Peils Journal 2 (back from blow up) Fundamental Style

[FanOfFridays]

Quote from peilthetraveler:
Also...i have barely scratched my margin...i wont go that far into my margin either.

unless you 'can't resist'?

Quote from peilthetraveler:
Now for my exit. I will exit when the stock is more than i paid for it. My stop is my confidence in the company. If I think they are going BK, then i will sell.

Ok - so you will sell when you think they are going bankrupt. But tell me... isn't it usually the case that the actual price of the stock declines 2 or 3 or 5 fold before it actually becomes clear that a bankruptcy is inevitable?

Quote from peilthetraveler:
After im done with this trade im going to split my holdings between 2 and 3 stocks.

This 'trade'? I am not sure I understand. You have said that you are making an investment in the company which you intend to hold for the long term because of your belief in its fundamental value. If you say 'I will only sell when I show a profit', nothing could make it clearer than this is not a trade. Traders almost always sell when their stop loss is hit. Bankruptcy doesn't count.

So even though you now understand that whether trading or investing, the most important thing you can do is practice good risk management, and that to do this you must enure that your exposure to any one stock is limited and that your portfolio is diversified and not too highly correlated, you are not going to make the decision to sell 2200 shares immediately, thus reducing your exposure to this one stock to app. 10% of your total portfolio?

Don't get me wrong, I am not trying to discourage you. I am just pointing out that you seem to be breaking several established rules for trading and even for what you are doing which seems to be investing. You have said that you blew out once before, and now you are getting the same advice from a bunch of different guys about your current activities, but you are not going to act on it. Instead you are questioning the bona fides of the people who are trying to help you avoid blowing out again by pointing out that you're making huge errors in judgement and bad tactical errors as well.

Doesn't there seem to be something wrong with this picture?

I have a feeling I know what's happening. You are saying to yourself 'If this goes to $9, that will be $1.90 x 2400 in profit!!'

 

[diputs]

Quote from peilthetraveler:

After im done with this trade im going to split my holdings between 2 and 3 stocks.

This should get interesting. Please keep up the journal.

 

[Buy1Sell2]

I don't think splitting between 2 or 3 stocks is very prudent. Do you have other funds beside the trading account?

 

[Susukino]

Quote from peilthetraveler:
Now for my exit. I will exit when the stock is more than i paid for it. I got my account beaten down last time because I did not(could not) wait out the bad times. If i sell every time a stock goes down thats called losing money. My stop is my confidence in the company. If i think they are going BK, then i will sell. But why sell a company for a loss when its making money? Even if it takes a year for the company to go to 8 dollars, thats still about a 13% return...beats the S&P.

Peil, I'm not a trader. I'm an equity analyst in a real stock market writing real buy and sell reports to some of the world's biggest institutional clients. This is my day job and I've done it for more than a decade years in a tough market. My approach, like that of nearly all equity analysts, is purely discretionary and based on fundamental analysis with some consideration of technical aspects. You too seem to be taking a discretionary approach. So please take this as friendly advice from one who has learned through bitter personal experience how easy it is to lose money for clients.

The advice is this: fluctuations in the share price usually have absolutely NOTHING do with whether the company is financially stable and NOTHING to do with whether the company is growing or not growing. If you refuse to sell a stock because (a) your position is losing you money and (b) the company is financially stable - "it's not gonna go bust so it should be OK" - you WILL lose all your money eventually.

Changes in the share price mostly reflect changes in the market's expectations for growth. A company could announce that profits are growing 100% year-on-year but if the market expected 105% YoY growth, the share price will probably fall. It might be a great company with good long term prospects and a bullet-proof balance sheet, but the stock will go down. Conversely, a company that has just posted huge declines in profit will often see its stock soar if there are signs that its results are bottoming. It's all about expectations, not absolute good/bad or growth/no growth.

Let's say you buy a stock and there's a negative earnings surprise. The stock falls 20% below the price you paid for it. If it's a really good company it might recover one day to the level you bought it at but that could easily be 4-5 years down the line. What are you going to live off in the meantime?

If you want to trade in a discretionary manner based on analysis of the fundamentals and the company's business, great. You can make money this way, although it's a lot of work. But even if you're very good you WILL get some trades wrong. You are going to have to accept that and consider how and when you will close those losing trades. It is because you WILL lose money on some trades that everybody in here is telling you to put no more than a few percent of your money in each position. That way if you lose a few in succession you will still have most of your capital intact. Whatever your style of trading (or investment) you need money management.

