TO SELL OR NOT?

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor. Seeking advice on your portfolio?
mudLark
Veteran Contributor
Veteran Contributor
Posts: 1038
Joined: 27 Jun 2006 18:47

Post by mudLark »

deaddog wrote:If the market wants to go up I buy, if it wants to go down I sell.
Is the 30 day MA the only indicator you use to trigger buy/sell decisions?
deaddog wrote:I don't think the market is ever rational.
Neither do I, on a day-to-day basis, but as a leading indicator of the overall economy the stock and bond markets are the best gauge we have.

IMO today's problem is a collective inability to accept what the indicators are predicting: the possibility of a politically damaging medium to long-term contraction of the overall global economy. This denial is interfering with normal (collectively rational) greed and fear activity, resulting in confused markets everywhere.

I believe this denial is a good thing. IMO it is being engineered by the world's governments (those that matter) as they collaborate like never before to bring stability to the global economy. Today's fear of an economic Armageddon may be doing more to reduce the chances of a real Armageddon than any single event since Hiroshima.

If our collective denial is replaced by optimism (increased faith in the future) the markets will start to normalize. If our collective denial is replaced by pessimism (reduced faith in the future), or perhaps even anger, IMVHO we will probably see a global hyper-capitulation event followed by widespread political instability. Thankfully, there are recent signs the optimists might be winning.

We certainly appear to be living in interesting times.
User avatar
deaddog
Veteran Contributor
Veteran Contributor
Posts: 3422
Joined: 19 Jan 2008 19:59
Location: Central BC/Arizona

Post by deaddog »

mudLark wrote: ]Is the 30 day MA the only indicator you use to trigger buy/sell decisions?

I use a 30 week Ma. Combined with weekly swing highs/lows to make decisions.

For a buy signal
Weekly price must close above the 30MA.
Need a retracement(I like to see three or more weeks)
You like to see the retracement have a higher low than the prior swing low.
Entry would be just above the swing high.
Requires lots of patience. You could wait a year for a signal and have to buy at the 52week high. But it is a trend following system. In order for it to be a trend it has to go higher.

I tend to build positions slowly(wait for a new swing high and add) and scale out as the market drops.

When I get bored I attemp to anticipate the next move up but play these positions with a tight stop. More of a gamble which I rationalize as being a "Calulated Risk".

The theory is to cut losers short and let the winners run.
User avatar
Mike Schimek
Veteran Contributor
Veteran Contributor
Posts: 2698
Joined: 04 Nov 2007 18:25
Location: Montreal, Quebec

Post by Mike Schimek »

Mike Schimek wrote:

Who cares about what the market is doing.
My guess would be just about every body that bought stock in the last couple of years.
You know I didn't mean it in that context oO

If you buy good securities of good companies at a good price, and the market doesn't reflect that value, just sit around and wait. If you chose your securities right eventually it will pay off (IMO), particularly at these prices.
Sounds good in theory, just like Warren Buffet. Problem is that Warren has the where with all to actually have his own people look at the books and appraise the business. How do we as investors determine what are the good companies? Even good companies suffer in bad times.
Do the same thing he does. It's a lot more work to slog through years of company reports and other things, but personally I find that doing so gives me a lot more confidence than I would have basing investment decisions on things like 30 day moving average charts.

If you want to "cheat" because of time constraints or because you cannot comfortably fully understand all aspects of financial statements, you can piggy back along guys like Warren and watch what they buy and consider doing the same thing. He's been buying Conoco Phillips, recently in the 70-80 range, right now its low 50s. When he buys its because he sees a lot of potential for a company 10 years down the road, so he's done all your research for you (if you can still buy at prices he was willing to buy at).

Note; Warren is 100% equities right now, in his personal portfolio.

One other problem that occurs when companies become too good a value is that other companies take them over. If it happens to be an all cash deal, we small investors have no choice but to take the cash. you can end up selling at a loss whether you want to or not.
Yeah, but if you can jump in early you do well. Was analyzing Hudbay last night because they have 900 mil in net assets vs a market cap of 500 mil, so this morning you could buy this company for about 60% of the price of the pure cash on its balance sheet, valuing its billions of dollars of property plant and equipment at zero.

I didn't move on this one, didn't have any free cash on hand and am unwilling to sell my current positions or buy more on margin.
I'm 100% equities and any money I have coming in right now goes straight into more equities. I'm not leveraged like I used to be (pre May of this year) and won't re-leverage ever again, but all my bucks are going into equities.

