Australian Sharemarket

[ruroshin]

Spec biotech seems to be the flavour at moment. Last week was ADO which almost topped 1000% in 2 days. I only managed to catch 200% of it, those that got it at the bottom must be happy.

This week was VLA 200% then came PNO which climb 64% before going into a trading halt due to come out of it either today or tomorrow. If its good news it might do a VLA or ADO.

Next up I recon will be OBJ, already up 53% since last week on no news but due soon in early feb.

anyway DYOR.

 

[willair]

so, biotech...? you're saying biotech is where it's at?

typically biotech stocks flatline, then blip on the first trials, then flatlline, then blip on news of a succesful second trail, then profit take, then flatline, then the final hurdle is FDA approval and BAMMO - 900% overnight.

Blue Card,i don't want to say too much,just a few months back while watching a few chat rooms where most of the talk is about share trading,and nothing else, and few posters who maybe have insider scalable punts were all talking about 5-8 companies within an area
that i was starting to invest in,one of those 8 has gone up over 700%
another 500%,the rest are above 200%,,there is always a separation between different types of uncertainity..imho..willair..

 

[willair]

Enjoy your day folks! Didn't take long did it? DOW off 160 pts.

These are difficult times. The traditional mum'n'dad investing long in "blue chips" and super will leave many dazed again this year. With interest rates rising again soon and again after that, the best investment will be to reduce debt. I have no idea what the self-funded retirees should do but I told a couple of my mates recently to get their super into "cash" options. I don't like giving advice but felt I should at least ring the bell.

DYOR on my predictions.

Sunfish even you should know one night is nothing,6 months is even less
but span it over a five year period then the facts speak for themselves,
i'm not worried at all,i can cut and run everything within 6 hours,unlike
last when i rode everything down,then bought back in at the bottom,it does not matter how many times you get it right,what matters is how many times you get it wrong and the cost..imho..willair..

 

[Aaron Sice]

i'm long MQG as of today.

 

[Georges]

check out GNI, up 300% within a few weeks.

PEK gonna go up more.

ARV also going up.

 

[Georges]

Check out OBJ, 10x share price increase since November.....

 

[Sunfish]

Sunfish even you should know one night is nothing,6 months is even less but span it over a five year period then the facts speak for themselves.........

I think the big difference between me and the "SS Way" is my lack of faith in "averages". I draw little comfort from the "knowledge" that things will all work out in the end. In the long run we are all dead, (John Maynard Keynes) me sooner than most here. You can drown before the tide goes out if you venture out too far. Or as I like to say: The market can stay illogical longer than I can stay solvent.

The market IS illogical ATM and not because it is dropping (again tonight) but because it is overpriced given so many uncertainties. Keep a close watch. You may need to "cut and run everything within 6 hours," sooner than you think.

 

[BV]

You may need to "cut and run everything within 6 hours," sooner than you think.

But can you get out in 6 hours when everyone is trying to get out and the system is overloaded? You probably won't be able to logon.
Also, who are you going to sell to when none will be buying?

However, it's unlikely that we'll see a sudden overnight drop.
I'm suspecting that it will be a gradual fall as the market realises that the US economy is a basket case and the US government can't repay their debt

 

[Aaron Sice]

see the news about legislating banks over there...?

market was off 2% last night alone

 

[bene313]

Check out OBJ, 10x share price increase since November.....

Been lots of that this year. Hindsight... If only to have had a piece of SFR.......

 

[Intrinsic_Value]

see the news about legislating banks over there...?

market was off 2% last night alone

Im not fussed over this for 3 reasons:
1) i dont have exposure to US banks and my exposure to australian banks has now dropped to less than 10% of the portfolio. My direct exposure to resources is zero.
2)if global stockmarkets crash over this, then just imagine the even bigger future crash if nothing was done. For investment banks 2009 now the year of a lifetime, effectively borrow from the fed at zero % interests and buy just about anything that gives you a positive return. Hell you can even make 6% guaranteed return by playing the oil contango trade. Now 6% doesnt sound like much, but if i do a 90% leverage with zero financing costs, thats a 60% return, guaranteed with my only risk factor being increases in future fed rates.
3) i think you will see stock rotation supporting the indexes.

I should also add that for once i am in agreement with the 'experts'. I am very weary of index performance for the near term (ie a couple of years), i think stock picking will be very importance as opposed to buying the index.

 

[Sunfish]

The guaranteed way to make money on the oil contango is to charter a tanker, fill 'er up! and park it in a fjord somewhere, sell the oil six months ahead and then deliver into the sale.

