Anatomy of a Fiasco.

[Phaedrus]

Debacles like the one featured here are not a unique occurrance and unfortunately there are many examples on ST all virtually indistinguishable from this one. In an attempt to hide the identities of the unfortunate posters featured here, I have not identified the stock involved and have omitted dates. The chart covers a period of just over 6 months.

Everybody makes mistakes. The important thing is what you do after that. To my mind, it is crucial to recognise any mistake early and to do all you can to limit the damage. The posters here were so sure that they had assessed the fundamentals of this stock accurately that they were unwilling, indeed unable to accept that they had got it wrong. Some even bragged that they never used stop-losses! Month after month, their optimistic prognostications were crushed as the inexorable downtrend continued. They were in a hole but did they stop digging? No, they dug deeper, buying more and more, averaging down as the shareprice progressively collapsed. Throwing good money after bad. See how the posters influenced each other with their comments - threads like this become support groups for those that have all made the same mistake. The effects of "group think" are all too evident as they lead each other down the garden path.

These "toxic" threads share many similarities and are quite easily identified. Here are a few pointers :-
Watch for a preponderance of overly loyal extremely positive contributions.
Any negative posters are "run off the thread".
When negative posters are accused of "downramping" you can be sure that all objectivity has been lost.
Look out for multitudinous "cut and paste" entries of scarcely relevant articles from the net.
Beware of threads where anyone posting a negative comment is personally attacked.
Dissenting views should be encouraged, not rubbished. We learn nothing from those that agree with us.
Watch for comments on "ignorant" selling by institutions, techies etc - by people that think they know better.

Typical key phrases :-
I hope the price doesn't rise too much - I'm still buying.
This stock is worth $xxx
If it drops any more, I'm backing up the truck.
I can't believe that the market has got this one so wrong.
Have you noticed all those suspicious trades just at the close?
I'm buying $1 for 50 cents.
Why are you posting here if you don't hold this stock?
Oh goody - the price has dropped. I can now buy more!
The market is being manipulated by insiders.

There are very important lessons to be learnt from disasters like this. In my opinion, the more obvious ones are :-
(1) Don't buy stocks that are in a downtrend.
(2) Don't buy without first setting a point at which you will accept that you have made a mistake.
(3) When/if this point is hit, SELL. Immediately. You can always buy back when/if the trend reverses.
(4) Never add to a losing position. Don't average down. EVER.
(5) Be very careful not to get caught up in other peoples enthusiasm for a particular stock.
(6) Meticulous calculations of a stocks "worth" are meaningless if the market disagrees with you.
(7) Remenber, if your opinion is at variance with market sentiment, YOU are wrong, not the market!

http://i602.photobucket.com/albums/tt102/PhaedrusPB/adyavdn.gif

[winner69]

down to 12.5 at the mo phaedrus .........

[Halebop]

That chart looks familiar P. If you'd have kept it running for a few more series the change in sentiment after a more than 80% fall might have been interesting to read too. Gotta love what a simple trend line can tell you though!

[soulman]

Is it Shasta bashing day today?

I am copying this article by you Phaedrus and printing it out. It's gold. Thanks Phaedrus.

I've done it before as well. This stock is just one. There's other stock not in this forum that got hammered just as bad, like BNB and ABS. The sign were there already in all these stock. I have plenty to learn still.

The trend is your friend and you should always buy stock that are trending up.

You forgot to add this key phrases:

"Never fall in love with a stock". I think when someone bought a stock and made a quick buck or two, they will always stick around the stock even though there is warning from the chart and the coy later on. They just can't let go. I think Shasta made some quid from this coy before and just can't take his eye of the attractiveness of this coy.

[shasta]

Is it Shasta bashing day today?

I am copying this article by you Phaedrus and printing it out. It's gold. Thanks Phaedrus.

I've done it before as well. This stock is just one. There's other stock not in this forum that got hammered just as bad, like BNB and ABS. The sign were there already in all these stock. I have plenty to learn still.

The trend is your friend and you should always buy stock that are trending up.

You forgot to add this key phrases:

"Never fall in love with a stock". I think when someone bought a stock and made a quick buck or two, they will always stick around the stock even though there is warning from the chart and the coy later on. They just can't let go. I think Shasta made some quid from this coy before and just can't take his eye of the attractiveness of this coy.

