were the ultimate and that technical analysis was akin to palm reading.

Over the years my opinions have changed.

Let me just make a few points to those who refuse to believe that there are possibilities beyond what their closed minds and I will leave it at that. I have no wish and no need to get into a philosophical argument or to prove anything to anyone other than myself. I get the feeling Bunyip is a bit the same and for mine I'd be guessing he's the most likely here to be making spectacular returns.

My points as follows:

-most beginning traders suffer from undercapitlisation and are not aware of what is possible until they trade more significant amounts (myself included).
- the best traders I know have an open mind and use both TA and FA.
- the best traders I know are "discretionary" and have a system based upon experience and some concrete principles which cannot be punched into a system tester and "proven"

- there ARE a few traders who are making 50,60,70,80,90% returns on large sums of money. Quite obviously making 80% pa on billions is nigh on impossible and there must be diminishing returns as you get larger or we'd have new trading billionaires all the time. That's not to say that there's not traders out there making 80% pa on 6 and 7 figure sums - there are!!

- people turning over large amounts in the market neither have the time nor inclination to try and compete with others and prove themselves. I personally trade AND invest.........turn over in excess of $1m/month most months. Do you think I could be stuffed posting my trades (around 70 positions currently) and trying to prove myself to some people on the internet I don't know. I actually spend a lot of time helping other traders with general queries and am all for pointing people in the right direction but as far as trying to explain my system and prove it to everyone?? Couldn't be bothered and it's actually nigh on impossible to teach a discretionary system anyway unless you sit with someone and "mentor " them for months on end. You can however teach some very important general principles that make up that system as Bunyip has indicated.

- most of the traders making really big money from the markets do it full time. TechA does a fantastic job using a low maintainence system - those who wish to do significantly better can expect to spend 40-60 hrs a week on it.

- I am aware of the actual trading results of some of the overexposed seminar promoters out there and let's just say that most of their money must come from books and seminars.

That's my piece - make of it what you will. I have made no claims about my own results - I have been making a living from the market from the age of 28 (currently 32) and have no need to prove myself to anyone.

The only reason I bothered posting was to try and get across to some of those with a more open mind that YES .......a very small minority are making a killing from the markets. If you open your mind , forget conventional wisdom about what is possible and just get in there and try and come up with some unique ideas then you might just be one of them

The only way to seriously outperform everyone else is to do something else.

Over and out

Ed

Thank you Eddie Van Halen.
it is entertainment.

swingstar

19th-June-2006, 09:06 PM

Nice post Ed.

bullmarket

19th-June-2006, 09:16 PM

Hi eddievanhalen

It looks to me you're trying to have it both ways ;) since you say you haven't made any claims but when I read your post you clearly make claims of various sorts. Personally I have no idea if your claims are true or not but it doesn't really matter.

What I find amusing is that people make unsubstantialted and unverifiable claims in chatrooms like this and then expect others to just blindly believe them :rolleyes: ......I for one have always had and will always have a policy of not blindly believing what I read in chatrooms.

The way I see it, the more people get upset and aggressive towards those who justifiably choose to not believe unsubstantiated/unverifiable claims the more confident I am that their claims were horse manure in the first place because if their claims were true, I cannot see how on earth it should matter to them if I or anyone else blindly believes them or not......being aggressive/abusive towards other chatters indicates to me they have other agendas which require them to be believed for their agendas to be achieved. :eek7:

cheers

bullmarket :)

David123

19th-June-2006, 09:23 PM

eddievanhalen

19th-June-2006, 09:28 PM

You're right bullmarket ofcourse. That's the problem with these discussions and I acknowledge the logic behind what you say. Having said that I'd like to think what I posted has a bit more substance than "Buy XYZ..whoosh ..going to the moon". Hard to see how I could possibly benefit from what I posted.........the so-called "agenda" :rolleyes: I only pop into this forum occassionally and not looking to build (or destroy :p: ) my reputation here.

I never normally get involved for that very reason. I was just a bit frustrated with how some people are limiting their own progress based upon conventional wisdom. Obviously some of the contributors to this thread have a lot of experience and their beliefs are based upon that experience...........fine. It's more the newbies who read this that I'm worried about.

The only reason I posted at all was to try (in vain probably) to maybe influence some of those who refuse to believe that returns greater than 10-20% pa are possible to think outside the square a bit.

I see no reason for anyone to believe me any more than those who claim that nobody (trading smaller amounts) can beat Buffett. This thread will never get anywhere in my opinion and I almost regret posting in it. :banghead:

Back to work.

I'll come back in a few weeks and see how may more times we've gone around in circles

Ed

PS the only real "claim" I made to illustrate a point was that I currently hold 70 positions and TURN OVER 1m/month. When I say turnover I mean total sales. I could do that buying in and out of BHP 50 times for the month using only $20,000. It doesn't imply a level of profit at all.

bunyip

19th-June-2006, 09:36 PM

Thanks Ed.....that was an outstanding post. You show knowledge and wisdom beyond your years.
I doubt if you'll convince the non believers though....maybe one in fifty of them will be prepared to think outside the square he's living in, get off his backside and start putting in the hard yards necessary to learn a better and simpler way of profiting from the market.
Most of them however will continue to believe the age old crap that keeps them slugging along at 10 to 15% annual returns (if they're lucky) and believing that because they can't get above this level, nobody else can either.

Anyway, at least we've tried to help they eh? But we won't try too hard because as you've pointed out, we really don't need to convince anyone of anything and we feel no need to prove ourselves to anyone.

Bunyip

Bobby

19th-June-2006, 09:43 PM

Over the years my opinions have changed.

The only way to seriously outperform everyone else is to do something everyone else isn't doing.

Like that ! :) Yep if everyone is trying to stick their paw into the cooky jar at the same time, how are you going to get any cookies?

I do something manualy that works, but is so slow as I need to physically monitor one stock at a time.
Now if I could find a programmer to do the code so as to run the thing through a software package ~
But would it get pinched :confused:?

Bob.

MichaelD

19th-June-2006, 09:43 PM

Realise that you don't need to know much in order to profit consistently from the market. Too much information and knowledge can be detrimental to trading results. There's a colossal amount of information out there, both technical and fundamental.
Most of it is pretty damned useless in my experience.
The important things in trading are...
* Identify strong trends.
* Have one or two simple setups to signal an entry into these strong trends.
* Use stops and money management to strictly control your losses.
* Have an exit strategy that's designed to keep you in the winning trades as long as they keep performing well, and take you out when the party is over.

In other words, keep it simple and be consistent.

Bunyip
All absolutely true. My plan does all of this and so do I. So far, the plan (and I) are performing to (backtested) specification.

Really our only point of difference is in my belief that many "fashionable" entries are no better or even worse than random. Interestingly, I am currently reading Van Tharp's Trade Your Way To Financial Freedom which essentially supports that philosophy.

Let's settle on middle ground; the entry is the least important part of the trade for technical traders.

Realist

19th-June-2006, 10:21 PM

The only way to seriously outperform everyone else is to do something everyone else isn't doing.

Why try and outperform Warren Buffett? Why not just copy him?

I'd be happy with 1% of his success actually.

He can be 100 times better than me at what he does and I'll be very happy with my return.

Like that ! Yep if everyone is trying to stick their paw into the cooky jar at the same time, how are you going to get any cookies?

You're not. But everyone else will. Put your bloody hand in the jar while you still can.

Magdoran

19th-June-2006, 10:30 PM

Bunyip, eddievanhalen, (even tech/a),

Applause.

Magdoran
P.S. I worry about the newer players being misled too…

It's Snake Pliskin

19th-June-2006, 10:47 PM

nizar

19th-June-2006, 10:49 PM

Why try and outperform Warren Buffett? Why not just copy him?

I'd be happy with 1% of his success actually.

Really??

Its well documented that $10,000 invested in Berkshire Hathaway in 1965 would by 2005 have become $50million

Thats 24% annually compounded

You'll be happy with 2.4%... good effort son, i hope u dont have to do much research to get u there :p:

Oh sorry i actually worked out for 10%.... but im sure u get the drift...

There are many traders out there that make heaps more money than Buffet does... they just havent been around long enough to become as famous... but would u rather the cash or the fame?

It's Snake Pliskin

19th-June-2006, 10:51 PM

Bunyip, eddievanhalen, (even tech/a),

Applause.

Magdoran
P.S. I worry about the newer players being misled too…

Magdoran,
Just for the newbies who are they?

What are they being misled by? By whom?

If one has the authority to say one is being misled, then that person, or people, have a moral obligation to reveal what is misleading. That`s if there is a real concern for those being misled.

Snake

It's Snake Pliskin

19th-June-2006, 10:55 PM

Why try and outperform Warren Buffett? Why not just copy him?

I'd be happy with 1% of his success actually.

He can be 100 times better than me at what he does and I'll be very happy with my return.

You're not. But everyone else will. Put your bloody hand in the jar while you still can.

It`s very hard to copy Mr Buffett, even for Buffett wanna be`s.

If you have a spare few million dollars contact Mr Buffett and get some advice on how to buy a company and then build it up.

Yes, keep that hand in the jar and it might get bitten by an ant in it.

It's Snake Pliskin

19th-June-2006, 10:57 PM

Agreed. There's a lot of crap posted on this forum.

Perhaps there should be an ignore option?

Swingy,
Actually this is a better forum than most.

There is an ignore button that can be utilised.

Snake

It's Snake Pliskin

19th-June-2006, 11:04 PM

bunyip

19th-June-2006, 11:08 PM

im no guru, but wouldnt u think u shud use both coz, a share price u wud think wud rise because of a fundamental reason? :rolleyes:

i myself just enter in direction of trend,volume and keep stops tight, and look at fundys to make sure its making money..i make a little from a little :p:

:2twocents

cheers

David

What very few people ever learn is that the chart is one of the best fundamental analysts you can have on your team.
A technical analyst utilising a trend riding approach is really using fundamental analysis in the first instance, simply by looking at the chart and identifying the trend of the stock.

If you'd looked at the plunging charts of Sons of Gwalia, Pasminco, and HIH, there could have been no doubt that investors were dumping these stocks because they had lousy fundamentals.

