What to invest in?

[Ausprop]

So you realise this, but the rest of the market hasn't factored it into the price?

For a highly followed stock like this to continue to go up, you need to know something that the rest of the market doesn't, or alternatively make a bet on a current uncertainty that may be holding the price down.

dunno, it's not immediately obvious is it?

you are putting faith in an efficient market, bu ti havent seen much if that over the past few years

example - market darlinsg jb and reject shop. stuffed if i can see whats so special about these things or what their barriers to competition are?

 

[Sunfish]

You guys make it hard. All I did was post three charts. If I could have removed their names I would have. They all tell me a different story IN A SECOND!

I thought the same stories would be obvious to all. Seems I'm wrong.

The top one is booming and I would always be curious to know what it is doing right even if I thought it looks toppy. Even in RE you talk about hanging out with success.

The second does not rate a second glance (I have no idea what the company does, I just found it by chance)

The third could be a trade for a recovery but I would need to read a bit first. I would probably set a sell and stop-loss when I bought it.

That's why I always look at the chart.

 

[Ausprop]

isn't it the same thing? look at the chart, if it looks good check out the story. if it's ok then go for it.

 

[Sunfish]

now i dont know whether this is a speculative stock that is a favourite amongst day traders.

If I saw a chart like that I wouldn't have to ask about it: I would find out. Is it a speculative day trader's darling? It has a $6.7 billion market cap and a major gold miner just paid C$25/sh for 9.2% of it. It hardly gets a post a week on Stockhouse (the big Nth American chat site) so I don't see how it can be a "day-trader's darling". Here's the 5 yr chart:

OK! It's listed on the TSX and is already highly valued so I don't recommend it. But there are ASX listed companies in the same country and same gold belt and I would find out about them if I wanted to make a dollar. (I already have a million shares in one)

 

[Sunfish]

isn't it the same thing? look at the chart, if it looks good check out the story. if it's ok then go for it.

Yes. But IV says he never looks at them.

 

[Value Emperor]

dunno, it's not immediately obvious is it?

you are putting faith in an efficient market, bu ti havent seen much if that over the past few years

example - market darlinsg jb and reject shop. stuffed if i can see whats so special about these things or what their barriers to competition are?

Not necessarily efficient, but an inefficient market can be over value the qualities as well as under value them. In a case like Microsoft, its more likely to be over emphasised than under.

 

[Value Emperor]

The second does not rate a second glance (I have no idea what the company does, I just found it by chance)

Funny that, because I would look at the second chart and think holders must be a bit discouraged by the lack of movement in the share price so are probably selling out of a potentially good company at less than fair value, then I would run it through my value determinator and if it looked a bit underpriced I'd buy and put it in the sock drawer.

I bought RNY, AZZ, CCV and a few others all at times when they were showing similar non-trends and have all paid handsomely. There have also been plenty that I've ignored after researching them more thoroughly.

What I'm saying is that the past trend doesn't really tell you anything. If it did, investing would be too easy.

 

[Sunfish]

What I'm saying is that the past trend doesn't really tell you anything. If it did, investing would be too easy.

It tells me that it doesn't trade some weeks. Do you like illiquid stocks?

 

[willair]

. But there are ASX listed companies in the same country and same gold belt and I would find out about them if I wanted to make a dollar. (I already have a million shares in one)

There not the ones you bought for $1.99,never paided a div in the whole time and are now worth 43 cents are they..willair..

 

[Sunfish]

There not the ones you bought for $1.99,never paided a div in the whole time and are now worth 43 cents are they..willair..

You'll have to help me out a little here. I would NEVER hold a falling share that long. I would look at the chart. LOL

 

[Value Emperor]

It tells me that it doesn't trade some weeks. Do you like illiquid stocks?

Absolutely! As long as you buy at the low end of the spread, they tend to have better returns than liquid ones.
Liquidity is a luxury you pay a premium for relatively speaking, due to foregoing the discount attached to illiquid stocks.

Most illiquid stocks aren't much different than a term deposit, you can get out early if you need to, just be prepared to lose 5-10%. So they should really only be long term investments.
Thankfully I also have plenty of liquid stocks if ever I need to raise some quick cash.

 

[hobo-jo]

Which of these three would you spend time on finding their "intrinsic value"?

but never think of the second because it isn't going anywhere and has low liquidity to boot.

The second does not rate a second glance (I have no idea what the company does, I just found it by chance)

It tells me that it doesn't trade some weeks. Do you like illiquid stocks?

