Robusta fundamental, leveraged investments

kermit345 said:

Maybe where you live its quite different which is fair enough, you may be in a well educated suburb of a major capital city - big stereotype there by me but i'll put down a hunch that i'm right haha.

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On the contrary, I live in a regional centre (pop 55,000) which actually has a demographic bias to people on welfare, so couldn't be more opposite to your suggestion.
I agree, however, that you'd on the whole find more financially aware people in the sort of environ you describe.

tech/a said:

I have found in general that the Average person will have less than $100K to retire on so the help of an F/A is pretty limited. Joe Average at this level has little or no interest in his finances--he doesnt have a lot to be interested in.

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And there you have probably the essence of the problem. It's circular. As long as Joe Average considers what he has to be not worth his interest, thus it will continue.

Ves said:

I find it more common that people who have put fanciful amounts of hours

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"Fanciful" amounts of hours? Such as?

into investing over the years still fail to do better than many of the passive alternatives available to them. Time and education alone do not garantee results and a lot of it comes down to temperament - which cannot be taught.

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Time certainly doesn't. I don't believe you can equally dismiss the results of education.

On the Storm Financial thread, one burned investor said he had done months and months of research.
I asked if could share with us the nature of this research. The response was in essence that he'd taken the Storm strategy to various financial advisers and his bankers.
He did what he thought best, obviously, but to my mind that is not research. The strategy involved borrowing heavily against the home, buying shares in a Storm badged index fund with that money and then taking out a margin loan against those shares purchased with that borrowed money.

Surely you don't need anyone to tell you that investing in a volatile entity with double gearing is hugely risky? There was no real 'education' required, just a modicum of common sense.

So your suggestion that temperament plays a part is reasonable.

Financial planners create diversification not wealth.

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That's rather a wide generalisation. Diversification is not everything. Markets are cyclical. Imo when e.g. real estate is rising more than shares, it makes more sense to be in real estate and vice versa.
And there comes a time, especially in retirement, when capital preservation is the most logical priority. If that means moving to cash for the appropriate time, then that makes more sense to me than being 'diversified' into areas which are losing money.

McLovin said:

This is true of brokers, FP, banks, anyone. The more money you are worth to them, the more they are going to tailor a portfolio to you rather than just taking a cookie-cutter approach. I don't know about FP's but most brokers consider a HNW client someone with at least $4-5m. And obviously you have to be trading frequently enough so they can clip the ticket.

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That certainly applies to full service brokers, but probably not to financial planners et al who charge a % of FUM.

kermit345 said:

HNW clients are always going to be preferred by F/A's cos they are typically more willing to fork out for quality advice.

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Or woefully incorrect advice as was experienced by clients of Storm Financial who paid 7% commission on FUM.

I'm just saying that majority do not do this at the moment and that while the landscape is changing, its a slow process because the old adage that accounting/finance/numbers are dry and boring means people take a hands off approach and leave it to the 'professionals'. Note professionals is in quotes as finding an honest and quality financial planner who is actually a professional isn't as easy as many would hope, mind you many are trying to rectify it.

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Yes, you're right, much as I rail against it. I come across people with money in public super funds who do not even know what option they have, eg balanced, conservative, growth etc. I ask, and they just look blankly at me.

I know I'm in danger of trying everyone's patience here with my irritation at this, but hell, it's not as if they're uninterested in politics, or learning a new language etc. The low levels of Super that most people have should worry them enough to do something about it. My frustration comes not from the people who are intellectually or socially disadvantaged, but those who are well educated, have successful careers in their chosen field, yet continue to say "oh god, I can't believe how little Super I have" yet do absolutely nothing about changing this.
The demographics of an aging population suggest the old age pension will have to become inadequate in a couple of decades, so the pressure is absolutely there to not depend on it.

Julia said:

Or woefully incorrect advice as was experienced by clients of Storm Financial who paid 7% commission on FUM.

Yes, you're right, much as I rail against it. I come across people with money in public super funds who do not even know what option they have, eg balanced, conservative, growth etc. I ask, and they just look blankly at me.

I know I'm in danger of trying everyone's patience here with my irritation at this, but hell, it's not as if they're uninterested in politics, or learning a new language etc. The low levels of Super that most people have should worry them enough to do something about it. My frustration comes not from the people who are intellectually or socially disadvantaged, but those who are well educated, have successful careers in their chosen field, yet continue to say "oh god, I can't believe how little Super I have" yet do absolutely nothing about changing this.
The demographics of an aging population suggest the old age pension will have to become inadequate in a couple of decades, so the pressure is absolutely there to not depend on it.