Conversely, strong uptrenders like BHP, RIN and WPL clearly had money pouring into them from investors who believed their fundamentals were excellent.
Incidentally, while Pasminco was plunging south and heading for oblivion, Renee Rivkin was busy talking the stock up and giving it a buy recommendation, based on its good fundamentals!!!!!!!

I was trolling through some stocks one day when I came across a stock that was downtrending on the weekly chart. I immediately thought 'poor fundamentals' even though I knew nothing about the stock (which happened to be ION).
A couple of days later I got a call from a friend who is right into fundamental analysis. Just out of curiosity I asked him what he knew about ION. He confirmed that the stock had been getting negative reports in the various financial publications, and was fundamentally considered a bit of a basket case.
ION, as we know, ended up going broke.

The concept of using trend analysis to make an assessment of company fundamentals is just so alien to the average fundamentalist that he simply can't accept it as a viable way of assessing whether or not a stock is worth buying.

Bunyip

Realist

19th-June-2006, 11:08 PM

There are many traders out there that make heaps more money than Buffet does...

:rolleyes: ridiculous.

If you have a spare few million dollars contact Mr Buffett and get some advice on how to buy a company and then build it up.

Buffett did not build Coke or Gilette or the Washington Post up at all.

Buffett is a stock analyst, he saw value in the Coke brand, saw the company was undervalued, bought stock, and Coke is still Coke and he's still making money from Coke. If you think Warren Buffett invented Diet Coke or something you are dreaming.

Every time you buy a can of Coke probably 0.1 cents go to Warren Buffett.

Every time you buy a can of VB about 0.00001 cents go to Realist. :D

Go on, have one!!

wayneL

19th-June-2006, 11:14 PM

Re outperforming Buffet.

I read somewhere (wish I could find the damned article so I could post it) that Buffet readily concedes that people can outperform him. There was only one condition, that the investor didn't have a huge capital base. Less than $1million was the figure mentioned I believe, from memory.

I think there are many on this forum who would bear that out.

Cheers

Realist

19th-June-2006, 11:20 PM

Buffet readily concedes that people can outperform him.

Absolutely.

Over the short term some traders will massively outperform Buffett.

Some wont though, some will lose money, infact most will lose money I'd guess.

But life and investing is no sprint race, it is a long distance endurance race.

No-one can beat Buffett over a long distance endurance race. Hence why he is so goddam rich. And we're not. :mad:

wayneL

19th-June-2006, 11:22 PM

Ahso! Found it!

Big Winners for Small Investors

By Paul Elliott (TMF Rael)
February 10, 2006

In 1999, Warren Buffett reportedly made the uncharacteristically bold guarantee that he could earn 50% profits on a portfolio of common stocks each year -- under one condition. Even better, he would accomplish this feat using ordinary, publicly traded stocks that you or I can buy and hold ourselves.

But even though Buffett meets with investors regularly and happily entertains questions from the gallery, he was uncharacteristically hard to pin down on this one point. He left the question open to much speculation, including plenty for years here at Fool HQ.

Enter a group of students from Kansas
While we were lollygagging about the water cooler, debating what exactly was said and when, a college investment class took matters into its own hands. These students trekked across the heartland and requested a private audience with this legend.

And these brave souls stood directly across the table and demanded to know ... Is it true? Did the investing genius really make his much-disputed "50% per year" boast? And more important, does he stand by it today?

Survey says ... Bing! Yes and yes! In fact, not only did this gentleman from Nebraska confirm what many already believed he'd first proclaimed back in 1999, he went one giant step further.

We know all about the gazillions Buffett made on consumer giants like $100 billion Coca-Cola (NYSE: KO). But here's something you may not know. To earn that 50% per year -- to double your portfolio every 20.5 months -- Buffett wouldn't buy Coca-Cola or even his own company, Berkshire Hathaway. He'd buy obscure little outfits with names you've never even heard. How can I be so sure?

Simple. Remember that condition I mentioned earlier? Warren Buffett guaranteed he could earn 50% per year ... if he had less than $1 million to invest. That's because the world's greatest investor would focus on undiscovered, lightly traded small caps -- the area of the market where individual investors have an advantage over the pros.

Why Warren wishes he were you
I know, that sounds crazy. After all, the big money on Wall Street has all the advantages, right? In fact, that couldn't be further from the truth.

Think about it. Pros have way more than $1 million to put to work. They can't mess with smaller stocks -- no matter how undervalued or how great the business. Well, at least they can't without risking running up the price (before their order is filled) or getting stuck with a controlling share of the business.

That's why you see all the trading volume in mega caps. Just take a look at the five most active stocks on the Nasdaq on a recent morning (last Monday, actually).

http://72.14.203.104/search?q=cache:ZoRFIU1TQ5YJ:www.fool.com/news/commentary/2006/commentary06021006.htm+warren+buffet+%2B+less+than +a+million&hl=en&gl=au&ct=clnk&cd=15&client=firefox-a

Magdoran

19th-June-2006, 11:25 PM

Snake,

I could ask you the same moral question. Let’s just agree that you and I have “different approaches” and leave it there shall we?

Magdoran

P.S. I have my finger on the "ignore button" - click!

P.P.S. I suggest that newer serious traders/investors fully research and read the posts in the more professional sections (like Commodities and Derivatives), for those who want to continue in this comedy, please go for it!

It's Snake Pliskin

19th-June-2006, 11:33 PM

:rolleyes: ridiculous.

Buffett did not build Coke or Gilette or the Washington Post up at all.

Buffett is a stock analyst, he saw value in the Coke brand, saw the company was undervalued, bought stock, and Coke is still Coke and he's still making money from Coke. If you think Warren Buffett invented Diet Coke or something you are dreaming.

Every time you buy a can of Coke probably 0.1 cents go to Warren Buffett.

Every time you buy a can of VB about 0.00001 cents go to Realist. :D

Go on, have one!!

Yes I`m quite aware that Mr B is not in marketing. :topic

Realist,

Here is a thought for you to ponder:

It is what it is. It is what it isn`t.
Those who blindly believe, believe. Those who don`t, don`t.
It is all in the numbers, but that doesn`t mean much to those who really know.

Snake

Closing point: technical or fundamental they are all relevant.

Enjoy everyone :)

It's Snake Pliskin

19th-June-2006, 11:42 PM

nizar

19th-June-2006, 11:43 PM

Absolutely.

Over the short term some traders will massively outperform Buffett.

Some wont though, some will lose money, infact most will lose money I'd guess.

But life and investing is no sprint race, it is a long distance endurance race.

No-one can beat Buffett over a long distance endurance race.

Thats because they havent been around long enough to give a fair comparison

Lynch made 29%pa for 13 years; and several others who run hedge funds made 30%+pa for 10 years or so (Richard Farleigh from memory is one of them)

bunyip

20th-June-2006, 12:10 AM

All absolutely true. My plan does all of this and so do I. So far, the plan (and I) are performing to (backtested) specification.

Really our only point of difference is in my belief that many "fashionable" entries are no better or even worse than random. Interestingly, I am currently reading Van Tharp's Trade Your Way To Financial Freedom which essentially supports that philosophy.

Let's settle on middle ground; the entry is the least important part of the trade for technical traders.

While the entry is generally considered less important than the exit, nevertheless I wouldn't discount the importance of getting a timely entry, no matter what Van Tharp says.

Try entering a stock at open on the day following a big spike up. Chances are you'll be quickly stopped out as the stock is knocked down by profit takers bailing out to lock in yesterdays gains.

Try buying a stock just below strong overhead resistance. Chances are that once it reaches the resistance level it will stall, and spend the next week or two chopping around until it gets your stop.

If you notice that a stock runs up for about 14 days on average, then has a pullback for a few days, try entering on day 12 or 13 of an upswing...chances are you'll be soon stopped out as a retracement sets in.

Try entering once the stock resumes its uptrend after a retracement. Chances are that the stock will accelerate away from your entry point and your stop won't be in danger. No guarantees, but that's the most likely scenario.
That's why I like entering from a trend resumption immediately after a retracement.....it puts the odds in your favour that you'll get an immediate move in the right direction.

As you can see, entires are an important part of trades. The entry is where the trade begins. Get the entry right and you increase the likelyhood of the rest of the trade falling into place.

Bunyip

ducati916

20th-June-2006, 04:50 AM

enzo

Dear Mr Ducster,

You do like to carry grudges don't you.

I respectfully decline your offer of a trading challenge. I also decline, in accordance with the agreement both you and I made to Joe, to indulge in acrimonious discourse with you. I will be honouring that agreement.

I didn't for one minute expect you to partake.
<code of conduct breach>

And while I'm still on the topic of excuses let's examine the evidence from the techies...........that is, claims of superlative trading results, combined with an excuse of why they cannot demonstrate

eddievanhalen

I am not going to even try and make any claims myself , but let's just say that I am in contact with traders all day every day and have seen trading statements/tax returns of my closer trading friends.

So no claims from you sir.

there ARE a few traders who are making 50,60,70,80,90% returns on large sums of money.

I thought you said no claims?
Where is the evidence?
What no evidence...........I'm scandalized.

Do you think I could be stuffed posting my trades (around 70 positions currently) and trying to prove myself to some people on the internet I don't know. I actually spend a lot of my free time helping other traders with general queries and am all for pointing people in the right direction but as far as trying to explain my system and prove it to everyone??

You can't post a few trades, that takes 5mins, but you can spend your free time helping the peanuts.

I should be extremely contrite in the face of such philanthropy. Jog on.

most of the traders I know making really big money from the markets do it full time. TechA does a fantastic job using a low maintainence system

No, now you are confusing someone who made a claim, and backed it up with a publically traded system Irrespective of his results, and as much as I quibble with him over his methodology........you cannot place your *traders* in the same category.

That's my piece - make of it what you will. I have made no claims about my own results - I have been making a living fulltime from the market from the age of 27 (currently 32) and have no need to prove myself to anyone.

But of course that's total nonsense.
You have made a claim right there.
*I have been making a living*...........that my freind is a claim, that implies you or any potential aspirant can make returns good enough to live off.

This is difficult.
You say otherwise.
Provide the evidence.

