Sluggish Market & Ant Theory

[LION63]

Barjon,

You are right that once the fundamentals change adversely, the shares get dumped for a loss, anything else would be asking for trouble and plain stupid. If it is deemed that closing on this basis is the equivalent of a stop loss then I fully accept that albeit, that is very different from saying that I buy at X and once it falls to Y I close the trade.

Dbphoenix,

Agreed and accepted that it takes us back to te beginning. However the lines above show that I strongly believe that once the fundamentals of the company, sector or economy change so as to render the original analysis invalid, one can no longer justify holding the position.

Barjon gave a brilliant example above - Under Lord Weinstock GE was ridiculed for holding too much cash on the balance sheet; cutting costs and never overpaying for acquisitions and sticking to dull businesses. Then along came a new CEO who thought he new better and he squandered the cash on tech businesses and sold off the cash cows. The rest is history (I fortunately sold the holding I had and later shorted Marconi shares at 1165p).

Rudeboy,

You are killing me, of course I know what you meant. A little banter never hurts anyone.

 

[charliechan]

CharlieChan,

If you are going to cite examples in order to buttress any argument/point that you are making please ensure that you have your facts right. You persist in trying to shoot down other views without putting any tangible alternatives, that is wrong and it borders on being criminal from a new trader's perspective when your posts are littered with inaccuracies.

Firstly,
MG Rover was a privately held company and nobody could trade in the shares. Based on that, how would it have been possible for a trader to lose any money?
Secondly,
Equitable Life was a mutual insurer that was owned by the members (policyholders) and never had trade able shares. Once again, how can you lose money trading the untradeable?

We are in danger of venturing into Fairyland.

as others have pointed out - you are being pedantic.

i clearly stated i had no idea if they were in the 100 or not - so they never even had listed shares - so what - the point is that big names can and do come to a sticky end some times.

yet again, we come back to enron, worldcom etc - more household names that became unstuck.

i think it is you who are desperately trying to cling on to some argument without foundation.

 

[dbphoenix]

However the lines above show that I strongly believe that once the fundamentals of the company, sector or economy change so as to render the original analysis invalid, one can no longer justify holding the position.

Trading and religion, however, though they share much in common, are not the same thing, so the strength of your belief is irrelevant to the task. There is, after all, the very real possibility that one simply f**ked up, which is not an uncommon state of affairs for a new trader, the target of your comments. In that case, the stoploss becomes a necessary feature of one's approach.

 

[charliechan]

dbphoenix,

As an alternative to doing proper research; having a proper method that reduces losses to a bare minimum; having patience before, after and during a trade; not listening to the maddening crowd, sound money management and reducing the frequency of trading amongst other things; what do you propose a newcomer do?

If advocating the above is deemed as being irresponsible and verges on being criminal then I am guilty as charged. I have no pity for those who lost their accounts during the tech meltdown and they certainly did not trade on a fundamental basis or seek steady returns.

here you contradict your self.

you imply that you have a money management plan when you clearly dont. part of money management is risk management. this means IDENTIFYING HOW MUCH RISK YOU ARE PREPARED TO ASSUME. as you do not do this as you have clearly admitted in the past (don use stops) then you have NO WAY OF CONTROLLING RISK in the face of extreme adversity.

also, how on earth do you manage money when you have previously admitted you prefer to hang on in vein hope that the stock will come back? this is not managing money - especially when the money could be better managed in other opportunities!

you are starting to sound like ducatti now. oh dear!!

looks like poor old lion has walked right into the lions den (again)

 

[RUDEBOY]

Good call,DB, good call!

 

[RUDEBOY]

Charlie, here comes the self included 'twist'!

 

[dbphoenix]

Good call,DB, good call!

Not trying to make calls. Just pointing out that whenever one injects ego into his trading or investing, trouble looms. And that's the case regardless of whether he acts according to his exsanguinated RSI or his discounted cash flow.

Now off to the theatre . . .

 

[charliechan]

Charlie, here comes the self included 'twist'!