How can you be serious about shares and not own any resource stocks? Beats me. If there is contango in oil (I'm taking your word for that) why wouldn't you own an oil stock, Caltex even (not one I recommend)? Their oil inventory will increase in value all year.

 

[Intrinsic_Value]

The guaranteed way to make money on the oil contango is to charter a tanker, fill 'er up! and park it in a fjord somewhere, sell the oil six months ahead and then deliver into the sale.

How can you be serious about shares and not own any resource stocks? Beats me. If there is contango in oil (I'm taking your word for that) why wouldn't you own an oil stock, Caltex even (not one I recommend)? Their oil inventory will increase in value all year.

Let me turn your question around. Do you own a diversified portfolio at the moment? do you have some nice banking shares, REITS etc? I'm guessing not.

Being serious about shares doesnt necessarily mean holding a diversified portfolio. Diversification can often lead to diworsification of investment performance.

Now why would me holding resource shares lead to diworsification, yet its still possible for you to profit from resource shares?
Because you understand the sector better than i do, i would be buying blind. I have absolutely no idea how to value them, especially at current prices.

Because of my lack of understanding, i might be tempted to buy resources when they are:
1) trading under the net tangible asset value; or
2) operating on an excellent CFP (cash flow per share) basis during a period when resource prices are at depressed levels.

Neither of these conditions exist at the moment.

In regards to the current positive contango carry trade in oil. I feel this is actually a negative for oil shares in the short term (short term being a couple of years, longer term i still think peak oil is a relevant risk). I'm no expert in this area however a postive contango position (and especially one with sufficient positive contango to make arbitrage a profitable exercise) is prima facia evidence of an abundance of supply relative to demand which is bearish for oil shares.

Why dont oil companies participate in the contango trade to the full extent possible?
I have no idea, but i speculate two reasons:
1) the market wouldnt look kindly on it (ie could look like they are trying to corner the market)
2) the contango trade works best in conjuction with heavy leverage. I suspect that the market wouldnt be comfortable with oil companies taking on extreme leverage

 

[Intrinsic_Value]

I should qualify the above statements, with the fact that i am an active investor.

If you are going to be a more passive investor, then in my opinion, including top 'brand' resource companies such as BHP, RIO, Woodside etc would make financial sense.

 

[Sunfish]

Most of what you say is correct. I do not have a balanced portfolio. In fact I have a very limited one, consisting of "special case" holdings, none which I hold for what would be considered "long term" in spite of the largest one having been held for six years. (It was pretty small back then) It is still a "trading stock" which is yet to give me a strong enough sell signal to overcome the large cap gains it would attract. Frankly, there is no way I would be holding a "blue chip" portfolio now.

But I was of the impression you have been advocating a Graham/Buffett approach and they have never advocated speculation. I, on the other hand, love it. I repeat: The risks outweigh the possible gains with their type of approach TODAY. All the good gains occurred last year. Oh! Remember my age before you reply about "long term".

I still think you have simply limited your opportunities by not considering the most dynamic sector of our economy. But I'm not trying to persuade you of anything. Willair and I are mates but we disagree about this too. We just exchange ideas with no attempt to persuade.

 

[Aaron Sice]

sounds like 2 different opinions to me personally.....

 

[willair]

Most of what you say is correct. I do not have a balanced portfolio. In fact I have a very limited one, consisting of "special case" holdings, none which I hold for what would be considered "long term" in spite of the largest one having been held for six years. (It was pretty small back then) It is still a "trading stock" which is yet to give me a strong enough sell signal to overcome the large cap gains it would attract. Frankly, there is no way I would be holding a "blue chip" portfolio now.

But I was of the impression you have been advocating a Graham/Buffett approach and they have never advocated speculation. I, on the other hand, love it. I repeat: The risks outweigh the possible gains with their type of approach TODAY. All the good gains occurred last year. Oh! Remember my age before you reply about "long term".

I still think you have simply limited your opportunities by not considering the most dynamic sector of our economy. But I'm not trying to persuade you of anything. Willair and I are mates but we disagree about this too. We just exchange ideas with no attempt to persuade.

That's one item we agree on last year was predictable,and i think this year is also,if you are up to speed in detecting changes in the worldwide Banking markets around you,Btw i'm still holding CBA,BOQ,NAB, because once they start to crank up the interest rates as they will,the Banks will be the place to be,unless one of those 10 cent dog miners i have a small holding in, get bought out by China's money men..willair..