The only way to seriously outperform everyone else is to do something everyone else isn't doing.

Well here we can agree.
But *Technical analysis* is by definition, exactly what everyone else is doing.

The only reason I posted at all was to try (in vain probably) to maybe influence some of those who refuse to believe that returns greater than 10-20% pa are possible to think outside the square a bit.

They are, no argument.
There are people that do it.
Their results are in the public domain, and their funds are closed to new investors.

My assertion is that very few who participate on this BB are capable.
There are many claims.
Almost zero action.

Why is that?
Because to actually do it, day in day out, is very hard to do.
Most like enzo etc like to talk the talk, but bail out very quickly when required to put up the goods.

PS the only real "claim" I made to illustrate a point was that I currently hold 70 positions and TURN OVER 1m/month. When I say turnover I mean total sales. I could do that buying in and out of BHP 50 times for the month using only $20,000. It doesn't imply a level of profit

Of course it doesn't.
It tells people absolutely nothing.

bunyip

Thanks Ed.....that was an outstanding post. You show knowledge and wisdom beyond your years.
I doubt if you'll convince the non believers though....maybe one in fifty of them will be prepared to think outside the square he's living in, get off his backside and start putting in the hard yards necessary to learn a better and simpler way of profiting from the market.
Most of them however will continue to believe the age old crap that keeps them slugging along at 10 to 15% annual returns (if they're lucky) and believing that because they can't get above this level, nobody else can either.

More nonsense.
Buffett, Lynch, Gabelli, Ruane, Washington Post Pension Fund, etc.
All have publically verifiable records.
There are even some *techies* that manage it for periods of time.
Public knowledge.

<code of conduct breach>

What very few people ever learn is that the chart is one of the best fundamental analysts you can have on your team.
A technical analyst utilising a trend riding approach is really using fundamental analysis in the first instance, simply by looking at the chart and identifying the trend of the stock.

<code of conduct breach>

I was trolling through some stocks one day when I came across a stock that was downtrending on the weekly chart. I immediately thought 'poor fundamentals' even though I knew nothing about the stock (which happened to be ION).

<code of conduct breach>

The concept of using trend analysis to make an assessment of company fundamentals is just so alien to the average fundamentalist that he simply can't accept it as a viable way of assessing whether or not a stock is worth buying.

That's because it's total nonsense.
You are confusing the basics, and yet you claim so much.

Magdoran

Bunyip, eddievanhalen, (even tech/a),

Applause.

tech/a is worth his applause.
<code of conduct breach>
We'll come to blows on Friday.

jog on
d998

wayneL

20th-June-2006, 05:06 AM

Duc,

Last warning, cut the crap!

ducati916

20th-June-2006, 05:27 AM

Code of conduct breach

Jog on!!

But seriously, here are some *professionals* and their publically traded results over the last 6mths including that rather nasty May break.

Final Portfolio Totals
10/31/2005 - 6/1/2006

Global Investor
$116,174.17 16.17% * Fundamental Analysis

All-Star Team
$127,436.80 27.44% * Fundamental Analysis

Trend Trader
$103,939.60 3.94% Technical Analysis

Quite Contrary
$86,826.41 [-13.17%] Technical Analysis

Rational Investor
$109,033.89 9.03% * Fundamental Analysis

Model Behaviorist
$110,618.08 10.62% * Mixture of the two methodologies
* out-performed the S&P 500

So with some real evidence, from the world of *professionals*.........doesn't look that easy to me.

jog on
d998

bullmarket

20th-June-2006, 08:36 AM

Hi eddievanhalen.....no problem :)

I agree in general with what you posted and obviuosly there are traders/investors out there who do generate large returns.......but given that anecdotal evidence suggests less than 10% of traders are profitable to any great extent in the long run I simply choose to not blindly believe any unsubstantiated/unverifiable claims of returns/profits etc in chatrooms like this, especially when there is no way of verifying with 100% certainty who is actually sitting at the keyboard of the chatter making the claim :sly:

Imo, people mostly post alleged profits etc in chatrooms in an attempt to big note themselves in the hope others will follow their recoomendations or whatever in the future and from my point of view all they are doing is leaving themselves wide open to being laughed at by those who are much more successful and profitable than they are :)

cheers

bullmarket :)

You're right bullmarket ofcourse. That's the problem with these discussions and I acknowledge the logic behind what you say. Having said that I'd like to think what I posted has a bit more substance than "Buy XYZ..whoosh ..going to the moon". Hard to see how I could possibly benefit from what I posted.........the so-called "agenda" I only pop into this forum occassionally and not looking to build (or destroy ) my reputation here.

I never normally get involved for that very reason. I was just a bit frustrated with how some people are limiting their own progress based upon conventional wisdom. Obviously some of the contributors to this thread have a lot of experience and their beliefs are based upon that experience...........fine. It's more the newbies who read this that I'm worried about.

The only reason I posted at all was to try (in vain probably) to maybe influence some of those who refuse to believe that returns greater than 10-20% pa are possible to think outside the square a bit.

I see no reason for anyone to believe me any more than those who claim that nobody (trading smaller amounts) can beat Buffett. This thread will never get anywhere in my opinion and I almost regret posting in it. :banghead:

Back to work.

I'll come back in a few weeks and see how may more times we've gone around in circles

Ed

PS the only real "claim" I made to illustrate a point was that I currently hold 70 positions and TURN OVER 1m/month. When I say turnover I mean total sales. I could do that buying in and out of BHP 50 times for the month using only $20,000. It doesn't imply a level of profit at all.

tech/a

20th-June-2006, 09:10 AM

I agree in general with what you posted and obviuosly there are traders/investors out there who do generate large returns.......but given that anecdotal evidence suggests less than 10% of traders are profitable to any great extent in the long run I simply choose to not blindly believe any unsubstantiated/unverifiable claims of returns/profits etc in chatrooms like this, especially when there is no way of verifying with 100% certainty who is actually sitting at the keyboard of the chatter making the claim

Who cares wether they are Daffy Duck---as of course I am.
If a methodology is shown particularly over a prolonged time, both the "Motor Bike" and myself will have furnished the masses with information based upon the methodologies we use. What they do with it in full or in part is up to them.

Imo, people mostly post alleged profits etc in chatrooms in an attempt to big note themselves in the hope others will follow their recoomendations or whatever in the future

Those who simply ramp stock with no discussion on methodologies I tend to agree.
However those who participate in the general discussion directed from other who are interested in their results and methodologies are generally I have found people who are passionate about their trading and how they do it.
Exchanges are both ways I have learnt a great deal from others during discussions related to my own methods.
Leading me to trade 2 others which have been refined from these collaberations.

and from my point of view all they are doing is leaving themselves wide open to being laughed at by those who are much more successful and profitable than they are

Other than the obvious rampers and those who copy other published forms of trading and pass it off as their own---hence no discussion on their form of trading--
People who "Laugh at others" specifically those genuine people who enjoy helping others achieve success,are purely pretentious human waste,who cant fathom that there are people who actually dont give 2 sheets about reward---THEY DONT NEED IT.

Those that pontificate in circular non informative pompus babble are worth a good giggle though.

MichaelD

20th-June-2006, 09:16 AM

Try entering once the stock resumes its uptrend after a retracement. Chances are that the stock will accelerate away from your entry point and your stop won't be in danger. No guarantees, but that's the most likely scenario.
That's why I like entering from a trend resumption immediately after a retracement.....it puts the odds in your favour that you'll get an immediate move in the right direction.
This entry gives you a 50% or less chance of a profitable trade. i.e. A coin toss is just as good as this entry. At the end of the day, it's the expectancy of a given entry in a given trading system that is relevant, not whether it moves up/down in the next day or two.

We'll have to agree to disagree I'm afraid. My backtestable belief is that restricting entry to something such as that outlined above lessens system expectancy. Your non backtestable belief is the opposite.

i.e. you think you are making a positive difference with your entry strategy. I don't agree. Neither do Van Tharp or Le Beau.

bullmarket

20th-June-2006, 09:29 AM

Hi MichaelD

I prefer to buy stocks that have begun to trend up after a retracement or sieways consolidation.......the tricky bit, of course, is developing a strategy (charts, indicators etc etc) that help you determine if a stock is trending up.

Imo if a stock is trending up then, although there are no guarantees it will continue to trend up after buying, there is a better than 50% probability that it will continue to trend up.......the aim here is to develop a trading plan (which includes risk and capital management) and TA skills that will enable you to interpret charts that result in continuing uptrends at least 2 times out of 3.......hence the need to keep losses small for the times you inevitably get it wrong.

cheers

bullmarket :)

bunyip

20th-June-2006, 09:36 AM

We'll have to agree to disagree I'm afraid. My backtestable belief is that restricting entry to something such as that outlined above lessens system expectancy. Your non backtestable belief is the opposite.

i.e. you think you are making a positive difference with your entry strategy. I don't agree. Neither do Van Tharp or Le Beau.

Yes Michael...we'll just have to agree to disagree. I'll keep using what has worked for me. Incidentally, I do have a couple of entry setups.

Can you give us a brief rundown on what Tharp and Le Beau are using as entry signals. And what you're using yourself?

Bunyip

bunyip

20th-June-2006, 09:40 AM

Hey Duc

I've had a pretty good run with real estate.....by my calculation my portfolio would be up aprroximately 100% in the last five years, plus about 5% per year dividends in the form of rentals.
Oh dear.....another claim by me! Now you'll be demanding that I supply evidence. Let's see.....I could start with the contracts of sale from when I bought the properties, then I could follow up with some documentation from the Lands Department to prove ownership, and finally I could get Herron Todd White to do some valuations to prove the worth of my properties. Oh, and I almost forgot the rentals.....no problem, I could put together my rental statements of the last five years.
And having got all this documentation together, I could probably scan it and attach it to a post and fire it off to this forum just to pacify my old mate Duc who harbours the misguided notion that I am under some obligation to supply him with details of my private business dealings.

Duc, I have reason to believe that you're sailing dangerously close to copping some sort of disiciplinary action on this forum. In some ways it would be good to see a boring, repetitive trouble maker get his just desserts. On the other hand there are some of us, myself included, who would miss the outstanding entertainment you provide. Trading is a serious and at times a lonely business. It's not such a bad thing to have a forum clown who provides us with plenty of laughs.