 

[RUDEBOY]

Because Ducatti wishes to (you know what), don't let that .....put you off.....or so to speak! Do we trade for ourselves? But, logic, Mmmm, logic. That's another matter?

 

[LION63]

CharlieChan,

What was the business model of Enron or Worldcom for that matter? Did their filings hide the fact that they had so many off balance sheet transactions? As I have previously stated, I have a very low pain threshold and I cannot trade such companies from the long side, I like to sleep at night and they would not permit this.

As for the examples of Equitable Life and MG Rover that you gave; even if one were to discount the fact that they were unlisted my argument will be the same - MG Rover had a lousy business model and that is why it ended up in private hands in the first place. Equitable Life was an insurer that over reached itself and it did not implode overnight, it was an unlisted cousin of Royal SunAlliance and only the unrealistic watched the shares of the latter collapse from over 400p to below 100p.

In the worst case scenario I stand to lose 100% of my investment, that is something that I consider before opening the trade. That is all the money management that I require as I am not going to place a disproportionate percentage of my capital in one trade. There is no contradiction in that and it is certainly better than those that place stops only to find that they get closed at a much worse price. What happens if the shares are suspended (Railtrack)? You lose significantly more than you originally intended to/budgeted for and in this instance your stop loss is null and void is it not?

You have continually assumed that traders using FA hold on for an eternity with just a prayer to see them through, there are many different ways of managing positions and praying is not one of them. You need to stop thinking of quick money and contemplate reducing risk.

I consider the fact that you say I am starting to sound like Ducati a big compliment, I can think of many others that I would not like to be compared with. You on the other hand have always sounded like a gentleman that was banned from these boards because he was rude, obnoxious and very rarely had anything tangible to contribute. Dare I say it, you seem to be WisestGuy reincarnated. A leopard does not change its spots and you do not seem to have learnt your lesson.

 

[LION63]

Trading and religion, however, though they share much in common, are not the same thing, so the strength of your belief is irrelevant to the task. There is, after all, the very real possibility that one simply f**ked up, which is not an uncommon state of affairs for a new trader, the target of your comments. In that case, the stoploss becomes a necessary feature of one's approach.

Who is talking about belief or religion? What it comes down to is choice is it not? So I will leave it to the individual to decide what they wish to do with their funds.

 

[RUDEBOY]

Lion, talk about drilling weak points?

 

[barjon]

Barjon,

You are right that once the fundamentals change adversely, the shares get dumped for a loss, anything else would be asking for trouble and plain stupid. If it is deemed that closing on this basis is the equivalent of a stop loss then I fully accept that albeit, that is very different from saying that I buy at X and once it falls to Y I close the trade.

Dbphoenix,

Agreed and accepted that it takes us back to te beginning. However the lines above show that I strongly believe that once the fundamentals of the company, sector or economy change so as to render the original analysis invalid, one can no longer justify holding the position.

Barjon gave a brilliant example above - Under Lord Weinstock GE was ridiculed for holding too much cash on the balance sheet; cutting costs and never overpaying for acquisitions and sticking to dull businesses. Then along came a new CEO who thought he new better and he squandered the cash on tech businesses and sold off the cash cows. The rest is history (I fortunately sold the holding I had and later shorted Marconi shares at 1165p).

Rudeboy,

You are killing me, of course I know what you meant. A little banter never hurts anyone.

Lion,

I'd agree that a stoploss of an arbitrary amount is different but one based on "re-assessment" (for want of a better word) is pretty much the same. The fundamentalist thinks there will be demand for the share because it's undervalued - he will sell when those conditions no longer apply. The technician thinks there will be demand for a share because of a particular price movement - he will sell when those conditions no longer apply.

You didn't mention "fair value" and I'm still interested how you arrive at that. Are you talking about relative value in relation to the shares peer group, in relation to average value in the market at any one time (or over a long period of time) or what. It seems to me that "fair value" is, to some extent, a beauty in the eye of the beholder judgement call.

good trading

jon

 

[charliechan]

CharlieChan,

What was the business model of Enron or Worldcom for that matter? Did their filings hide the fact that they had so many off balance sheet transactions? As I have previously stated, I have a very low pain threshold and I cannot trade such companies from the long side, I like to sleep at night and they would not permit this.