 

[Intrinsic_Value]

But I was of the impression you have been advocating a Graham/Buffett approach and they have never advocated speculation. I, on the other hand, love it. I repeat: The risks outweigh the possible gains with their type of approach TODAY. All the good gains occurred last year. Oh! Remember my age before you reply about "long term".

Actually Graham/Buffett although both value investors had different 'visions' of value based investing. Graham was a strict value based investor, so long as a share was trading at 'value' Graham would take a position regardless of the 'quality' of the underlying company. The position would be exited as soon as that value ceased either through share price appreciation or deterioration of the value through economic destruction.

Buffetts investment style has slowly evolved. He began like Graham but moved into focus investing upon companies with durable economic moats. He would then attempt to purchase shares in durable companies when the share price was below his perceived intrinsic value and then 'hold forever' allowing compounding to do its magic.

Thought must also be given to the size of the investment pool that one manages. Buffett himself has freely stated that it would be much easier for him to create wealth if he was only managing $1million rather than how many billion.

For myself i focus upon three factors utilising a blend of Graham/Buffett:
1) the durability of a company (as per Buffett). The higher the durability the less im likely to dispose of the underlying shares.
2) the share price relative to my perception of intrinsic value (and my perception of intrinsic value is also related to durability of the company).
3) the strategic (or long term) sustainable growth rate of the company.

The lower the durability of the company the greater the discount to intrinsic value required to purchase the shares and the quicker i will start to dollar average out of the stock (ie reverse of dollar averaging downwards into the stock).

Point (3) is an interesting one in my opinion. The higher the sustainable growth rate, the faster intrinsic value will appreciate.

Thus for me to have a 'buy and hold position' the company must have a high level of durability. I must buy the share when its significantly below the intrinsic value of the company, and the growth rate must be sustained at a rate which keeps the rise in intrinsic value above the rise in the share price.

So basically my actions are constantly dictated by Mr Markets mood swings and my perceptions of intrinsic value.

Then just to complicate matters i use margin lending which means that i cant afford to stick my head in the sand and hold soley to my beliefs of intrinsic value given that the market can remain silly longer than i can remain solvant.

 

[Intrinsic_Value]

But I was of the impression you have been advocating a Graham/Buffett approach and they have never advocated speculation. I, on the other hand, love it. I repeat: The risks outweigh the possible gains with their type of approach TODAY. All the good gains occurred last year. Oh! Remember my age before you reply about "long term".

Ah but the question here is are you speculating or are you taking calculated risks?
Calculated risks are not speculating where it is done in an intelligent manner.
If i was doing what you where doing it would be pure and simple speculation and i would be telling myself off.

But maybe i do something similar to you when i sometimes buy shares in 'average companies' because i think the share price discount to intrinsic value justifies the risk.

A recent example of this is UCW. I started acquiring a position at 20c and recently dispossed of most of the position at 28c because the profit downgrade in Nov had a material impact on my perceiption of intrinsic value (and this company is definately what i qualify as an average company).

I should add that when i origanally acquired the shares in UCW i thought i was buying on bottom of the cycle earnings on a low PE on bottom of the cycle earnings. In a nut shell i had a reasonable possibility of achieving a 300% return (to 60c share price) together with dividends on purchase price being potentially 20%pa fully franked (which would pay me a decent return whilst i waited for Mr Market to revalue the company).
My downside risk was negligable since the company had no debt, the 09 loss was due to write down in intangibles (ie the company was still operating profitably) and had sufficient cash in the bank to do a 10% share buy back (which would support the share price).

 

[Sunfish]

I'm just chatting here IV, not being argumentative.

Another reason I like the spec end of the market is because I'm a lazy investor. It really is easy to get on a busy stock chat site and debate the ways of the world (I am VERY interested in the world/macro/political scene) while keeping an eye on the posts about the juniors. (You may notice I know little and care less about the day to day problems of property, even though I own some) I really am not excited about studying annual reports to find a blue chip that is 5% under valued and I don't trust charts enough to study them.

If I see something that has made a good announcement I look it up and if I like what I see I buy some. If it turns out a dud I quit it early, if not I let it run. You don't need to find many of these and it is not as hard as it sounds. Some guys have made millions.

With a 10 year time frame, injecting JUST the amount you would spend on legals and stamp duty buying one property a year you could end up with an interesting, if unconventional, portfolio. Because this method does not involve leverage the inevitable downs should not be earth shattering. I am not as sanguine about big debts as you young fellas are.