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Storm was in a league of its own in terms of fees. Most financial advisers will charge maybe 1% per annum on your account for ongoing monitoring and advice up to a maximum of say $10k (Note this is as far as i've seen, it could be different in offices where clients have $4+ mill of assets) and typically charge around $2k to $10k for the strategic advice upfront depending on how complex. Storm on the other hand had upfront fees that sometimes reached $20-40k on $400k of net assets - this should ring alarm bells straigh away however as we've been discussing at the root of the problem is a lack of willingness to educate themselves and also human nature to trust a 'professonal'. We dealt with a ex storm client, had $500k from death of her husband and needed to support herself and child, storm did their tricks and got a margin loan to match that $500k and put her into their managed funds that are internally geared as well, you know the rest - oh and the upfront fee was $20k from memory.

I totally agree with you though Julia in terms of well-educated people neglecting their finances and then complaining. Being in the finance industry, some of the derogatory things people say or complaining you hear is astounding, they expect their SG to simply grow infinitely with none of their input. However the tide is slowly changing post-GFC, people are beginning to ask more questions and show more interest, it just disapointing its only started to happen due to poor performance recently. If people took an interest in their finances and budgetting early in life they'd really understand how some people become so wealthy.

Theres no special tricks to saving an extra $200 a month in an account you don't touch, or doing a personal contribution to get the government co-contribution each year, or salaray sacrificing just a few thousand a year - they all sound like insignificant things to do and so they get discarded but its amazing the difference all these minor things combined can make over a 10, 20, 30+ year timeframe.

Anyway, i'm well off-track now. Maybe we need another thread for this as well, just kidding. In the interest of getting Robusta's thread back on track are there any stocks the FA crew in here have been taking an interest in lately? Last I ran a few of me screeners I found it very difficult to find anything of interest, almost all the stocks returned in my screeners were mining or mining service/engineering companies which don't float my boat at the moment.

kermit345;738865[/QUOTE said:

Anyway, i'm well off-track now. Maybe we need another thread for this as well, just kidding

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It's a topic worth pursuing, even just in the hope that a few people might read the comments and reconsider their inertia.

Again, Robusta, apologies for the diversion of your thread and appreciation of your tolerance.

I agree Julia it is an important subject I am just sorry I don't have more time at the moment to participate in the discussion and that the people that need to read it will probably never look at this forum let alone this thread.

PORTFOLIO UPDATE

This portfolio has been going for about 18 months now and November was fairly hectic with two positions closed, two added and one increased so time for a update.

Sold KAM for a $647.60 gain and PET for a $240.10 gain with the PRV loss of $53.64 this fy has a gain of $834.06 subtracting this from the previous years loss $3095.16 gives a grand negative total of $2261.10

So far paid the bank $925.73 in interest and charges when this is added to last years total of $2303.28 this brings the total I have paid to $3229.01

Received $833.09 in dividends plus $331.46 franking credits when we add to last years dividends $960.33 and franking credits $383.34

The total is $1793.42 in dividends plus $714.18 franking credits.

So that is loss of $3696.69

Better have a look at where the open positions are (including brokerage)

Open Positions
Bought:
1115 x MTU @ $2.62 = $2941.25 08/08/11
65 x COH @ $45.85 = $3000.20 30/09/11
1373 xOKN @ $1.455 = $2017.67 23/11/11
1023 x NVT @ $2.93 = $3017.34 02/02/12
972 x TGA @ $1.505 =$1482.81 05/04/12
1074 x TGA @$1.395 =$1518.18 26/04/12
1912 x DTL @1.045 =$2017.99 18/05/12
278 x MTU @$2.66 =$739.48 21/05/12 (rights issue)
2089 x DTL @$0.92 =$1941.83 18/06/12
1685 x SWL @$1.18 =$2008.25 19/06/12
1412x EZL @ $1.055 = $1509.61 17/07/12
843 x SWL @ $0.895 = $774.44 26/07/12
1660 xIPP @ $0.915 = $1538.85 14/11/12
867 x TGA @ $1.745 = $1532.87 20/11/12
1182 xHHL @ $2.85 = $3388.65 23/11/12
Subtotal $ 29,429.42