I doubt it's me being referred to, they aren't my statements...:confused:

I don't even know the company Phaedrus is referring to

[soulman]

Sorry, maybe it's not ADY after all. But a good article for all anyway.

[The Big Ease]

thanks for going to all the effort in putting this together.
it covers my thoughts perfectly and i hope it stops others from falling for the trap.

it should be a sticky thread, especially in these times.

[shasta]

Sorry, maybe it's not ADY after all. But a good article for all anyway.

Absolutely it's a great thread.

I've recently reviewed, rejigged my holdings & rewrote my investment strategy, to reduce trading activities to achieve better results.

If the graph is meant to be ADY, i got greedy & complacent, but have cuts my losses & moved on.

Never hurts to stop & rethink your goals.

[bermuda]

I doubt it's me being referred to, they aren't my statements...:confused:

I don't even know the company Phaedrus is referring to


Not me either but I do fall in love with good stocks.

I am learning and one day I might start trading. I fell in love with NZO and I always knew that the fundamentals would deliver. Cant wait until Friday.

Great synopsis Phaedrus. You are truly a LEGEND.

[The Big Ease]

I don't even know the company Phaedrus is referring to

you should! it most certainly is ady.
fwiw, i reckon you are a sincere poster who just happens to be or was very passionate about stocks i regard quite lowly.

like others have said, we all make bad calls and i know i have.

[shasta]

you should! it most certainly is ady.
fwiw, i reckon you are a sincere poster who just happens to be or was very passionate about stocks i regard quite lowly.

like others have said, we all make bad calls and i know i have.

Thanks, I learnt alot from ADY, it's changed my way of thinking.

In reflection i was a bit too passionate about ADY, & having success early on with it only clouded my judgement.

I'm not interested in trading spec's anymore.

I was never fully aware people followed me into stocks until ADY.

[Mick100]

Yes , the chart looks like ADY
I'm still holding - still in profit too - just

[The Big Ease]

the proper version:http://http://vinvesting.com/docs/munger/human_misjudgement.html

if you are too lazy
Tom’s 24 Standard Causes of Irrational Behavior

"This is how I get paid" People behave irrationally when there’s an incentive or reward system

"I'm on her side." People behave irrationally because they under-recognize the power of incentives to create bias in their own rationality or in the mind of people advising them. Easy to forget "whose bread I eat, their song I sing."

"I can't believe that." People behave irrationally because of psychological denial

"This is what I agreed to before." People behave irrationally because of consistency and commitment bias. It leads to people shutting out new ideas/actions that contradict their earlier conclusions or commitments. This leads to confirmation bias.

"That's too hard." "I like this." People behave irrationally when there’s Pavlovian reinforcement, or even if they have insufficient information because of some positive or negative associations

"You've done something for me." People behave irrationally when they feel the need to reciprocate, including when someone asks for a lot, and then backs off, you feel a need to reciprocate in kind.

"This is how I'm supposed to behave." People behave irrationally when they feel like they need to fulfill a role, and act as others expect

"This is what the winners do." People behave irrationally because of over-influence by social proof, what others are doing, especially under conditions of uncertainty and stress

"I remember what supports my theory." People behave irrationally when they have a couple models of how the world works, and then apply everything to that model. "To the man with a hammer, every problem looks like a nail." Better to have lots of tools in the toolbox. This leads to confirmation bias.

"Compared to what I've seen, this is good." People behave irrationally when contrast-caused distortions of perception or cognition. When we measure things simply by comparing them to other things we know about.

"Yes, sir." People behave irrationally when over-influenced by authority.

"Don't take that from me!" People behave irrationally when threatened with scarcity, including threatened removal of something almost possessed, but never possessed.

"I want what you have." People behave irrationally when envious or jealous. Especially on a subconscious level.

"Thatsh the besht thing evarr." People behave irrationally when chemically dependent
"I'm feeling lucky!" People behave irrationally from a gambling compulsion when the rewards are variable.

"Those elites may not like it, but I'm gonna do it anyways." People behave irrationally when liking or disliking distorts their thinking. This not only include people we like or dislike, but also our own kind, and our own ideas.

"I figure it's 50-50." People behave irrationally because the human brain is non-mathematical in nature, and we tend to use crude heuristics rather than probabilities and properly weighing available information. For example, we tend to overweigh conveniently available information, or the items on this list can make us forget the importance of consequences

"I feel sorry for him." People behave irrationally because of emotions, and because of appeals to emotions may lead us to forget the bigger picture

"Yikes! That's incredible!" People behave irrationally because we can be overly influenced by extra-vivid evidence.

