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Going Long - Understanding If A Stock's Worth Buying

Discussion in 'Medium/Long Term Investing' started by SensibleInvesting, Aug 31, 2019.

  1. SensibleInvesting

    SensibleInvesting

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    Hey guys,

    Hope you're all having a high-return weekend! Today I wanted to get your thoughts on my unorthodox investing strategy for picking stocks - typical investment horizon is 6 - 18 months, with the aim of 30 - 40%+ returns during this period, then compounding the returns into perpetuity:



    Feedback is appreciated!
     
  2. tinhat

    tinhat Pocket Calculator Operator

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    Hi. Thanks for posting the video.


    You say in the video that you are not a value investor but IMHO you appear to be taking a value investing approach.

    upload_2019-8-31_10-58-48.png

    upload_2019-8-31_10-59-37.png

    I don't think looking for deeply undervalued stocks that are fundamentally sound is going to suit a 6-18 month momentum trade. Here are my reasons:
    1. There aren't going to be a lot of stocks that fit the entry criteria. One example right now might be Horizon Oil if you are open to investing in fossil fuels.
    2. Generally, sentiment doesn't turn around easily. A stock that has been beaten down can take years to recover sentiment, if at all.
    3. I've come to the conclusion that I am not smarter than the market. There are going to be more value traps than rare buried gems waiting to be found.
    I have had some success in short term trading in stocks from the Lincoln Indicators Star Stock universe in the past, where the stock has had a downturn; examples, AX1, TGA. I've probably had more misses though.

    Another problem with this approach is you are more likely to find stocks that are volatile. AX1 (previously Thorn Group) was one example. It provided decent trading opportunities because of that volatility but you had no idea of which way that sentiment would blow week from week.

    Personally, I've been there done that with this type of investing strategy and I'm now completely moving away from it. I made a long post in the MCR threat the other day where I asked basically, why swim against the tide, when you can let the current of market sentiment take you further for much less effort?

    You might want to consider looking at quality investing using a momentum/sentiment system. I think it would be more suited to your goals of 6-18 month hold for 30-40% annualized return.

    I'm currently subscribed to the VectorVest 30 day trial and I like what I am seeing so far. I think using it in combination with my subscription to Stock Doctor might be worth trying out over the coming year.

    I didn't get further than this screen below because I don't have time to watch the whole thing now.

    Good luck.
     
  3. SensibleInvesting

    SensibleInvesting

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    Hey TinHat, thanks so much for your comment. Most of the points you raised are answered in the latter parts of the video, but I wanted to make particular mention to these quoted points, in particular to your comments regarding quality.

    This approach doesn't really work for ASX stocks, because my catalyst is the earnings call e.g.: quarterly. What drives up the SP is a good earnings call vs. expectations of a bad earnings call. Most ASX companies don't even do earnings calls, nor report quarterly, hence it works best for USA stocks.

    Furthermore, I think we should spend some more time discussing what constitutes as quality and deeply undervalued. Again, I cover this later in the video, but for me, quality isn't PE/PB, NCAV, etc. - it's the fact that revenue and earnings are going an opposite direction to share price. Many companies that dive >70% are sold off because of massive earnings downgrades, cyclicality, etc. The companies I look at have earnings and revenue going up, but are being sold off on fears of something that's misunderstood.

    Once I've dug deep and understood the business and am confident these fears will be addressed on the next earnings call, that's when I invest - hence the 6 - 18 month horizon. It's the compounding of better than expected earnings calls that drive the SP up, and disproving the negative sentiment.

    Would be good to get your thoughts once you've finished watching the video. You'll see I don't use any value investing metrics to understand if a stock is undervalued.
     
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