Suss

 

[peilthetraveler]

Ok...maybe i should state something...I am not living off my account. By looking at the posts it seems many of you think this. I live well below my means. I save between 25% to 50% of my gross income every month, so this trading account will not affect my lifestyle so no need to worry that i am someone like hedgeking who blows 400k in 6 weeks and is worried he is going to be on the street because he cant pay his bills and is living off credit cards. (sorry if you are reading this hedgeking, but you are the most recent example i can think of) If i do blow this account, then you will see journal #3, then Journal #4, then #5. I'll eventually get it right, but if i start listening to all your guys advice and i blow up....All i will be able to do is think about tracking every last one of you down and robbing your piggy banks. Let me fail on my own, i dont need your guys help to do it faster and if i succeed and make a million, then i will post how i was right and you guys dont know shit HEH HEH.

 

[Susukino]

Quote from peilthetraveler:
Let me fail on my own, i dont need your guys help to do it faster and if i succeed and make a million, then i will post how i was right and you guys dont know shit HEH HEH.

Er, well if you're so keen to fail on your own why post a journal? When you do a journal there's no way people are NOT going to give you advice (good or bad).

Suss

 

[FanOfFridays]

Quote from Susukino:

Peil, I'm not a trader. I'm an equity analyst in a real stock market writing real buy and sell reports to some of the world's biggest institutional clients. ...

... Whatever your style of trading (or investment) you need money management.

Suss

Man... Peil, if you don't take a step back and think about this advice, you are in for a rough ride.

Nice post for this thread, Suss.

 

[FanOfFridays]

Quote from peilthetraveler:

If i do blow this account, then you will see journal #3, then Journal #4, then #5.

Actually... it's likely that you never will, given how you've responded in this thread. You aren't interested in getting better. You're interested in the quick hit, in the rush.

Believe it or not, a lot of psychologists specializing in trading have pointed out that there is a particular type of individual who actually wants to lose. I think you may be one of these.

You have been told by 6 different people here that your position size is wrong and you need to make sure you're diversified. You are just saying 'No, I know better than all of you'.

There are plenty of people on here who will tell you not to listen to the naysayers, not to listen to anyone else's advice, to make your own mistakes and to tell everyone who tells you you'll fail to f**k off.

Good luck to you man.

 

[JimmyJam]

Well Peil,

On the plus side, if you still believe in TOPT, you could probably catch it at the bottom right about now and make a kill'in.
[enclosed chart]

On the minus side ... well, you're a grown man and you can make your own decisions, but you need to learn a lot if you really plan on making money in this game.

Maybe this guy can help you.
http://articles.moneycentral.msn.com/Investing/StartInvesting/StartInvestingWithJust100.aspx?page=1 ...

or if you insist on trading individual stocks, at least you can learn the P&F methodology to asisst you in making intelligent timing decisions after you've done your fundamental analysis due diligence.
http://stockcharts.com/def/servlet/SC.pnf?c=topt,P

Best Regards,

Jimmy

P.S. F. d'Anconia was spot on in his analysis, and this is pure bottom fishing ... only take the trade if you believe the stock doesn't have any farther to fall.

 

[FanOfFridays]

I think you're on the third day.

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The Hole

On the first day... a man walks down a street...Suddenly the world goes dark. He thinks he is lost. Then he realizes he is in a deep hole. He tries to find his way out, and it takes a very long time. Once he is out the day is gone ... so he walks back home.

On the second day... the man walks down the same street. The world goes dark again. He is in the hole again. He takes a while to recognize where he is. Eventually he finds his way out... and so again he walks back home.

On the third day... the man again walks down the street. He knows the hole is there and pretends not to see the hole... and closes his eyes. Once again he falls into the hole, and climbs out ... and walks back home, the day lost once again.

On the fourth day... the man walks cautiously down the street. He sees the hole and this time walks around it. He is pleased. But the world goes dark again. He has fallen into another hole. He climbs out of the second hole, walks home ... and alas... falls into the first hole. He gets out of the first hole... and walks back home... to think.

On the fifth day... the man walks confidently down the street. He sees the first hole..... and recognizes it. He walks around it... but forgets the second hole, which he walks directly into. He gets out immediately... and walks straight back home - to weep and hope.

On the sixth day... the man walks nervously down the street...The hole is there and he thinks, "I won't fall into the hole again"... and walks around the hole. He sees the second hole, avoids the second hole... but as he passes, he loses his balance... and falls in. Climbing out he walks back home ... taking the time to carefully avoid all the holes.

On the seventh day... the same man goes for a walk....
... and chooses to walk down a different street.