Current Portfolio Market Value

65 x COH @$76.96 =$2002.20 +66.74%
4001 x DTL @$1.25 =$5001.25 +26.3%
1412 x EZL @ $.99 = $1397.88 -7.4%
1182 x HHL @ $2.59 =$3061.38 -9.66%
1660 x IPP @ $0.83 = $1377.8 -10.47%
1393 x MTU @ $4.18 = $5822.74 +58.2%
1023 x NVT @ $4.60 = $4705.8 +55.96
1373 x OKN @$1.20 = $1647.6 -18.34%
2528 x SWL @$0.79 =$1997.12 -28.23%
2913 x TGA @ $2.04 =$5942.52 +31.07%

Subtotal = $35,956.49


This brings paper profit considering the open positions to $2830.38

The $50/week I am throwing at the line of credit now totals $3300.00
So the return on my contributions is around +85.77%.

I would work out the CAGR on that return over 18 months but I don't consider the time period to be meaningful, after five years the number may mean something.

robusta said:

This brings paper profit considering the open positions to $2830.38

The $50/week I am throwing at the line of credit now totals $3300.00
So the return on my contributions is around +85.77%.

I would work out the CAGR on that return over 18 months but I don't consider the time period to be meaningful, after five years the number may mean something.

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I'd say you paid a $3000 lesson in the form of MCE, and you are actually up ~$6000.

Most following the thread can see how you've found your style and evolved your approach over the 18 months and made it work reasonably well for you.

Well done

skc said:

I'd say you paid a $3000 lesson in the form of MCE, and you are actually up ~$6000.

Most following the thread can see how you've found your style and evolved your approach over the 18 months and made it work reasonably well for you.

Well done

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Thank you sic, there has been a lot to learn over they period for me with no lesson more important or painful than MCE. The % return at the moment does not mean a lot considering the leverage used and the volatility of the market recently. Hopefully I will keep on learning and evolving my investment style. There are a few investors on this forum and in print I would be happy to emulate.

November was a really busy month for me, I missed updating the position in OKN on the 23/11.

Here is my original post when I took the position.

robusta said:

NEW INVESTMENT

OKN - Oakton Limited

Bought 1373 shares @ $1.455 = $1997.72

Oakton are a IT services business in the same sort of space as DWS, DTL et al.

I like OKN because they have been investing a lot into the business with a eye on the future, if the strategy works out growth should be satisfactory. In the meantime the nice dividend yield should make the wait bearable.

This is the smallest pisition I have taken to date due to one eye on current market volatility and the other eye on taking a position in DWS - at the right price.

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So $2017.67 invested with dividends received totaling $151.04. that is a yield of a bit over 7.48% this more than covers my cost of capital.

The market if you take todays closing price of $1.22 is offering to buy back my shares for $1675.06. This is probably a result of the flat/falling EPS with a resultant doubt over the sustainability of the dividend yield. This entire sector is under margin pressure but my thesis for buying and holding OKN is that the offshore head count should result in a gain in market share while maintaining a decent margin. OKN have been promising for a while now, the upcoming half year results and outlook will be a major factor in my decision to hold or sell.

Thought I would take a look at how the portfolio is looking compared to a year ago.

robusta said:

PORTFOLIO UPDATE
Capital gains (losses) ($5049.29)
Interest Paid / bank charges = $1441.55
Brokerage Paid = $418.60
Dividends Received = $453.16 Franking credit = $194.21

Tax Position, Capital Gains (Losses), Brokerage, Interest
($6,456.28) loss Franking credits = $194.21

Open Positions
Bought:
853 x CCP @ $4.48 = $3821.44 26/07/11
1115 x MTU @ $2.62 = $2921.30 08/08/11
520 x CCP @ $3.83 = $1991.60 08/08/11
65 x COH @ $45.85= $2980.25 30/09/11
1373 xOKN @ $1.455 = $1997.72) 23/11/11
837x MCE @ $3.08 = $2577.96 21/12/11

Subtotal $ 16,290.27

Current Portfolio Position

1373 x CCP @ $4.58 = $6288.34
65 x COH @$62.20 =$4043.00
837 x MCE @ $3..10 = $2594.70
1115 x MTU @ $2.89 = $3222.35
1373 x OKN @$1.265= $1736.85

Subtotal = $17885.24


Total realised and unrealised loss -21.37% or - $4,861.31
Cash contributed $880.00 ($40/week)

Realised return on contributed equity -~ 833 %

Return on contributed equity -~652%

Credit available $7946.73

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Here is how things are looking now.