Bunyip

Realist

20th-June-2006, 09:45 AM

That's because the world's greatest investor would focus on undiscovered, lightly traded small caps -- the area of the market where individual investors have an advantage over the pros.

:rolleyes:

Wayne, that is from the Motley Fool, and is perposterous.

Warren Buffett would not invest is small undiscovered lightly traded small caps. The very notion is laughable.

The Motley Fool is a joke, a scam and a spam generated nuisance, anyone that takes any advice from them is asking for trouble.

ducati916

20th-June-2006, 10:04 AM

bunyip

Hey Duc

I've had a pretty good run with real estate.....by my calculation my portfolio would be up aprroximately 100% in the last five years, plus about 5% per year dividends in the form of rentals.
Oh dear.....another claim by me! Now you'll be demanding that I supply evidence. Let's see.....I could start with the contracts of sale from when I bought the properties, then I could follow up with some documentation from the Lands Department to prove ownership, and finally I could get Herron Todd White to do some valuations to prove the worth of my properties. Oh, and I almost forgot the rentals.....no problem, I could put together my rental statements of the last five years.
And having got all this documentation together, I could probably scan it and attach it to a post and fire it off to this forum just to pacify my old mate Duc who harbours the misguided notion that I am under some obligation to supply him with details of my private business dealings.

Oh dear, yet another peanut.
I do not require proof in the form of documentation.
I do not require proof or disclosure of your methodology.
What I would like to see is you place your trades, or a selection thereof, in real time.

Why?

Simply because trading is difficult.
Claiming high returns is one thing, any peanut can claim a high return.
Delivery of high, consistent returns is quite another matter you see. Sure you claim XYZ, but I see no evidence to support your assertions currently.

Duc, I have reason to believe that you're sailing dangerously close to copping some sort of disiciplinary action on this forum. In some ways it would be good to see a boring, repetitive trouble maker get his just desserts. On the other hand there are some of us, myself included, who would miss the outstanding entertainment you provide. Trading is a serious and at times a lonely business. It's not such a bad thing to have a forum clown who provides us with plenty of laughs.

Of course.
But you see not every peanut has a sense of humour, as you undoubtably do.
Enzo Peanut, takes it all so personally.
I shall continue to castigate the peanuts, for their totally fabricated claims until the peanuts throw me off, or continue the censorship to a level that nothing remains.

jog on
d998

bullmarket

20th-June-2006, 10:19 AM

Hi ducati

Since I and most probably you and everyone else have no way of verifying with 100% certainty who is sitting at a chatter's keyboard at any particular time I'm not sure what anyone posting alleged 'real time' trades, as you request, will prove unless they also provide their real name and sufficient details to enable you to verify the trade.

Now of course no-one in their right mind will post their name and pesonal details to a stranger in a chatroom like this and if they do then they have only their immaturity and stupidity to blame if their personal details end up in the hands of someone they would prefer not to.

So in my case, I just adopt an overall policy of not blindly believing unsubstantiated/unverifiable claims made in chatrooms and leave it at that......if people get upset and abusive at me justifiably not believing them then so be it.

cheers

bullmarket :)

ducati916

20th-June-2006, 10:33 AM

Mr bullmarket

You are just too harsh.
If someone is willing to demonstrate their trades live, I always accept it at face value, as to do so invariably demonstrates strength of character.

Strength of character, after adequate knowledge, tempered with experience, is the most important ingredient to consistent market success.

As for the peanuts, well they have endless excuses as to why it's all just not possible..............my favourite............it interferes with my psychology.

jog on
d998

bullmarket

20th-June-2006, 10:40 AM

no problem ducati ;)

I don't believe I am being too harsh at all........from my point of view I am just being realistic and maybe erring on the side of caution.....but that's just the way I am........I'm a like it or lump it deal :D

cheers

bullmarket :)

bunyip

20th-June-2006, 10:54 AM

What I would like to see is you place your trades, or a selection thereof, in real time.

Duc, you continue to miss the point..... We.....Don't....Care...About....What....You'd..... Like.....To.....See....Or.....Not....See.
Got it? Most of us on this forum just don't care about you!
You're forever telling us what you'd like to see. But you fail to come up with any compelling reasons why the rest of us are supposed to care about what you'd like to see. You fail to convince us that we should feel obliged to comply with your requests.

I'll say it again, this time more strongly. Most of us on this forum couldn't give a toss what you'd like to see or not see. Most of us couldn't care two hoots for your opinions. Most of us are not the slightest bit concerned whether you do or don't believe us. And because we're not concerned about your opinions, we feel no need whatever to convince you of the truth of what we're saying, we feel no need to try and talk you into believing in our trading methodology, we feel no need to do anything where you're concerned, except maybe read your posts and have a good laugh at you.

I wonder what would happen if you and I met each other face to face. Would two peanuts start punching each other on the nose, or would we slap each other on the back, head for the nearest bar and have more laughs over a few cold ones.

Bunyip

bunyip

20th-June-2006, 11:18 AM

I support Bull in his tendency towards taking with a grain of salt what he reads on a forum.

With regard to a trading system or methodology that someone shares, I say don't believe it or disbelieve it until you've extensively tested it yourself...then and only then are you in a position to comment on its strengths and weaknesses.
Too often you see someone who is generous enough to share a system that he says works well for him, and next thing he cops a barrage of scorn and sarcasm from morons who don't even have enough get up and go to thorougly check out the system, before passing judgement on it.

Bunyip

cuttlefish

20th-June-2006, 11:18 AM

I believe that both approaches - technical or fundamental (or a combination of both) will work if applied correctly.

My own preference is a fundamentals, basically ben graham with a bit of buffet, approach. But I've seen quite a few comments about Buffet and Graham from both the fundamental and technical side of the debate that mismatch with my own impression of their philosophies.

At the moment I'm wanting to get a better understanding of technical trading and also use of leveraged instruments to improve on my underlying approach.

I think both approaches are not mutually exclusive.

My thoughts on the two approaches:

A fundamental investor is trying to pick assets that compare well to other assets that are available (including other stocks, bonds, property, cash etc.)
They do this based on looking at the income that can be received when compared to the cost of the asset (income doesn't have to be dividends - the profitability of the company is income), and the potential growth of that income compared to income growth that can be achieved from other assets.

Capital gains are not a strong focus for a fundamentals based investor, but often are a by-product of fundamentals based investing.

A technical trader is trying to pick the current market sentiment/psychology surrounding a particular stock or sector. All people that have bought shares are aware of the power of emotion, and as a result 'crowd' behaviour is to some extent predictable and follows repeatable patterns. These are the patterns that chartists look for. They then try to capitalise on a particular psychology by either backing a trend (e.g. identifying a breakout and running with the herd untill it runs out of steam), or trading against the psychology of a trend (e.g. selling at the top of a range bound stock and buying at the bottom of that range -i.e. against the psychological trend).

There is plenty of room for both techniques - one is a more active process and more akin to running a business. The other is a more passive approach.

The things that both require are:

* Doing your own hard work - either in trend analysis or fundamental analysis and making your own decisions and being prepared to back yourself.
* Having the discipline to formulate and stick to a plan. A plan needs to have metrics. Buying because it looked good that day or didn't isn't a plan. That doesn't mean the approach can't be discretionary, but there still needs to be a plan for entry and exit.
* Investing or trading to a plan is essential otherwise you are investing based on emotion and that is almost guaranteed to fail.

From my own perspective I think a good understanding of both will benefit any trader or investor.

nizar

20th-June-2006, 12:01 PM

Capital gains are not a strong focus for a fundamentals based investor

Yeh?

Peter Lynch was very FA based; looking at the company; management; sector...and he focussed on 10-baggers when he was running Fidelity Magellan Fund 1977-1990...

But i know Buffet did say something along the lines of: "Dont buy for capital appreciation. Be patient and the growth will come. In the meantime, collect the yield"

It's Snake Pliskin

20th-June-2006, 12:20 PM

Bull,

I prefer to buy stocks that have begun to trend up after a retracement or sieways consolidation.......the tricky bit, of course, is developing a strategy (charts, indicators etc etc) that help you determine if a stock is trending up.

It`s not that difficult to see if a trend is in motion!

Imo if a stock is trending up then, although there are no guarantees it will continue to trend up after buying, there is a better than 50% probability that it will continue to trend up.......the aim here is to develop a trading plan (which includes risk and capital management) and TA skills that will enable you to interpret charts that result in continuing uptrends at least 2 times out of 3.......hence the need to keep losses small for the times you inevitably get it wrong.

Nothing of value here!

Snake

ghotib

20th-June-2006, 12:25 PM

...I've seen quite a few comments about Buffet and Graham from both the fundamental and technical side of the debate that mismatch with my own impression of their philosophies.
I agree with nearly all of the rest of this post too, but I've pulled this bit out because I'd like to ask the moderators if we can pull the "Buffet would / Buffet wouldn't" posts into a separate thread. Seems to me there's a few of us trying to use Buffet and Graham as a model and there are a lot of different ideas about what that means.

Ghoti (feeling like this is the longest learning curve since preschool)

It's Snake Pliskin

20th-June-2006, 12:30 PM

Can you give us a brief rundown on what Tharp and Le Beau are using as entry signals. And what you're using yourself?

Van Tharp`s book is a good introductory book, nothing more. Not too much the serious trader can work with.

It's Snake Pliskin

20th-June-2006, 12:41 PM

Do you think I could be stuffed posting my trades (around 70 positions currently) and trying to prove myself to some people on the internet I don't know.

And it is this comment here that is intriguing. :rolleyes:

It's Snake Pliskin

20th-June-2006, 12:49 PM

But seriously, here are some *professionals* and their publically traded results over the last 6mths including that rather nasty May break.

Duc I would say healthy May break.

bullmarket

20th-June-2006, 12:49 PM

:iagree: cuttlefish....I use both FA and TA :)

I believe that both approaches - technical or fundamental (or a combination of both) will work if applied correctly.