"Yeah, cuz uh-huh." People behave irrationally because they get mentally confused by not having thought out the answer to “Why?” Or, they get information that apparently, but not really answers the question “Why?”

"I can't remember everything." People behave irrationally because of normal limitations of sensation, memory, cognition and knowledge

"Aaargh! I need relief!" People behave irrationally because of stress-induced mental changes, small and large, temporary and permanent.

"Use it or lose it." People behave irrationally because of common mental illnesses and mental declines, temporary and permanent, including the tendency to lose ability through disuse.

"Well, to be honest, I think we should meet up again and talk about it further." People behave irrationally in organizations because of say-something syndrome when people are incoherent and can’t handle what they need to communicate.

[Mick100]

YOU SHOUDN'T THROW STONES IF YOUR STANDING INSIDE A GLASSHOUSE:D

https://ost.asbbank.co.nz/779C14EC2CDB8F72AD22E2E14406494B/Research/GetChart.ashx?url=http://asbc.iguana2.com/asb/hist/ASX/ARR/2y/1/line/0/0/linear/vol&q=633554724396768750

[The Big Ease]

you should! it most certainly is ady.
fwiw, i reckon you are a sincere poster who just happens to be or was very passionate about stocks i regard quite lowly.

like others have said, we all make bad calls and i know i have.

:D sure do mick.

you should also look up FZN (AKA vtg) & REF. Whilst their earnings have stacked up, their SP's have tanked!!!

so yeah, i wore some pain on those and cut my losses.

you wont see me racking up 166 pages of chatter about them.
im not going to dwell on disaapointments. too many other girls at the party to worry about the one that got away.

[STRAT]

Geez, Hope none of those posts belong to me :o

Not going to check either :rolleyes:

[Crypto Crude]

Phaedrus,
what an amazing post...
I think there is much to take from that post even though some of us dont abuse a category without knowing actually what we are doing wrong.....
I think your post sums up most,(if not all the other share trading forumns to a T)... This is not the case for sharetrader.....
Sometimes a few of us get very pashionate at 'that time' on a stock...
I personally dont make mistakes when I go in large (or have not yet), but I have made a few mistakes this year with giving back profits on numerous occasions (a few of them were giving back the one baggers id made...
We all realise we have things to work on in this game...
I now Think TA and trading is far more important than investing (which was what I orginally set out to do)....
The only investing (long term hold) stock on the market really is only NZO...
Because of you I understand just how important TA is... I am going to destroy TA with study in November...
DOW just opened... Im going to watch early market trading and then snooze into lunch time...
holidays...
later...
:cool:
.^sc

[MrDevine]

Wicked post Phaedrus.

If it was so easy to make money on the markets, we'd all be rich.

Mr D.

[Corporate]

Love the post P! All makes great sense.

However, is averaging down always a bad idea? If i'd had the go-nads I would have bought more NZO at 1.42 and now i'd be 20c up, or another way of looking at it, i'd have a lower average price for my entire holding.

[Year of the Tiger]

There are very important lessons to be learnt from disasters like this. In my opinion, the more obvious ones are :-
(1) Don't buy stocks that are in a downtrend.
(2) Don't buy without first setting a point at which you will accept that you have made a mistake.
(3) When/if this point is hit, SELL. Immediately. You can always buy back when/if the trend reverses.
(4) Never add to a losing position. Don't average down. EVER.
(5) Be very careful not to get caught up in other peoples enthusiasm for a particular stock.
(6) Meticulous calculations of a stocks "worth" are meaningless if the market disagrees with you.
(7) Remenber, if your opinion is at variance with market sentiment, YOU are wrong, not the market!



Thanks for the great post Phaedrus.

Although I'm not aware of the share to which your post relates, it did cause me to take a serious reality check about some to the shares I have bought and sold in the past.

The most poignant section of the post for me is the 7 key points that you mentioned above.

Point 2 is the key one I think. Nobody likes to admit, even to themselves, that they have made a mistake. Oftentimes when the reality finally hits home, it will have far greater negative financial consequences.

Point 3 inevitably follows Point 2. If you don't hit the jackpot on Point 2, then it is not going to be possible to redeem yourself with Point 3.