PORTFOLIO UPDATE



Capital gain of $834.06 subtracting this from the previous years loss $3095.16 gives a grand negative total of $2261.10

So far paid the bank $1071.82 in interest and charges when this is added to last years total of $2303.28 this brings the total I have paid to $3375.10

Received $833.09 in dividends plus $331.46 franking credits when we add to last years dividends $960.33 and franking credits $383.34

The total is $1793.42 in dividends plus $714.18 franking credits.

So that is loss of $3842.78

Better have a look at where the open positions are (including brokerage)

Open Positions
Bought:
1115 x MTU @ $2.62 = $2941.25 08/08/11
65 x COH @ $45.85 = $3000.20 30/09/11
1373 xOKN @ $1.455 = $2017.67 23/11/11
1023 x NVT @ $2.93 = $3017.34 02/02/12
972 x TGA @ $1.505 =$1482.81 05/04/12
1074 x TGA @$1.395 =$1518.18 26/04/12
1912 x DTL @1.045 =$2017.99 18/05/12
278 x MTU @$2.66 =$739.48 21/05/12 (rights issue)
2089 x DTL @$0.92 =$1941.83 18/06/12
1685 x SWL @$1.18 =$2008.25 19/06/12
1412x EZL @ $1.055 = $1509.61 17/07/12
843 x SWL @ $0.895 = $774.44 26/07/12
1660 xIPP @ $0.915 = $1538.85 14/11/12
867 x TGA @ $1.745 = $1532.87 20/11/12
1182 xHHL @ $2.85 = $3388.65 23/11/12
Subtotal $ 29,429.42

Current Portfolio Market Value

65 x COH @$79.10 =$5141.50 +71.37%
4001 x DTL @$1.285 =$5141.29 +29.84%
1412 x EZL @ $1.00 = $1412.00 -6.47%
1182 x HHL @ $2.76 =$3262.32 -3.73%
1660 x IPP @ $0.90 = $1494.00 -2.91%
1393 x MTU @ $4.18 = $5822.74 +58.2%
1023 x NVT @ $4.70 = $4808.10 +59.35%
1373 x OKN @$1.27 = $1743.71 -13.58%
2528 x SWL @$1.07 =$2704.96 -2.79%
2913 x TGA @ $2.03 =$5913.39 +30.43%

Subtotal = $37,444.01


This brings paper profit considering the open positions to $4171.81

The $50/week I am throwing at the line of credit now totals $3450.00
So the return on my contributions is around +120.9%.

Credit available $127.33

An interesting thread that I've been following for some time. I admire your courage for posting your journey online and wish you all the best for 2013.

Not a bad turnaround on a portfolio this size for 12 months but then again the stock market as a whole did ok as well.
Out of the five positions held a year ago three are still in the portfolio, while I am a little annoyed to have sold Credit Corp early this is more than balanced by the lesson learnt in getting rid of Matrix.

Here are some very brief thoughts on the portfolio as it stands.

Cochlear
65 x COH @$79.10 =$5141.50 +71.37%
The clear market leader in a segment that is expected to grow by a CAGR of 13.5% through to 2015 I would expect to see dividends grow at about the same rate. The share price would have to jump over $100.00 for me to consider selling in the short term.

Data # 3
4001 x DTL @$1.285 =$5141.29 +29.84%
Solid business, great ROE, a fantastic dividend. If everything stays the same I will be happy, if they can grow as in the past.

Euroz Limited
1412 x EZL @ $1.00 = $1412.00 -6.47%
A brokerage house with massive exposure to the resources boom? Probably difficult to find something more out of vogue but dig a little deeper and you will find good capital managers in control of some quality assets.

Hunter Hall International Limited
1182 x HHL @ $2.76 =$3262.32 -3.73%
Run by value investors but with a poor recent performance and subsequent falling funds under management. Long term record however is excellent.

Iproperty Group
1660 x IPP @ $0.90 = $1494.00 -2.91%
The only holding in this portfolio that does not make a profit - yet. Revenue growth however is fantastic and I think IPP has a chance of emulating REA.

M2 Telecommunications
1393 x MTU @ $4.18 = $5822.74 +58.2%
This one reads the same as DTL, however I have to keep a eye on the Iprimus purchase.

Navitas
1023 x NVT @ $4.70 = $4808.10 +59.35%
Had some drama with regulatory changes recently but the future looks bright Difficult to see the demand for education waning in the future and this business has a fantastic cash flow.

Oakton Limited
1373 x OKN @$1.27 = $1743.71 -13.58%
This business has been promising for a while now, would be the first I sell to free up capital.