My own preference is a fundamentals, basically ben graham with a bit of buffet, approach. But I've seen quite a few comments about Buffet and Graham from both the fundamental and technical side of the debate that mismatch with my own impression of their philosophies.

At the moment I'm wanting to get a better understanding of technical trading and also use of leveraged instruments to improve on my underlying approach.

I think both approaches are not mutually exclusive.

My thoughts on the two approaches:

A fundamental investor is trying to pick assets that compare well to other assets that are available (including other stocks, bonds, property, cash etc.)
They do this based on looking at the income that can be received when compared to the cost of the asset (income doesn't have to be dividends - the profitability of the company is income), and the potential growth of that income compared to income growth that can be achieved from other assets.

Capital gains are not a strong focus for a fundamentals based investor, but often are a by-product of fundamentals based investing.

A technical trader is trying to pick the current market sentiment/psychology surrounding a particular stock or sector. All people that have bought shares are aware of the power of emotion, and as a result 'crowd' behaviour is to some extent predictable and follows repeatable patterns. These are the patterns that chartists look for. They then try to capitalise on a particular psychology by either backing a trend (e.g. identifying a breakout and running with the herd untill it runs out of steam), or trading against the psychology of a trend (e.g. selling at the top of a range bound stock and buying at the bottom of that range -i.e. against the psychological trend).

There is plenty of room for both techniques - one is a more active process and more akin to running a business. The other is a more passive approach.

The things that both require are:

* Doing your own hard work - either in trend analysis or fundamental analysis and making your own decisions and being prepared to back yourself.
* Having the discipline to formulate and stick to a plan. A plan needs to have metrics. Buying because it looked good that day or didn't isn't a plan. That doesn't mean the approach can't be discretionary, but there still needs to be a plan for entry and exit.
* Investing or trading to a plan is essential otherwise you are investing based on emotion and that is almost guaranteed to fail.

From my own perspective I think a good understanding of both will benefit any trader or investor.

ducati916

20th-June-2006, 01:00 PM

bunyip Peanut

Duc, you continue to miss the point..... We.....Don't....Care...About....What....You'd..... Like.....To.....See....Or.....Not....See.
Got it? Most of us on this forum just don't care about you!

I'll say it again, this time more strongly. Most of us on this forum couldn't give a toss what you'd like to see or not see. Most of us couldn't care two hoots for your opinions. Most of us are not the slightest bit concerned whether you do or don't believe us.

Ahhhh a rebellious peanut.
A rebellious peanut full of excuses.

Could it be due to time contraints?

Trading involves too much time? Rubbish......about an hour each weekend if you trade from weekly charts, or about 15 to 30 minutes a day if you trade from daily charts.

But no.........it takes no time at all.

Because it's total rubbish?

even though you and many others (including some of the most respected people in the industry) have been using it for years to consistently outperform the market.

Hell no!

I'm intrigued by the claims of those who dismiss this approach as unworkable.
Do you really believe I'll underperform the market by only buying stocks that are outperforming the market?
Are you really suggesting that the pople I've mentioned above are fools and pretenders who don't know what they're talking about and can't trade successfully?

Well, I'm interested.
I don't need your methodology divulged.
I don't require explanations.

You see, I'm a doubter.
The people you've mentioned............all peanuts, [well, Guppy, Bedford & Hull anyway]

So, all I asked for was a demonstration via some live trades.
Intrestingly that almost always produces one result out of two possibles;
The first, some trades are posted.
The second, always produces a flurry of excuses and abuse.

Obviously, you fall into category #2. Lots of excuses, and abuse.
Therefore no further analysis required, you are a peanut.

I wonder what would happen if you and I met each other face to face. Would two peanuts start punching each other on the nose, or would we slap each other on the back, head for the nearest bar and have more laughs over a few cold ones.

Well you can ask Magdoran next week.
He's visiting our little village this week, and we are going to meet up.

Snake

Duc I would say healthy May break.

Healthy it is then.

jog on
d998

bullmarket

20th-June-2006, 01:14 PM

Hi ducati

I'm intrigued that you don't practice what you preach when you ask other chatters to post live trades.

I assume that you are aware that anyone with access to course of sales can simply look up some potentially profitable buy/sell orders and then post in here that they are theirs without providing any verifiable information that proves the person sitting at the keyboard posting the alleged trade is the actually the person who placed the order in the cos.

Therefore, in order to take you and your request for chatters' live trade information seriously, why not set an example and take up my challenge to you to practise what you preach and post in here any live trades that you have made along with verifiable information proving that the person sitting at the ducati keyboard actually did make those alleged trades.

Imo unless someone posts verifiable info proving the person sitting at the keyboard actually made the trades then it is 100% justifiable to dismiss the alleged trades as horse manure....and for obvious reasons no-one will post the verifiable personal information and so there is no point in posting alleged live trades.

My :2twocents says you won't practise what you preach ;)

cheers

bullmarket :)

eddievanhalen

20th-June-2006, 01:33 PM

Doh - I've returned earlier than I said. Got the sort of response I expected.

Despite my better judgement I will bite re SP's comment though ..........what do you find intriguing about holding 70 positions??

Cheers,

Ed

PS I've said many a time that I have no desire to prove myself to anyone on the internet but if Duc ever visits my humble village (Melbourne) he is quite welcome to contact me via PM and arrange to catch up for a coffee and view some tax returns/trading statements that will very quickly put a sock in it. That's as far as I'll go..............you can hold me to that and I have only conceded that much ground because I feel it would make a big difference to the members in this thread to see Duc return to this thread with his tail between his legs (which I am sure he would do as I cast no aspersions on his honesty)

ducati916

20th-June-2006, 01:41 PM

Mr bullmarket

But I do post live trades.
I update my positions once a week.

tech/a loves to remind me of my *losses*.

http://www.aussiestockforums.com/forums/showthread.php?p=52194#post52194

I hope you research your positions with a little more diligence.
I also used to post live *daytrades* on reef, before my rebirth as a *fundie*

My results were approximately the following;
Average winning trade 1.5%
Average loss 0.5%
Wins to losses 50/50
1yr return 87%

jog on
d998

ducati916

20th-June-2006, 01:52 PM

evh

PS I've said many a time that I have no desire to prove myself to anyone on the internet but if Duc ever visits my humble village (Melbourne) he is quite welcome to contact me via PM and arrange to catch up for a coffee and view some tax returns/trading statements that will very quickly put a sock in it. That's as far as I'll go..............you can hold me to that and I have only conceded that much ground because I feel it would make a big difference to the members in this thread to see Duc return to this thread with his tail between his legs (which I am sure he would do as I cast no aspersions on his honesty)

I may well visit Melbourne, but this is what always intrigues me, why would you show me your trading statements, yet not post a couple of live trades?
Passing strange methinks. What's the big deal? No-one if *trading* wins every trade..........losing is part and parcel.......I think I remember a bad streak of about 10 posted trades all losers, one after the other....so what.

Hell tech/ a phones me at 1am to laugh at my positions. [not really]
If I ever get over there, Australia, gotta be careful, not terribly popular you know, if you are a market wizard, I would absolutely confirm it.

I am a bounder, but not a cad!

jog on
d998

eddievanhalen

20th-June-2006, 01:59 PM

No worries Duc - I've said my piece and said far more than I really wanted to. The offer is open ANYTIME. As Bunyip said you cannot seem to understand that some of us are too busy trading to be bothered trying to prove ourselves on an internet forum. What the hell is the point??? I am about trying to share some of my ideas from time to time as I have some understanding of how hard the game is starting out (and all the time really :D ).

I have no doubt that if you returned to this thread and acknowledged that what I have been talking about is possible that it may snap some people here out of limiting their goals to returning barely better than benchmark rates. I will have helped some people out.

Until I hear from Duc via PM this is my FINAL post on the matter , other than perhaps to address Snake's concerns.

Ed

bullmarket

20th-June-2006, 02:06 PM

Hi ducati

Mr bullmarket

But I do post live trades.
I update my positions once a week.

tech/a loves to remind me of my *losses*.

http://www.aussiestockforums.com/forums/showthread.php?p=52194#post52194

I hope you research your positions with a little more diligence.
I also used to post live *daytrades* on reef, before my rebirth as a *fundie*

My results were approximately the following;
Average winning trade 1.5%
Average loss 0.5%
Wins to losses 50/50
1yr return 87%

jog on
d998

I don't know if your alleged 'live' trades are true or just horse manure ;) because of the reasons I posted earlier.....and therefore I have no reason to believe what you post is true in any way.....it may or may not be..

But in the mean time I will continue to exercise my 100% right to choose to believe that your alleged trades are not true in anyway whatsoever.

If for some obscure reason it is important to you that I personally believe your alleged trades are true then the onus is on you to provide verifiable information substantiating your claims because no-one is under any obligation whatsover to just blindly believe what they see in chatrooms like this :)

Let's see how you go....as I said earlier my :2twocents says you won't substantiate your alleged trades to me ;)

cheers

bullmarket :)

ducati916

20th-June-2006, 02:18 PM

evh

No worries Duc - I've said my piece and said far more than I really wanted to. The offer is open ANYTIME. As Bunyip said you cannot seem to understand that some of us are too busy trading to be bothered trying to prove ourselves on an internet forum. What the hell is the point??? I am about trying to share some of my ideas from time to time as I have some understanding of how hard the game is starting out (and all the time really ).

My interest in live trades stems from two main reasons;
#1
If the trader really can return the claimed profitability, and is willing to demonstrate his trading and psychological approach to the market, anyone who is starting out will see that it is not easy, that a disciplined approach is required, that losses happen, but more importantly, how those losses are managed, how winners are managed, what to do on days that absolutely nothing goes right etc.

They will then see, hell, it's not just them that can struggle and have a bad day, everyone is capable of a truely **** day.
If the trader really is as good as he says, his beating the market is not luck, it is not dependant on market conditions, good market, bad market, but on his skill, discipline, strategy, knowledge, experience.

There is a real peanut, lives and works in the UK.
He earns part of his living teaching people to daytrade.
He claims XYZ results.
After paying over some $3000 dollars to the peanut, he cannot even demonstrate his trading to you...........absolute nonsense.