Nothing wrong with that. I'm curious as to when you plan to sell?
If you do your own analysis of companies (which takes a lot of work and some accounting background to understand the financial statements fully, with emphasis on the fully part) then you have an idea of what company X is worth to you. If the market is above X, then you sell.

IMO If you do not do your own analysis, then you cannot have a clear idea of what you feel a company is worth to you, and therefore you cannot have a clear idea of when you think it is fully valued in the market and should be sold.

IMO The more extensive your analysis, the more confident you will feel in your conclusions valuing the company you bought.
Research until your head hurts then scream Banzai!!! and charge fearlessly to victory or death!
User avatar
deaddog
Veteran Contributor
Veteran Contributor
Posts: 3422
Joined: 19 Jan 2008 19:59
Location: Central BC/Arizona

Post by deaddog »

Mike Schimek wrote:

Do the same thing he does. It's a lot more work to slog through years of company reports and other things, but personally I find that doing so gives me a lot more confidence than I would have basing investment decisions on things like 30 day moving average charts.
Use what ever criteria you want to get into a position. What are you doing to manage risk? Right now Warren may be 100% in equities but he had to have a few billion sitting on the sidelines. So where did that cash come from? Is it all retained earnings or did he sell some of his holdings when they became overvalued? I’m going to bet that Warren has an exit plan that he adheres to.

Mike Schimek wrote:

If you do your own analysis of companies (which takes a lot of work and some accounting background to understand the financial statements fully, with emphasis on the fully part) then you have an idea of what company X is worth to you. If the market is above X, then you sell.

IMO If you do not do your own analysis, then you cannot have a clear idea of what you feel a company is worth to you, and therefore you cannot have a clear idea of when you think it is fully valued in the market and should be sold.

IMO The more extensive your analysis, the more confident you will feel in your conclusions valuing the company you bought.
So did you own and sell any overvalued companies before they became such a value?
User avatar
Mike Schimek
Veteran Contributor
Veteran Contributor
Posts: 2698
Joined: 04 Nov 2007 18:25
Location: Montreal, Quebec

Post by Mike Schimek »

Use what ever criteria you want to get into a position. What are you doing to manage risk? Right now Warren may be 100% in equities but he had to have a few billion sitting on the sidelines. So where did that cash come from? Is it all retained earnings or did he sell some of his holdings when they became overvalued? I’m going to bet that Warren has an exit plan that he adheres to.
He sold all his U.S. treasuries and bought equities with the $
So did you own and sell any overvalued companies before they became such a value?
Hmm if you mean sell a company when its stock market price was more than what I felt its value was, then yes, I did that with my largest holding recently when the price of oil dropped below 100 then below 80.

I sold most (about 50-60%, the rest I sold even lower)of my holdings of Methanex at 21.91 about 1-2 months ago when the price of oil crashed, which therefore changed the fundamental value of the company and IMO made it worth much less than what its shares were selling for, so I ran for the exit.

Sometimes (more like often LOL) the fundamentals that drive the value of a stock change, which then changes what you think it might be worth. If you have a good understanding of what drives a particular company and know that company really well, you can beat a door to the exit and smell trouble earlier than most. And if that company's price happens to tank for no apparently good reason, you can chill out while everyone is panicking and not worry about it too much, knowing that ultimately the market will reflect the company's value, if your analysis is correct.
Research until your head hurts then scream Banzai!!! and charge fearlessly to victory or death!
User avatar
deaddog
Veteran Contributor
Veteran Contributor
Posts: 3422
Joined: 19 Jan 2008 19:59
Location: Central BC/Arizona

Post by deaddog »

Mike Schimek wrote:
Sometimes (more like often LOL) the fundamentals that drive the value of a stock change, which then changes what you think it might be worth. If you have a good understanding of what drives a particular company and know that company really well, you can beat a door to the exit and smell trouble earlier than most. And if that company's price happens to tank for no apparently good reason, you can chill out while everyone is panicking and not worry about it too much, knowing that ultimately the market will reflect the company's value, if your analysis is correct.
Doesn't look like you fit into the "Buy&Hold" camp.It appears that you have a sound exit strategy that manages your risk quite well. Why the aversion to leverage?
User avatar
Mike Schimek
Veteran Contributor
Veteran Contributor
Posts: 2698
Joined: 04 Nov 2007 18:25
Location: Montreal, Quebec