As for the examples of Equitable Life and MG Rover that you gave; even if one were to discount the fact that they were unlisted my argument will be the same - MG Rover had a lousy business model and that is why it ended up in private hands in the first place. Equitable Life was an insurer that over reached itself and it did not implode overnight, it was an unlisted cousin of Royal SunAlliance and only the unrealistic watched the shares of the latter collapse from over 400p to below 100p.

In the worst case scenario I stand to lose 100% of my investment, that is something that I consider before opening the trade. That is all the money management that I require as I am not going to place a disproportionate percentage of my capital in one trade. There is no contradiction in that and it is certainly better than those that place stops only to find that they get closed at a much worse price. What happens if the shares are suspended (Railtrack)? You lose significantly more than you originally intended to/budgeted for and in this instance your stop loss is null and void is it not?

You have continually assumed that traders using FA hold on for an eternity with just a prayer to see them through, there are many different ways of managing positions and praying is not one of them. You need to stop thinking of quick money and contemplate reducing risk.

I consider the fact that you say I am starting to sound like Ducati a big compliment, I can think of many others that I would not like to be compared with. You on the other hand have always sounded like a gentleman that was banned from these boards because he was rude, obnoxious and very rarely had anything tangible to contribute. Dare I say it, you seem to be WisestGuy reincarnated. A leopard does not change its spots and you do not seem to have learnt your lesson.

i can assure you that you are 100% wrong in all of your assumptions about me. i dont assume that all traders using fa hang on with only a prayer - only that you do as this is the impression you have given. (prayer = fa in isolation for the sake of argument!!)

you still have not addressed the question of what you could be doing with your capital while it is tied up in a losing position, and why you chose not to put it to better use elsewhere?

seeing as you state you have a very low pain threshold, it does seem odd that you employ a buy & wish (hold) strategy.

as for my contribution - well i could be saying some very valuable things here - but it wont be perceived as valuable unless the receiver is able to think with an open mind, rather than insist on sticking to ideas out of their own pride and stubbornness. dbphoenix mentioned this earlier.

out of interest lion, do you think that quality analysis (fa or otherwise) is all that one needs to be successful at speculation?

 

[charliechan]

Lion,

I'd agree that a stoploss of an arbitrary amount is different but one based on "re-assessment" (for want of a better word) is pretty much the same. The fundamentalist thinks there will be demand for the share because it's undervalued - he will sell when those conditions no longer apply. The technician thinks there will be demand for a share because of a particular price movement - he will sell when those conditions no longer apply.

You didn't mention "fair value" and I'm still interested how you arrive at that. Are you talking about relative value in relation to the shares peer group, in relation to average value in the market at any one time (or over a long period of time) or what. It seems to me that "fair value" is, to some extent, a beauty in the eye of the beholder judgement call.

good trading

jon

good point.

if fair value was a firm figure that everybody agreed upon, the markets would be very different from what they are!

the reality is, is that everyone has a different opinion on what this means. i would expect that the fa version of fair value can also be calculated in different ways - given that companies can submit reports according to different accounting models i believe.

why would anyone sell below this magic number, or buy above it?

poppycock!

 

[LION63]

Barjon,

I cannot argue with the first paragraph as that seems to sum up the exit strategies for FA and TA with a broad brush.

Fair value is a subjective issue and I would go as far as to say that if we were to place information about a company in front of 10 different FA traders, they would come up with a range of price levels that they could justify. In my case, I would say that those that you listed (relative to peer group, prevailing average value in the market) are certainly part of it; then I would look at cash flow, PE ratio, sales, debts, assets, products, prospects etc. It all seems tedious and long winded but it is fairly basic and straightforward stuff (much like a good chartist at work) that leads to a determination of what I feel the shares are worth at the time. The important factor being what they are worth to me. I have enough patience to wait until the market price reflects that but contrary to what some may believe it is not a must that the price be hit before the position is exited, any number of things can change the original assessment.