Here on this forum, you have something similar.
No-one charges as far as I know, but you have the armchair experts.
When asked to demonstrate.............that's not what we do is the invariable excuse.

I don't daytrade anymore.
But I could post live trades.
Would I make any money? Hell who knows, but for a new trader seeing the good and the bad would probably be a big help.

Anyway I'm sure you take the point.

I have no doubt that if you returned to this thread and acknowledged that what I have been talking about is possible that it may snap some people here out of limiting their goals to returning barely better than benchmark rates. I will have helped some people out.

No not really, most believe anyway...........because they desparately want to believe. What they are lacking is any practical help from the *experts*.

jog on
d998

Julia

20th-June-2006, 02:39 PM

Hi ducati

I don't know if your alleged 'live' trades are true or just horse manure ;) because of the reasons I posted earlier.....and therefore I have no reason to believe what you post is true in any way.....it may or may not be..

But in the mean time I will continue to exercise my 100% right to choose to believe that your alleged trades are not true in anyway whatsoever.

If for some obscure reason it is important to you that I personally believe your alleged trades are true then the onus is on you to provide verifiable information substantiating your claims because no-one is under any obligation whatsover to just blindly believe what they see in chatrooms like this :)

Let's see how you go....as I said earlier my :2twocents says you won't substantiate your alleged trades to me ;)

cheers

bullmarket :)

Precisely how would you like Ducati to "verify" his claims?

Julia

bullmarket

20th-June-2006, 02:48 PM

Hi Julia

Precisely how would you like Ducati to "verify" his claims?

Julia

go back and look at my earlier posts and you will find the answer to your question there........I'm not going to place restrictions on the 'how' which could then be used against me as an excuse for not providing verifiable info.

All I would require is that the info conclusively proves that the person sitting at the keyboard making the alleged claims of 'whatever' is the actual person who did the 'whatever' ;)

cheers

bullmarket :)

ducati916

20th-June-2006, 03:14 PM

Mr bullmarket

I don't know if your alleged 'live' trades are true or just horse manure because of the reasons I posted earlier.....and therefore I have no reason to believe what you post is true in any way.....it may or may not be..

But in the mean time I will continue to exercise my 100% right to choose to believe that your alleged trades are not true in anyway whatsoever.

If for some obscure reason it is important to you that I personally believe your alleged trades are true then the onus is on you to provide verifiable information substantiating your claims because no-one is under any obligation whatsover to just blindly believe what they see in chatrooms like this

Fair enough.
The trades, whether real, or manure, have the following important points.
#1 They demonstrate a methodology, viz. value investing.
#2 They demonstrate the vagries of the market viz things that can go wrong.
#3 They demonstrate my management of the trades
#4 They will either support, or refute my claims of profitability, if employing the methodology.
#5 I'll always reply to any questions, queries, etc
#6 They demonstrate discipline in the execution of the plan
#7 They demonstrate an alternative to technicals etc.
#8 They demonstrate my willingness to walk the walk.

Whether you find that of value, or not, is immaterial.
I would hope that anyone contemplating a value methodology, would find something of value..........even that being that ....hell, this ain't for them.

The world is full of peanuts that talk endlessly, yet provide very little.

jog on
d998

bullmarket

20th-June-2006, 03:30 PM

no problem ducati ;)

cheers

bullmarket :)

tradez

20th-June-2006, 04:02 PM

I would like to put a question to the investors who predominately rely on fundamental analysis and hold positions for the long term If you are currently holding a portfolio of companies with sound fundamentals, is there a point at which you will bail out of your positions based on a substantial drop in the market and therefore the share prices of your stocks? or are you willing to hold those stocks (assuming their fundamentals have not adversely changed) regardless of how low their share price goes? I only ask this because i think it would take a tremendous amount of courage and conviction to hang on to shares as they plummet even though you are convinced the underlying business is sound.

MichaelD

20th-June-2006, 04:05 PM

Can you give us a brief rundown on what Tharp and Le Beau are using as entry signals. And what you're using yourself?
Haven't got to that part of the book yet, sorry.

Van Tharp's message to date is that it doesn't matter what you use as an entry setup/signal so long as you size and manage the trade appropriately. The underlying message simply is "use whatever you think makes a difference, but so long as you do the important stuff as well, you'll come out ahead".

Myself, I use;
Setup: 1. CLOSE above long term moving average.
Entry: 2. What is essentially a 3 candlestick bullish continuation pattern.

Both of these entry conditions improve system expectancy and decrease drawdown in all market conditions that I have backtested on (Bull, Bear, Crash, Delisted, Dead Cat Bounce) against random entry.

I do not at this stage have any other setup conditions, but am actively working in this area to improve system expectancy and drawdown. My belief is that I will find an edge in the use of an advance/decline line, but haven't found it yet - I still have, however, much to do.

wayneL

20th-June-2006, 05:18 PM

:rolleyes:

Wayne, that is from the Motley Fool, and is perposterous.

Warren Buffett would not invest is small undiscovered lightly traded small caps. The very notion is laughable.

The Motley Fool is a joke, a scam and a spam generated nuisance, anyone that takes any advice from them is asking for trouble.

Not withstanding the comments about Motley Fool, which I can agree with, I think you have missed the point.

No, WB would not invest in small caps, because of his bloated capital base, I believe the article makes that clear. But if WB had less than 1 million to invest, then the implication is that the story is different.

Is this account apocryphal? Could be, no way verify 100%. But one thing is indisputable, folks with less than a million in capital who invest in smaller companies, can do a hell of a lot better than BRKA (which has been remakably resilient in the latest route btw... trading at $92,600 a share atm)

This is not to bag Warren or his methods. The man has done remarkably well. But smaller size has a definate advantage over the market megaliths.

Trying to emulate the big fella though, is sub-optimal for a small individual investor. IMO

But if it does what you want it to do for you, then Godspeed. But ferchrissake the man ain't God and there are several other answers available to small investors, including trading.

Cheers

nizar

20th-June-2006, 06:38 PM

Agree Wayne

Thats why some fund managers close their funds early after reaching a point, say 200million, coz once u get too big u cant move in and out of positions

BSD

20th-June-2006, 07:12 PM

Trying to emulate the big fella though, is sub-optimal for a small individual investor. IMO

But if it does what you want it to do for you, then Godspeed. But ferchrissake the man ain't God and there are several other answers available to small investors, including trading.

Cheers

Absolutely correct.

WB and 'value' investing usually gets wheeled out in bear markets.

WB got so big he had to move into re-insurance to get any meaningful exposure to 'value' bets.

His 'old' strategies have limited relevance to his current work and WB's success over the years using a particular style has no relevence or predictive ability to the success of the style in the future.

Gates is richer than WB, why not set up an IT start-up?

As an aside, does anybody in here diversify their risk by outsourcing the management of any of their portfolio or hold assets other than Australian/US equities/derivatives.

It probably needs another thread, but I limit my 'trading' in Aussie stocks to about 10-15% of my portfolios. The rest is spread globally across asset classes, managers, strategies long and short.

For instance, what happens when you rely on volatility in the Aussie market (up or down) to make a crust when the market gets boring for 18 months?

Or alternatively, have the buy and hold guys ever thought of the effect of a five - ten year Australian bear market?

swingstar

20th-June-2006, 07:41 PM

Gates is richer than WB, why not set up an IT start-up?

Aren't you doing that? ZOMG you're gonna lose all your money and be poor.

Realist

20th-June-2006, 08:23 PM

Wayne,

My point is Buffett did not invest is small undiscovered lightly traded small caps when he had less than $1 Million. Why would he now if he had less than $1M??

It is not his style.

Ben Graham (Buffetts mentor) does invest in undiscovered lightly traded small caps but only if they have a NTA of over 1.5

If their (tangible assests less liabilities) is greater than the Market Cap by about 150%. And they make a profit year after year and they pay large dividends. He'd buy them.

The only ASX company I can find like this is CMI - I have bought them and lost a bit so far.

My worst investment this year actually :banghead:

As a trader what do you think of CMI?

BSD

20th-June-2006, 08:28 PM

Unlike most others, I see investing as a business of long term survival first, returns second.

Lots of claims (from all camps) around "beating the market is easy" and "not being satisifed with 12%" really fascinate me.

Too much studying risk perhaps.

Absolute performance, as opposed to relative performance, is more important in my world. All the rest is a d$ck measuring contest.

Realist

20th-June-2006, 08:32 PM

"not being satisifed with 12%"

If I could get a 12% return after all taxes and expenses and dividends year after year I'd be absolutely stoked.

Bobby

20th-June-2006, 09:38 PM

If I could get a 12% return after all taxes and expenses and dividends year after year I'd be absolutely stoked.
Well maybe I can help you ?
Try stopping the VB , that should be worth the 12% your after :D

Or get a sponsor to pay you for each post on ASF !

Have Fun
Bob.

Realist

20th-June-2006, 10:03 PM

Try stopping the VB

:eek:

But for every VB I buy, I get 0.00001 cents back via Fosters dividends.

The more I drink the more money I make. Cheers! :D

MichaelD

20th-June-2006, 10:04 PM

As a trader what do you think of CMI?

**** This is not advice to buy or sell. This is what MY system would tell ME to do. MY system applies only to ME. As far as anyone is concerned, MY system is useless for THEM. ****

1. CMI is not within my trading universe so I would not have entered it at any time.

However, my system is still profitable when applied to the Entire Market (just a lot more choppy), so IF this stock were in my trading universe;

2. In the last 12 months, I would have received buy signals on 10-8-2005, 4-10-2005/5-10-2005 and 31-3-2006/3-4-2006. The first trade, if entered, would have exited as a breakeven trade. The second and third trades would have exited as 1R losses.

3. Currently CMI is not giving a buy signal, but is giving sell signal after sell signal.

It's a dog from technical point of view - long term downtrend, and currently trading below a long term moving average.

Julia

20th-June-2006, 10:13 PM

If I could get a 12% return after all taxes and expenses and dividends year after year I'd be absolutely stoked.

Really? So what returns are you expecting from your current portfolio?

Julia

Realist

20th-June-2006, 10:21 PM

3. Currently CMI is not giving a buy signal, but is giving sell signal after sell signal.

It's a dog from technical point of view - long term downtrend, and currently trading below a long term moving average.