Interesting test, personally with no other information at my disposal I would be looking into the second chart first and foremost. Illiquid stocks can be risky, however there are reasons they may be illiquid:
- Market not aware of their story/value
- Large % held by few leaving few shares for trading (scares off short term traders)

Illiquid stocks can be well kept secrets!

CCU is one I purchased when very illiquid (first bought some early 2009 then maxed out a SPP in May 2009 @ 6c), still holding (wouldn't hindsight have been great to sell out and rebuy more than double in the dip ):

And here is another illiquid stock I bought, RCO, bought at 40c, has been trading in a range of 35c to 50c or so for 6 months, very boring chart (plenty of days with no trades), today I find out they are paying a distribution of 10c per share (25% ROI from my purchase price):

NWR was another illiquid stock that I bought, it only took an investor report to do a feature on it to put a rocket under it's backside, that one I sold for around a 30% profit when it did jump.

Personally I look for value before looking at the chart, because chances are the market will find out sooner or later, especially in a sector that is on fire with investors and traders bargain hunting.

 

[Intrinsic_Value]

Which of these three would you spend time on finding their "intrinsic value"?

This one

this one

or this one

I would look at the third first, and not because it's Microsoft, but because it is interesting. Then the first but I would feel late to the party but never think of the second because it isn't going anywhere and has low liquidity to boot.

A picture saves a lot of reading.

We agree on one thing a picture saves alot of reading.
However instead of pictures of share prices, i like pictures of share earnings.

So if the above pictures were annual earnings per share (EPS) over say 10 or 15 years i would start to take more notice.

The first one definately looks worthy of having further investigation.
Note: i dont say buy, i say further investigation.
What is the catalyst for the increase in earnings, how sustainable are the increase in earnings, how big is the market share, how big is the companies share of the market, can a SWOT analysis be done? etc etc

The second company i would disregard, its too cyclical, to hard to create an intrinsic value for. I might quickly check out NTA, cash balance, see if there is a breakup value for this company, but to be honest not many of these opportunities exist anymore.

The third one also looks interesting, long term increase in earnings, maybe the company is going through some operational problems or mild structural problems, is the chaos in the industry? a price war? again a SWOT analysis needs to be done, but i can work from here.

 

[Value Emperor]

Sometimes what you can find with stocks on the second chart is that the company had very ambitious earnings expectations and its been sold down because it didn't meet those, but may still have consistent positive earnings growth.

A great example of this and one where I have made a fair bit on by buying when it failed to meet analyst expectations is Wotif.

If you look at their earnings, they have been steadily increasing for many years (even during GFC). But, look at the volatility of the share price chart.

I have a colleague who has bought and sold Wotif twice and both at losses because they hit his stops. Both of those times I have used to top up my holdings. Although I did sell for the first time when it hit $8.00 recently as I thought it had overshot its fair price and had a feeling the market wouldn't like their half yearly (even though it was still positive growth). I was lucky as its now $6.50

People make the mistake of assuming earnings are correlated to the share price chart. What you'll usually find is the chart has predicted the earnings growth long before the earnings even occur.

There are plenty of companies that will report postive earnings growth this year, but half of their share prices will still fall.

 

[Intrinsic_Value]

Sometimes what you can find with stocks on the second chart is that the company had very ambitious earnings expectations and its been sold down because it didn't meet those, but may still have consistent positive earnings growth.

A great example of this and one where I have made a fair bit on by buying when it failed to meet analyst expectations is Wotif.

If you look at their earnings, they have been steadily increasing for many years (even during GFC). But, look at the volatility of the share price chart.

I have a colleague who has bought and sold Wotif twice and both at losses because they hit his stops. Both of those times I have used to top up my holdings. Although I did sell for the first time when it hit $8.00 recently as I thought it had overshot its fair price and had a feeling the market wouldn't like their half yearly (even though it was still positive growth). I was lucky as its now $6.50

People make the mistake of assuming earnings are correlated to the share price chart. What you'll usually find is the chart has predicted the earnings growth long before the earnings even occur.

There are plenty of companies that will report postive earnings growth this year, but half of their share prices will still fall.

This is a very good point that many people dont realise.
You can do the research on the company, but if you over pay for the share you have a very high risk of achieving substandard returns.

Check out CXP price vs earnings for the last 10 years as a case in point.

Anyway well highlighted.

 

[Sunfish]

We agree on one thing a picture saves alot of reading.
However instead of pictures of share prices, i like pictures of share earnings.