 

[chump]

Last time i looked this thread was not entitled First Steps so what is the relevance of statements to novices about ?
This is not a methodology for novices , or traders who are poorly capitalised...that should be self evident because of the approach to diversifity of risk and timeframe.. I might also say it isn't also for those 90% of fundies who think P/E stands for Practically Everything I need to know about fundamental analysis ..but don't blame the methodology blame the practitioner who took the superficial route to accumulating the knowledge necessary to employ the methodology..

Charlie...for clarity there is a stop..let me capitalise that ..THERE IS A STOP..it is fundamentally based so the earlier comments about no stop were misleading..it is simply that fundies probably don't see it in those terms ,but from a practical point of view it is there...when Mr D wakes up in New Zealand from his slumber he might be kind to confirm that..

Charlie...from a set of accounts calculating 'fair value' you can also calculate parameters that would constitute over valued and under valued so you can calculate risk ..are you starting to get it ..at this point i know you don't know much about accounts so i will have to ask you to trust me on this...DBP this also means beliefs do not come into it..it's about numbers and only numbers and that is for me it's weakness ,,but we'll leave that for now

Charlie ,now let's take your statement about other opportunities and the value lost in tying up money that basically is not going anywhere...yes this is called opportunity cost..problem ...how do you value it ? You can only do it on the basis of your methodology and that brings us full circle because your methodology requires you to stay in the trade until the 'fair value' tells you not to and in that case opportunity is actually discounted into your performance figures ..hence any argument about opportunity cost is irrelevant...it's like telling a short term TA guy not to enter every time his set up triggers because 30% of them will misfire so save your money and only enter the 70% that may win..you can't do it because your methodology requires you to enter the trade and stay in it until youe exit is triggered...hope that is clear

 

[LION63]

i can assure you that you are 100% wrong in all of your assumptions about me. i dont assume that all traders using fa hang on with only a prayer - only that you do as this is the impression you have given. (prayer = fa in isolation for the sake of argument!!)

you still have not addressed the question of what you could be doing with your capital while it is tied up in a losing position, and why you chose not to put it to better use elsewhere?

seeing as you state you have a very low pain threshold, it does seem odd that you employ a buy & wish (hold) strategy.

as for my contribution - well i could be saying some very valuable things here - but it wont be perceived as valuable unless the receiver is able to think with an open mind, rather than insist on sticking to ideas out of their own pride and stubbornness. dbphoenix mentioned this earlier.

out of interest lion, do you think that quality analysis (fa or otherwise) is all that one needs to be successful at speculation?

You may believe what you want and that is your entitlement but remember that "assumption is the mother of all ****ups".

There are many things one could be doing with one's capital whilst it is locked up in a position (profitable or losing) but what is the guarantee the trader has that by seeking greener pastures one is not going from bad to worse or digging a deeper hole? Would this not apply to FA and TA exponents? This is probably one of the major causes of losses in the markets and most of us overlook it. How many times have you closed a trade because it is marginally against you and put the funds to work elsewhere only to find that the original trade would have been profitable and the latter is now showing a loss? That is one of the reasons I advocate having patience (regardless of your method) because it is pointless exiting trades unless the reasons for entry have altered.

It is precisely for reasons like this that I have a longer term horizon than the average trader besides, you argue as if the TA traders using longer term charts do not have the same policy as I. There are TA traders here that use 500 point stops on the DOW, are they stupid, losers, inept, praying or scared to take losses? Certainly not, it is their method of trading and it works for them.

 

[chump]

'fair value' is a calculation and yes you can see the subjectivity of it .but here is the clincher if that subjectivity is consistently employed by the practitioner then it is again discounted into the performance of the methodology..get it yet ? What makes a good TA practitioner..yes someone who has found a methodlogy that he can employ consistently to make a profit...what makes a good fundie trader ..exactly the same but using different data...

DBP..reread your journeys booklet ..this should all sound very familiar after that



edited to remove an unkind remark .

 

[ducati998]

Bloody hell,
First day I sleep in all hell unleashed..........................

cheers d998