No surprises there. they are going down and down and down :mad:

Fundamentally it is quite excellent though. P/E of 5.18 a P/B of 0.4

They've made a growing profit and paid growing dividends for 10 years in a row.

They have 60M in debt but 114M in Assets - that is $54M up, the market cap is only $38M.

And the dividend yield is 11.3%

Fundamentally that is a fantastic company.

Have they sent out profit warnings recently or something that I missed?

If they make $7M profit again this year I'll be stoked. This is worth holding for the yield alone!

I suspect Ben Graham would buy CMI

Realist

20th-June-2006, 10:31 PM

Really? So what returns are you expecting from your current portfolio?

My Nasdaq shares doubled last year. So I got a huge return, they've eased back this year slightly and I get no dividends from them. I'll need to sell some soon and pay tax as well - dammit! They are too risky to buy and hold unfortunately.

But for the ASX - I'd be happy with a 12% return this year. 4% from dividends, 8% from growth.

So far I am up slightly for the year. And the All Ords is up slightly.

$100,000 invested in shares adding $40K mopre shares a year and 12% a year return would give me about $9M by the time I retire. (And Ill retire quite early)

That's just shares, I have super already and will buy property as well.

12% is a fantastic return after expenses and tax whichever way you look at it.

cuttlefish

20th-June-2006, 10:31 PM

If their (tangible assests less liabilities) is greater than the Market Cap by about 150%. And they make a profit year after year and they pay large dividends. He'd buy them.

The only ASX company I can find like this is CMI - I have bought them and lost a bit so far.

My worst investment this year actually :banghead:

As a trader what do you think of CMI?

WARNING - I'm not an accountant and not even that experienced in reading annual reports - so the statements below could contain significant factual errors and should be independantly verified before making any decisions based upon them.

Realist out of curiosity I had a look through CMI's annual reports and company announcements (yep its scary that someone would spend their spare time doing these sorts of things :o ).

I don't know if you noticed the various announcements last year about their converting preference shares being converted into Class A shares but it you look at that in detail it might cause a rethink of how you view their EPS and/or NTA from a value investment perspective.

My interpretation, and I'm no accountant and could have this completely wrong, is that there are about 26 million Class A shares on issue, in addition to the 36 million ordinary shares on issue.

If you read the reason that their converting preference shares were converted to class A shares it is because Australian accounting standards classified that the CPS shares should be counted as debt not equity - which sounds justifiable given that the CPS shares have preferential treatment both for dividends and return on capital - yep sounds like debt to me :eek7: .

The conversion to Class A shares seems to have gotten around this accounting requirement however as far as I can tell the Class A shares still have preferential treatment in the event of a return of capital, and also preferential treatment in relation to dividend distribution, which is locked in at 14c per share per annum until 2015 and remains preferential beyond that date.

I haven't done the exact numbers but clearly depending on how you interpret this situation it could have an impact on a view of either EPS or NTA from a value investment point of view.

It would be interesting to hear a qualified accountant comment on this stuff from an opinion point of view (and they could clarify how accurate the stuff above is as well).

WARNING - I'm not an accountant and not even that experienced in reading annual reports - so the statements above could contain significant factual errors and should be independantly verified before making any decisions based upon them.

Realist

20th-June-2006, 10:44 PM

Realist out of curiosity I had a look through CMI's annual reports and company announcements

Where did you get them from?? :eek:

Their website doesn't haev them does it?? :confused:

My interpretation, and I'm no accountant and could have this completely wrong, is that there are about 26 million Class A shares on issue, in addition to the 36 million ordinary shares on issue.

Wow, that is interesting.

Thanks. You know your stuff. Fortunately I bought only 1000 shares (my smallest investment presently). I just wanted to experiment with undervalued small caps - it backfired though. :mad:

Still with a P/E of 5, even doubling the amount of shares is not a killer. Or do you think it is? Others do obviously. :banghead:

I bought it for the yield. And it may be a takeover target.

What do you think? Would you buy shares in CMI ? Even with $26M in extra debt they are a reasonably valued company...

wayneL

20th-June-2006, 10:45 PM

The only ASX company I can find like this is CMI - I have bought them and lost a bit so far.

My worst investment this year actually :banghead:

As a trader what do you think of CMI?

Well I only have access to the last 1 year of data, because I don't trade ASX.

But looking at whats in front of me:

As a trader, its way to illiquid at this point. Average daily turnover is about $55k average. My normal position size is nearly that!

So potentially I could move the market and I need to get out fast, thats a humungous negative. Even if it could be shorted, I wouldn't go there because of said illiquidity. Short squeezes in such circumstances could be lethal.

Apart from that, a solid down trend. It would not even appear on a scan. i.e. no interest in something like this at all.

Bear in mind thats a traders perspective.

Cheers

Realist

20th-June-2006, 10:48 PM

i.e. no interest in something like this at all.

No one does except me. :(

Bobby

20th-June-2006, 11:12 PM

No one does except me. :(

Hullo Realist,

When you bought CMI, did you at any time have a look at their chart ?
If you did , were You upside down ? :confused:

Bob.

cuttlefish

20th-June-2006, 11:16 PM

Where did you get them from?? :eek:

Their website doesn't haev them does it?? :confused:

Still with a P/E of 5, even doubling the amount of shares is not a killer. Or do you think it is? Others do obviously. :banghead:

I bought it for the yield. And it may be a takeover target.

What do you think? Would you buy shares in CMI ? Even with $26M in extra debt they are a reasonably valued company...

I read them on the announcements section of comsec, but you can also get them for free from the asx site:

http://www.asx.com.au/asx/statistics/announcementSearch.do

Yeah I'd agree that even considering those class A shares they still seem fairly conservatively valued, but not necessarily a standout.

That fact that you've had a go at doing your own research and then backed it is commendable. I've made all sorts of mistakes (and will continue to do so) in relation to the fine detail of issued capital in stocks that have got me unstuck in the past, and as a result tend to sift through the reports and announcements pretty carefully myself to verify it.

Its also a very good idea to look through their P&L and balance sheets for anomolies and discrepencies between the previous year. On that side, as far as I can tell this company has all the hallmarks of a classic boring earner with no great surprises year on year - though they did mention they expected difficult trading conditions this year but didn't go into much detail - you'd probably have to do some research on the auto industry sector to get a better idea of the factors at play there. But I'm pretty sure somewhere in there I read that they restated their earnings guidance for fy05/06 as in line with the first half, so I don't see any indication they expect any significant slump in earnings.

One thing I've found in looking for true value buys is sifting out the good ones from the potential candidates - it takes a fair bit of time and research - and I've been caught out by all sorts of unexpected things, which is why I always tend to get down to the raw announcements and read the actual reports.

ghotib

20th-June-2006, 11:55 PM

No surprises there. they are going down and down and down :mad:

Fundamentally it is quite excellent though. P/E of 5.18 a P/B of 0.4

They've made a growing profit and paid growing dividends for 10 years in a row.

They have 60M in debt but 114M in Assets - that is $54M up, the market cap is only $38M.

And the dividend yield is 11.3%

Fundamentally that is a fantastic company.

Have they sent out profit warnings recently or something that I missed?

If they make $7M profit again this year I'll be stoked. This is worth holding for the yield alone!

I suspect Ben Graham would buy CMI
In your dreams, my blond friend.

In the real world Ben Graham would have needed a heck of a lot more information than you've given here before he made any decisions. He did not equate NTA with intrinsic value and he did not consider PER as fundamental to the value of the business.

Your system might be fantastic, but you're kidding yourself if you think it's following either Graham or Buffet. Do you have a copy of the Essays of Warren Buffet (edited Lawrence Cunningham)? I suggest you read the one called "Value" Investing: A Redundancy several times before you spend another cent on shares, and then take another hard look at your strategy. If you're still happy with what you're doing, terrific, but don't call it following Buffet.

None of which necessarily means that CMI was a bad buy. But if you were really following Buffet you wouldn't need to ask; you'd have done your own detailed analysis of the company and you'd know exactly what you thought its value was and why you thought so. I didn't go as far as Cuttlefish but I did take a look at the ASX summary, and FWIW the questions that leapt out at me from that were provisions for updating machinery and variations in metal prices. The answers should be in the financial reports, and one day I'll feel confident that I can find them... I hope.

Maybe it's time to go curly brunette for a while; better protection when you beat your head on the wall :D

Ghoti (I don't think Buffet has all the answers and I know I don't)

It's Snake Pliskin

21st-June-2006, 12:05 AM

No one does except me. :(

Maybe there is a message in that for you. :rolleyes:

Realist

21st-June-2006, 12:10 AM

When you bought CMI, did you at any time have a look at their chart ?

No.

Your system might be fantastic, but you're kidding yourself if you think it's following either Graham

Well Graham liked : Relatively large unpopular large companies. The Purchase of bargain issues. and Special situations or "Workouts"

A bargain issue is quoted as

Quoted from Graham's book "The type of bargain issue that can be most readily identified is a common stock that sells for less than the company's net working capital alone, after deducting all prior obligations."

Had a compay's NTA less liabilities been much larger than their market cap, in other words you could liquidate it for more than you bought it for - he'd have bought it.

Grahams brokerage firm bought many small caps low high P/B ratios, hundreds infact - he diversified big time on them of course.

And yes P/E is a big part of Grahams philospohy. Add up the last five years earnings to get an average earnings though - do not just use the latest P/E given.

I don't try and follow Buffet as such - I try and follow Grahams ideas though.

Realist

21st-June-2006, 12:15 AM

Maybe there is a message in that for you.

Well Snake, it is my worst investment in the past couple of years, and it gives a 12% yield. And has made a profit for 10 years in a row. I'll just hold and "hope". ;)

It is also my smallest investment - it did not seem entirely right to me at the time. You live and learn. :cool:

Realist

21st-June-2006, 12:19 AM

One thing I've found in looking for true value buys is sifting out the good ones from the potential candidates - it takes a fair bit of time and research - and I've been caught out by all sorts of unexpected things, which is why I always tend to get down to the raw announcements and read the actual reports.