Point 5 I believe is the doozy. I like to read the forums to try and guage the market sentiment, but I do this with a very very open mind, realising that there are always up and down-rampers. BUT, the difficulty is when I have been looking at a particular share and then lots of positive comments start to flow, it is extremely hard to ignore these and keep my mind focused on my own reasoning. But I guess we are all human, we get some sort of warm fuzzy when we see that others are agreeing with what our own thoughts are.

I guess the thing that I always try to remember is that the sharemarket is in no way HUMAN. It can launch people into incredible highs and in the blink of any eye, it can destroy you.

So Phaedrus, once again thank you. This has given me a good reason to go back and reset some goals and to ensure I have clarity in my thinking.

YOTT

[winner69]

Maybe holding this share is punishment for being a critic of Helen Clark

[STRAT]

Maybe holding this share is punishment for being a critic of Helen ClarkHope not cause if it is mine is yet to come :eek:

[Phaedrus]

Is averaging down always a bad idea?
Averaging down is such a pernicious evil because it sometimes appears to pay off. We all have our tales of when we added to a losing position and it eventually came good. It's a bit like running red lights or entering a rail crossing when the bell is ringing. You will save a bit of time if you are lucky and take a very hard (possibly fatal) hit if you are not. Are you feeling lucky, punk?

Time after time after time the poor sods featured here added to their losing positions. I have not got the slightest doubt that at some point in their history they had "learnt" that this was a good idea because they had tried it and it "worked". But when it didn't work, they were all but wiped out. I don't want to name the poster or the thread, but there are sad examples of exactly that right here on ST.

There are very strong psychological reasons why people average down. The fact is that it feels right. You are re-affirming your faith in yourself and your decisions. You have NOT made a mistake and to prove it to yourself and others you put more money where your mouth is. You crack hardy - "if it drops any lower, I'm backing up the truck". Now there's confidence for you. There's someone who has the courage of their convictions. There's someone who knows better than the market. Right? WRONG.
To sell at a loss, on the other hand, is counter-intuitive and psychologically painful. You are admitting that you got it wrong (or at the very least mis-timed your entry) and what's more, your mistake has cost you real money. Selling at a loss is so difficult, in fact, that some people find it impossible. They speak of "paper losses" and tell themselves lies such as "I haven't lost any money until I sell".

Another aspect of averaging down is that it distorts your portfolio allocations. You might intend to have approximately equal sums of money spread across a number of stocks, but if you add (and keep on adding) to a falling stock, you will quickly find that you are very much overweight in your worst stock. You can see that happening right here - more than one mug-punter was proudly pointing out that the stock in question comprised more than 50% of his available funds! You want to be overweight in your best stocks, not your worst!

[shasta]

Averaging down is such a pernicious evil because it sometimes appears to pay off. We all have our tales of when we added to a losing position and it eventually came good. It's a bit like running red lights or entering a rail crossing when the bell is ringing. You will save a bit of time if you are lucky and take a very hard (possibly fatal) hit if you are not. Are you feeling lucky, punk?

Time after time after time the poor sods featured here added to their losing positions. I have not got the slightest doubt that at some point in their history they had "learnt" that this was a good idea because they had tried it and it "worked". But when it didn't work, they were all but wiped out. I don't want to name the poster or the thread, but there are sad examples of exactly that right here on ST.

There are very strong psychological reasons why people average down. The fact is that it feels right. You are re-affirming your faith in yourself and your decisions. You have NOT made a mistake and to prove it to yourself and others you put more money where your mouth is. You crack hardy - "if it drops any lower, I'm backing up the truck". Now there's confidence for you. There's someone who has the courage of their convictions. There's someone who knows better than the market. Right? WRONG.
To sell at a loss, on the other hand, is counter-intuitive and psychologically painful. You are admitting that you got it wrong (or at the very least mis-timed your entry) and what's more, your mistake has cost you real money. Selling at a loss is so difficult, in fact, that some people find it impossible. They speak of "paper losses" and tell themselves lies such as "I haven't lost any money until I sell".

Another aspect of averaging down is that it distorts your portfolio allocations. You might intend to have approximately equal sums of money spread across a number of stocks, but if you add (and keep on adding) to a falling stock, you will quickly find that you are very much overweight in your worst stock. You can see that happening right here - more than one mug-punter was proudly pointing out that the stock in question comprised more than 50% of his available funds! You want to be overweight in your best stocks, not your worst!