Seymour Whyte Limited
2528 x SWL @$1.07 =$2704.96 -2.79%
Profit downgrade in the previous half year has seen this long established business sold off. New contracts are being won.

Thorn Group
2913 x TGA @ $2.03 =$5913.39 +30.43%
Nothing I can add here that has not been said on the TGA thread. Just a solid business with sustainable revenue and good capital management.

Tails said:

An interesting thread that I've been following for some time. I admire your courage for posting your journey online and wish you all the best for 2013.

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Thank you tails I am glad you have found it interesting. There is courage then there is not caring too much what others think.

Investment Sold

Oakton

Sold 1373 @ $1.345 = $1826.73 including brokerage.

That is a capital loss of $190.94

The original investment of $2017.67 earned dividends received totaling $151.04. that is a yield of a bit over 7.48% this more than covers my cost of capital.

Take away the capital loss then add the cost of my capital (between 5.5-6.25%) over that period and things do not look so rosy.

The main reason for the sale is portfolio management. Even though I do not profess to try to time the market I find myself getting nervous when all looks rosy in the financial markets. OKN was simply the holding I had the least confidence in.

It might be better to reply on your own thread.

poor initial buy decision

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Sorry, but you shouldn't ever have this problem again. We all make mistakes and as we gain experience we reduce the number of mistakes. Your investment plan should outline your due diligence. You should tick all the boxes in your investment candidate checklist. Accurate, reliable research is where your edge starts. For a value investor this is the fun stuff (I assume).

I've just noticed the sale of your investment in OKN.

The main reason for the sale is portfolio management.

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What the heck does this mean? How does this sale benefit your portfolio? Freeing up capital should only be done when you have a higher probability prospect and you wish to take advantage of this new opportunity immediately.

OKN was simply the holding I had the least confidence in.

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Seems very wishy-washy. If it was a mistake then acknowledge it and understand it and don't do it again. Have the fundamentals in OKN changed? Have you lost confidence in the management team? Have the mgt team failed to enact their business plans. Is the current economic outlook unfavourable for this company?

I suggest you review your risk parameters as this suggests that you were unable to hold this stock through a reasonable fall in price.

You don't have to be qualified to judge economic conditions. The qualified economists only get it right sometimes. Commonsense is all that is required. Right now at the start of 2013 conditions seem rosier than they have been.

Now, why would you get nervous when all looks rosy? This is the time when you sit back and shout bring it on. You've done all the hard yards and started your investments in solid companies with bright prospects at good prices. A rosy economic condition is exactly what you need to get your anticipated growth in share prices.

Yes I agree it's difficult not to be distracted by all the media hype, but this should be one of your skills as a value investor. You have to see through all the sentiment and look at the facts, the numbers on a balance sheet, a good understanding of the business you are about to invest in. I won't do this, so I must use a price chart to time my entries. I see the demand of the value investors as they accumulate their positions. You should be buying before me. I'll be selling before you and you should be getting more of the multi-year trends than me.

You need to evolve a mechanical set of rules to guide your investment business just as I need a set of plans for my trading business.

peter2 said:

What the heck does this mean? How does this sale benefit your portfolio? Freeing up capital should only be done when you have a higher probability prospect and you wish to take advantage of this new opportunity immediately.

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Peter2, agree especially with your last comment on the need for a plan, whether investing or trading.

Just a comment on the above - there can be legitimate reasons for adjusting a portfolio that have nothing to do with whether you like a particular trade. There could be a rebalancing policy in place, a volatility limit...

peter2 said:

Sorry, but you shouldn't ever have this problem again. We all make mistakes and as we gain experience we reduce the number of mistakes. Your investment plan should outline your due diligence. You should tick all the boxes in your investment candidate checklist. Accurate, reliable research is where your edge starts. For a value investor this is the fun stuff (I assume).

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Yes good point, I should get a written investment checklist, you are right the research is fun.
I try not to make the same mistake twice but seem to have a uncanny ability to think up new ones

peter2 said:

I've just noticed the sale of your investment in OKN.

What the heck does this mean? How does this sale benefit your portfolio? Freeing up capital should only be done when you have a higher probability prospect and you wish to take advantage of this new opportunity immediately.

Seems very wishy-washy. If it was a mistake then acknowledge it and understand it and don't do it again. Have the fundamentals in OKN changed? Have you lost confidence in the management team? Have the mgt team failed to enact their business plans. Is the current economic outlook unfavourable for this company?