Post by Mike Schimek »

Doesn't look like you fit into the "Buy&Hold" camp.It appears that you have a sound exit strategy that manages your risk quite well.
I buy with the intention to buy and hold and wait, it's just that the economy and market has been whacko, so things that affect the companies keep changing. I try to get a real good feeling for what makes a company "tick" and watch that part like a hawk. If something fundamental changes, I get out fast. If the stock tanks but nothing fundamental has changed, I'll sit and wait, or often buy more.
Why the aversion to leverage?
Eh, lots and lots of reasons. In May I went from 200% leverage to 100%, then about 3 months ago I went from 100% to 20%. I'm at 20% right now and have a rule that every time I do a transaction, my leverage must shrink a bit.

If you want the "why don't leverage", you might want to read up on what Buffet has to say about it, and what Benjamin Graham has to say about it. There is something they do not say that I'll add, though it's a minor point compared to the things they say, which are all of great significance, but I'll add this one to the little pile;

When you buy a stock with money you worked for instead of money you borrowed on margin, etc., IMO you'll be much more cautious in how you invest it because you know how much you had to work to earn it, as opposed to "free money" you got by borrowing.
Research until your head hurts then scream Banzai!!! and charge fearlessly to victory or death!
User avatar
kcowan
Veteran Contributor
Veteran Contributor
Posts: 16033
Joined: 18 Apr 2006 20:33
Location: Pacific latitude 20/49

Post by kcowan »

Image

Can 200 years of history be wrong?
For the fun of it...Keith
User avatar
kcowan
Veteran Contributor
Veteran Contributor
Posts: 16033
Joined: 18 Apr 2006 20:33
Location: Pacific latitude 20/49

Post by kcowan »

http://4.bp.blogspot.com/_H2DePAZe2gA/S ... expend.png

Of course this might make it even different this time?
For the fun of it...Keith
qewcool
Contributor
Contributor
Posts: 12
Joined: 15 Apr 2006 20:40

Post by qewcool »

Nice chart there Kcowan !

Wish we could reach that bottom channel sooner than later.
Lots more deficit and debt hole-digging done on a global basis.

Where did they get data for pre 1900 ? didnt even know the DJ existed then.
WishingWealth
Veteran Contributor
Veteran Contributor
Posts: 6701
Joined: 27 Feb 2005 10:53

Post by WishingWealth »

RE the CyclePro graph.
I used to carry a chart like this (reversal to the mean) from Schiller - I believe.
Thanks for this one since I had lost the Schiller 'feed'.

Funny how things are, 25 years ago when I looked at charts telling me that shit could be the order of the day for 10-12 years, I would sort of shrug off the news and think ok, I'll recoup.
Alas, the relativity of time has hit me, 12 years does not have the same meaning.

WW
User avatar
Peculiar_Investor
Administrator
Administrator
Posts: 13269
Joined: 01 Mar 2005 14:52
Location: Calgary
Contact:

Post by Peculiar_Investor »

Not sure if this is the best place for this, but it relates to the topic. Maybe a candidate for quote of the year.
“David G. Booth, Chief Executive Officer, Dimensional Fund Advisors wrote:You’ve already paid for the risk, so it might be good to stick around for the expected return.
Imagefiniki, the Canadian financial wiki New editors wanted and welcomed, please help collaborate and improve the wiki.

Normal people… believe that if it ain’t broke, don’t fix it. Engineers believe that if it ain’t broke, it doesn’t have enough features yet. – Scott Adams
User avatar
deaddog
Veteran Contributor
Veteran Contributor
Posts: 3422
Joined: 19 Jan 2008 19:59
Location: Central BC/Arizona

Post by deaddog »

“David G. Booth, Chief Executive Officer, Dimensional Fund Advisors wrote:You’ve already paid for the risk, so it might be good to stick around for the expected return.

Prepaid risk: Now theres a concept you should be able to sell. :D :D
User avatar
kcowan
Veteran Contributor
Veteran Contributor
Posts: 16033
Joined: 18 Apr 2006 20:33
Location: Pacific latitude 20/49

Post by kcowan »

deaddog wrote:
“David G. Booth, Chief Executive Officer, Dimensional Fund Advisors wrote:You’ve already paid for the risk, so it might be good to stick around for the expected return.
Prepaid risk: Now theres a concept you should be able to sell. :D :D
Not so fast David! Are you calling a market bottom?
For the fun of it...Keith
Post Reply