Thanks for your advice Cuttlefish.

I looked long and hard for the CMI annual report or balance sheet and could not find it. I trusted Commsec.

I still can not find it Cuttlefish. Not on ASX or CMI website... :(

ghotib

21st-June-2006, 12:20 AM

Don't you ever sleep? I've just read the end of the StockVal thread and told myself sternly that I'd talk more nonsense than usual if I tried to respond now. Same goes for this one. But thanks for forcing me back to the books. I've noticed several things today in the Buffet essays that I missed before, and I'm taking Graham to bed with me before I write any more.

See you on the morrow - and not in the morn.

Ghoti

Realist

21st-June-2006, 12:24 AM

Don't you ever sleep?

No ;)

But thanks for forcing me back to the books. I've noticed several things today in the Buffet essays that I missed before, and I'm taking Graham to bed with me before I write any more.

Read Graham's Portfolio policy for the Enterprising investor.

He definately recommends smallcaps that you can liquidate for more than they cost.

Whether CMI is one of those companies I am now starting to question. :banghead:

It's Snake Pliskin

21st-June-2006, 12:27 AM

Eddie,

No worries Duc - I've said my piece and said far more I have no doubt that if you returned to this thread and acknowledged that what I have been talking about is possible that it may snap some people here out of limiting their goals to returning barely better than benchmark rates. I will have helped some people out.

I don`t dispute that high rates are achieveable.

Until I hear from Duc via PM this is my FINAL post on the matter, other than perhaps to address Snake's concerns.

Just interested in how you manage those holdings. 70 continuously changing per month or 70 in total as a limit regardless of time? Everything I have read, as well as my mentor, has warned against such high levels of holdings. I`m genuinely interested, so would anyone I believe.

Snake

Realist

21st-June-2006, 01:10 AM

70 continuously changing per month

Is that 70 trades a month. :eek:

Man, your broker must be rich!!

ducati916

21st-June-2006, 07:58 AM

cuttlefish

In regards to your post on CMI;

From the ASX site;

The issue is for 13,200,000 fully underwritten Convertible Preference
Shares in the Company issued at $1.20 each.

So 13.2 million Convertible Preferred Shares are offered at Par value of $1.20
Convertible securities must be calculated by the potential investor as a dilution of the common shares for practical purposes, and thus would effect a dilution of net profits on an adjusted basis, but not on a REPORTED basis

10 years - on the 10th anniversary of the Issue Date the Convertible
Preference Shares may be converted into Ordinary Shares at the option
of holders of Convertible Preference Shares or CMI. In certain
circumstances, conversion may occur before that date.

Conversion is not permitted prior to 10yrs.
Excepting special contingencies which are not listed.

Convertible Preference Shares convert into that number of Ordinary
Shares equal to the Issue Price paid ($1.20) divided by the market
price at the time of conversion. Maximum market price is $2.40 with
the minimum being $1.00.

Therefore we have a maximum = 1.2 shares of common, and a minimum = 0.5 shares of common. [always assume the worst, thus 1.2 shares]

RANKING:

The Convertible Preference Shares will rank ahead of Ordinary Shares
for repayment of paid up capital. There is no entitlement to share in
any surplus on a winding up.

In a liquidation, they rank ahead of the Common, but behind debentures etc.
Thus, the holder of the common could be disadvantaged, but probably no more than he is currently.

So much for the facts.
Does the issue serve to advantage either the business, or the owners?
The reasons put forward by the management are as follows;

The issue of these shares will raise up to $15.84 million, which will
be used to assist in funding an on-market buy-back of up to 20% of
CMI's ordinary shares on issue, to retire debt, and raise additional
working capital to build on our past growth in both domestic and
overseas markets.

To retire debt.
The company does not specify the type of debt.
This is actually crucially important.

First, let's assume that it is Bank Short Term debt.
If this is the case, this is a concern, as what is really being said is that the business cannot float funded debt at a lower interest rate, as there are no banks willing to underwrite the float.

Therefore the credit rating must be B or less. In essence a Junk rating.

If it is retiring Funded Debt which is unlikely for the following reason;
Bond Interest is Tax deductible to a corporation.
Preferred Dividends are not.
Therefore the Cost of Capital is [B]significantly higher for dividend payments this obviously is a large negative.

A 20% [up to] buyback of common shares.
Read, absolute maximum of 20%, but really probably 1%
Why?
Because we need additional working capital for expansion.
Expansion where?

Our
contracts to supply the US automotive sector continue to expand and
we are planning to open the second distribution centre in that market
to meet this demand.

So they are going up against the US suppliers on home territory, and the Japanese etc. Tough business. US consumer spending looking to weaken, not an area I would fancy at the moment.

We will also be looking to continue organic growth through the
selective acquisition of new businesses which have the potential to
strengthen our existing manufacturing and marketing proficiencies as
they become available.

our future acquisition strategy will
concentrate on "bolt-on" businesses that can be bought and
economically incorporated into one of our existing locations.

When management tell lies right to your face, you know things are dodgy.
Aquisitions are not ORGANIC growth
Aquisitions are usually money losing propositions, destroying shareholder wealth. They invariably have serious integration problems, and cost in excess of their value, and very rarely are accretive to earnings anytime soon.

So in regards to current share prices heading south, no surprises there.
This looks like a real ugly mess currently.

jog on
d998

Realist

21st-June-2006, 10:15 AM

Hmm, thanks Ducati.

It is a mess. :( But not too bad..

I've lost $300 on the share price but got $60 in dividends. Down $240 - woop de do. I've made that up on BHP in the past 10 minutes.

I'll continue to hold, even after hearing all the bad news - it still makes a profit and has done so for the past 10 years, and it still pays very good dividends, it is not in financial trouble at all, and is not overvalued at $1.05 (even taking into account the problems you've mentioned).

It is a takeover target for other company's I would have thought?

Yes, this is buy and "hope" at its best.

Thankfully it is the only "undervalued small cap" I've bought - and I'll put it down to learning.

cuttlefish

21st-June-2006, 10:33 AM

Ducati,

Thanks for the comments - interesting additional information.

In relation to the 26 million CPS figure I got it from the set of announcements put out on the 11 August 05 (there were a couple of three page releases describing the scheme and it mentions that at the time there were 26 million CPS shares outstanding). The original par value was 1.20 and conversion to be based on average share price, but they agreed on a conversion scheme of 1:1 at an EGM.

I haven't noticed whether the class A shares are traded (I'm assuming they are but couldn't see them listed in the fin review).

As you say they are effectively B or less grade bonds.

Interesting comment about the preferred dividends and tax deductions. If the company had kept the shares as CPS instead of converting them to class A (I still don't really see any functional difference between the two anyway except they're no longer converting) then I'm assuming based on the accounting standards change that as part of re-classifying it as debt they would also have been able to then claim the dividend payments as interest on debt and taken it as a tax deductable expense against earnings.

I'm no accountant but maybe taking the hit and counting it as debt would have been the better option.

Realist,

I reckon you're right - its paying good dividends and making pretty good profit and has done so consistently. I'd be keeping an eye on their announcements to make sure nothing changes in this regard but to that end you can only trust that management is reponsible and reports all information to the market - in the meantime as you say you're collecting 12% dividends - better than a bank account - and the downside risk, unless there is some actual adverse news about the profitability of the business, is probably limited.

Realist

21st-June-2006, 11:19 AM

Thanks Cuttlefish, I'll continue to hold CMI. (and hope ;) )

Hey, what do you think of RIC?

They consistently make a profit and pay dividends, only problem is a pending Canadian court case.

Is this not a good safe, undervalued company that makes a profit and pays dividends, and a value buy at the current price?

I own them as well - they've done nothing - I've not gained or lost. :o

cuttlefish

21st-June-2006, 11:32 AM

heheh - this could become a piece of string so I think I'll stop at CMI. :)

I haven't looked into RIC at all, but I can say that when I said I've been caught out by all sorts of unexpected things - a change in legislation in relation to one company I invested in was one of them - so don't discount anything - take it all on board and make your own assessment of the potential outcomes of anything like that and how you think they might or might not impact valuations. (and thats not intended to be any comment on RIC - I literally haven't looked at them at all, couldn't even tell you the name of the business).

ducati916

21st-June-2006, 11:33 AM

Realist

it still makes a profit and has done so for the past 10 years, and it still pays very good dividends, it is not in financial trouble at all, and is not overvalued at $1.05

Well I haven't looked at the financials, so I am in no position to comment.
But how have you appraised the value, and thus come to the conclusion that it is not *overvalued*?

It is a takeover target for other company's I would have thought?

Well, if it is truely *undervalued*, yes it could indeed be a target.

If, it truely is undervalued, then you would expect Management to utilize the proceeds realized from the sale of the Preferred issue [at fair value] to arbitrage shareholder value by buying in the *undervalued* common shares.
This would be the the most efficient use of the funds.

If, they pursue their stated aquisition program, this either;
*provides no evidence of managements belief in the *undervaluation*
*provides evidence of inept management in pursuing unproven returns, in the face of proven returns.

cuttlefish

then I'm assuming based on the accounting standards change that as part of re-classifying it as debt they would also have been able to then claim the dividend payments as interest on debt and taken it as a tax deductable expense against earnings.

No, Interest payable on debt, secured, or unsecured bonds, debentures etc qualify as tax exempt. Dividend payments are taken from net profits after Tax

Therefore it is highly inefficient for a Corporation to issue Preferred Stock [convertible or otherwise] They should always issue Funded debt.
It is only low credit grade companies that MUST issue high yield preferred shares, as they have no other option, other than issuing more common.

For example J&J can issue 0% Bonds
They have the use of capital at no cost.
They provide a sinking fund to amortize the principal due at maturity
With clever accounting, depreciation can be utilized as a tax exempt way to amortize the sinking fund. Hence the true cost of capital = $0.00

That CMI are having to pay 9% rising to 11% tells you that this is a high risk offering. It is high risk because the underlying earning power must be cyclical, weak, or both.

Incidentally, a declaration of net profit in no way means a net profit has actually been earned. Remember Enron? It is quite legal to show a GAAP profit, yet have losses.

jog on
d998