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The original post was a bit lazy. IMO OKN is probably still a decent investment however my thesis that the offshore headcount would give them a pricing and market share advantage has not been proven. When you add to that I paid a high price this was the stock to go to free up some capital.
In the past I have remained fully invested when the market has been rising, the only problem is new opportunities normally knock in a falling market. Selling to free up capital in this situation often result in lower prices.

peter2 said:

I suggest you review your risk parameters as this suggests that you were unable to hold this stock through a reasonable fall in price.

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Bought in November 2011 @ $1.455 the 52 week low in that time was $1.00 to be honest at the time OKN hit its lows I had a buy order in the market. (unfulfilled)

peter2 said:

You don't have to be qualified to judge economic conditions. The qualified economists only get it right sometimes. Commonsense is all that is required. Right now at the start of 2013 conditions seem rosier than they have been.

Now, why would you get nervous when all looks rosy? This is the time when you sit back and shout bring it on. You've done all the hard yards and started your investments in solid companies with bright prospects at good prices. A rosy economic condition is exactly what you need to get your anticipated growth in share prices.

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Does everything seem rosy? The American and European debt levels may cause a few ructions yet. The pundits are predicting a good year for the ASX 200 but even if they are right there will be some fluctuations on the way.

peter2 said:

Yes I agree it's difficult not to be distracted by all the media hype, but this should be one of your skills as a value investor. You have to see through all the sentiment and look at the facts, the numbers on a balance sheet, a good understanding of the business you are about to invest in. I won't do this, so I must use a price chart to time my entries. I see the demand of the value investors as they accumulate their positions. You should be buying before me. I'll be selling before you and you should be getting more of the multi-year trends than me.

You need to evolve a mechanical set of rules to guide your investment business just as I need a set of plans for my trading business.

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Thank you for your post Peter I am happy to hold the core of my Portfolio for the long term. Cochlear, Data 3, Hunter Hall, M2 Telecommunications, Navitas and Thorn Group.

The other three holdings (Euroz, Iproperty Group and Seymour Whyte) remain under a closer watch.

peter2 said:

What the heck does this mean? How does this sale benefit your portfolio? Freeing up capital should only be done when you have a higher probability prospect and you wish to take advantage of this new opportunity immediately.

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I was about to ask the same question.
Goes also to the philosophy of diversification. I can't see any point in diversification for the sake of it.
Why would you include stocks from a range of sectors if some of them are doing much less well than others?

Yes I agree it's difficult not to be distracted by all the media hype, but this should be one of your skills as a value investor.

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Just consider how often the so called experts get it wrong. Just absorb global and national factors as well as your own analysis of the companies concerned (if I have it correct that that's what you value investors do.)

You have to see through all the sentiment and look at the facts, the numbers on a balance sheet, a good understanding of the business you are about to invest in. I won't do this, so I must use a price chart to time my entries. I see the demand of the value investors as they accumulate their positions. You should be buying before me. I'll be selling before you and you should be getting more of the multi-year trends than me.

You need to evolve a mechanical set of rules to guide your investment business just as I need a set of plans for my trading business.

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Years ago Bunyip made some very pertinent comments about this:

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

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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.

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NB Robusta: none of the above is intended as personal criticism toward you. Rather just furthering the general discussion.

Strange how us humans make simple things more complex than they need to be, with the stock market no exception. There are a few simple techniques that should give a positive return over a decent time period.
1. Buy a ETF and beat the majority of money managers.

2. Buy trending stocks and beat the index (see Julia's post above)

3. But the best quality businesses at a price below what they are worth.

There are probably others but these three seem the simplest to me.

robusta said:

Strange how us humans make simple things more complex than they need to be, with the stock market no exception. There are a few simple techniques that should give a positive return over a decent time period.
1. Buy a ETF and beat the majority of money managers.

2. Buy trending stocks and beat the index (see Julia's post above)

3. But the best quality businesses at a price below what they are worth.

There are probably others but these three seem the simplest to me.

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There is only 26 letters in the alphabet and 10 digits in the number system.
Simple, until you add A HUMAN!

burglar said:

There is only 26 letters in the alphabet and 10 digits in the number system.
Simple, until you add A HUMAN!

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Normally the addition of one human isn't a problem. It's usually the introduction of a second (or third etc.) human that gives rise to complexity. This and numerous other threads like it, are examples of this phenomenon.

Robusta, I admire your courage in being willing to disclose your trading method and thereby exposing it to the appraisal/criticism of others. The polite way in which you've managed to field certain criticisms of your method is commendable.