So if the above pictures were annual earnings per share (EPS) over say 10 or 15 years i would start to take more notice.

The first one definately looks worthy of having further investigation.
Note: i dont say buy, i say further investigation.
What is the catalyst for the increase in earnings, how sustainable are the increase in earnings, how big is the market share, how big is the companies share of the market, can a SWOT analysis be done? etc etc

The second company i would disregard, its too cyclical, to hard to create an intrinsic value for. I might quickly check out NTA, cash balance, see if there is a breakup value for this company, but to be honest not many of these opportunities exist anymore.

The third one also looks interesting, long term increase in earnings, maybe the company is going through some operational problems or mild structural problems, is the chaos in the industry? a price war? again a SWOT analysis needs to be done, but i can work from here.

WOW Didn't that take a long time. I have bolded the bits that are exactly what I said.

What you missed though is that they are all 12 mth charts and therefore can not reflect long term earnings. If you like increasing earnings, and I agree it is desirable for value investors, and I also admit that is a valid approach, you must look at longer charts.

I can assure you value investors use charts, and with more on them than those simple line charts.

 

[Value Emperor]

I can assure you value investors use charts, and with more on them than those simple line charts.

I agree that many Value investors use charts - not as a predictor of the future, but a guide to what has happened in the past.
Even I use charts prior to buying. But I use them to give me an idea of the level of interest in the share, or if the horse has bolted so to speak.

A stock that has been trending down does not bother me if the value is right.
An uptrend on increasing volumes suggests to me that any potential positive suprises have already been factored into the share price.

 

[urbanprospector]

well best thing would have been gold or silver over the time since you asked the question . and would have been my suggestion had i seen this at the time (up 11+% in last 30 days) . only new and taken a while to look around . i sold my place in perth 2008 , its since gone down 90k (actual sale feb this year) bought bullion and have continued to buy on each price drop since .the 90k i invested now worth 160k plus . dyodd is all i will say then only you to blame . i have done what i have as was right in my situation .

ps. anyone thinking of going into bullion .do not invest with money you may need . its one hell of a roller coaster ride .

personally the stock market worries me and i did call the top (its recorded on bullion site i use ) expecting this down leg to continue ., throwing money at a problem don't fix it especially when when you are borrowing money to repay a debt at a higher rate aka greece .

interesting times ahead as i don't believe the numbers we are being fed .i see serious trouble headed our way .become vary wary of property too . i still own land in qld but that is to one day live on i rent atm. feel now is not the time to be entering property as an investment .

 

[Value Emperor]

interesting times ahead as i don't believe the numbers we are being fed .i see serious trouble headed our way .become vary wary of property too . i still own land in qld but that is to one day live on i rent atm. feel now is not the time to be entering property as an investment .

Couldn't agree more about property, finance only going to get tighter and more expensive, yields low, prices high. I don't see where any property growth will come from for the next couple of years minimum.

 

[Intrinsic_Value]

I agree that many Value investors use charts - not as a predictor of the future, but a guide to what has happened in the past.
Even I use charts prior to buying. But I use them to give me an idea of the level of interest in the share, or if the horse has bolted so to speak.

A stock that has been trending down does not bother me if the value is right.
An uptrend on increasing volumes suggests to me that any potential positive suprises have already been factored into the share price.

Let me make one thing quite clear, a price chart gives absolutely no indication of intrinsic value.
None, zippo, zilch, nothing.

Can i make myself more clear!!!!!

All that a price chart CAN do for an investor (as oppossed to a trader), is give an indication of market interest, so maybe as an investor check out why the market is interested. THATS ALL.

To state that an uptrend suggests surprises have been factored into into the share price is NAIVITY.

What about CSL, what about CBA, what about WOW, what about QBE when they first started their run.
To merely have deleted their shares from your screen just because they were running would have left you without many years of future gains IN INTRINSIC VALUE (note how i am not talking about share prices here, just INCREASES in intrinsic value).

I am solely interested in INTRINSIC VALUE and the GROWTH rate of that intrinsic value.

In some cases given enough of a discount to intrinsic value, i will buy and then sell once a share approximates my intrinsic value.(THIS IS APPROPRIATE WHERE THE GROWTH IN INTRINSIC VALUE IS MINIMAL/LOW OVER TIME)

But the greater the feel i have that intrinsic value will continue to grow in the future, the less inclined i am to dispose of the share. This is the secret to buffett.

IE in a summary:
step 1) look at the discount to intrinsic value
step 2) look at the growth rate of intrinsic value.

DONT FORGET STEP TWO.