Vince - This should be a sticky on the Investment Strategies thread.

So this thread doesn't get lost, very worthwhile to keep this fresh.

[RossT]

Probably the best reading ( from a learning point of view ) post, I have read on this forum to date. Thanks Phaedrus. The chart with comments attached in the first post is a classic. Have to admit tho I came "this close" to jumping in feet first with ady, but never did. " All that lithium? I can't loose! "

[Cooper]

Gold, Phaedrus... my two biggest losses (NEO, TAW) have come when I've been muttering similar things to myself. An expensive lesson to learn but one that is remarkably hard to forget once experience has taught it. Keep up the good work!

[Crypto Crude]

What,
this is probably the most important thread of the Year...
Now its hidden away...
:cool:
.^sc

[Mick100]

Phaedrus, you have been trying to convince people not to buy into downtrends for years now, yet people keep doing it, including myself
Why isn't the message getting through

[Phaedrus]

Phaedrus, you have been trying to convince people not to buy into downtrends for years........Why isn't the message getting through
Maybe it is! Certainly I have presented plenty of nice clear examples of just how expensive this folly can be.

Mick, I gave up trying to change the world years ago. All I'm doing is putting my point of view out there. I don't give a toss if I convince people or not - after all, it's their dime! I still find it very difficult to understand why anyone would want to buy into a downtrending stock, though. To me, it makes no sense whatsoever.

One theory I have is that as a downtrend progresses, the fundamentals just get better and better. The PE falls. The price/sales ratio improves. The dividend yield increases. Sooner or later, the stock will be considered "cheap" or "undervalued" so people buy. The fact that the stock will probably be even cheaper and even more of a bargain if they delay buying doesn't seem to occur to them.

Another theory I have is that quite a few people consider "Mr Market" to be an idiot. Therefore they don't care what "the market" thinks and thus consider stock trends to be irrelevant. So they ignore them.

Some investors consider prices to be "serially independent" and that price history gives no indication of future price direction. They believe in the efficient market hypothesis which holds that prices fluctuate randomly about their intrinsic value. These people don't believe that trends even exist!

[Crypto Crude]

Good topic....
I have an idea why we buy into down trending stocks...

As Humans we become tough and think we are correct...
Its nothing more than just plain stubborn behaviour...
We can see this sort of behaviour across many examples in society...
Marriage breakdown... family withdrawl....
gamling... addiction...
War... historical....

its in our minds and human nature to become set in our ways...
Markets crashing (in most sectors) have exposed many of us..... Its also alittle harsh on those of us who are only hurting because of large market risk.... and the massive discount that holds on weaker stocks...
Is ive said... im guilty of holding a stock well too long...
Ive never gone down with it though...

Refusing to conceed, and accepting critism is the most important thing we must accept for individual change... I welcome criticism of myself....
I cant get better without it...
I have a great example of conceeding...

My dads broker Put my him onto MRE...Minara (ASX resource (was large cap))...
so he bought 1000 at 6 bucks AUS on brokers strong advice......
just a dabble...
SP was stable for a few months...
then in no time...
->>>
5.50...5....4.5.....4.25.......4.0000
around the 4.50 mark, My dad started asking serious questions after no phone calls before that from broker for reassurance...The broker said all was ok... nothing to worry about...
3.75....3.50.....3.25bucks... (its one of the best we were told)...
"leveraged and now fundamental madness"

My dad then put a sell in at 3 bucks and the broker did not act (because) "it was due a rebound"...the position was not sold when my dad asked... the SP then slashed another down another 50ish % to 1.60 AUS before the broker was even prepared to conceed and sell the position at that price... it then fell to around one dollar from 6 bucks....... can you believe this stubborn behaviour?
The broker played with this money and it was not his...
" it will come back up"....the broker said over and over...

Brokers, investors, will tend to hold on and hold on and be prepared to "go down with the ship at all costs"...

Traders are totally different... they have no attachment, and therefore do not need to hold a stock indefiantly into the future to prove themselves right...some investors are real special, but I am seeing over and over that traders outperform every time...

Id say I started out 100% investor (and got lucky)... am now im about 50% investor and 50% trading (more transactions this year than all other years in my life)...... And I will evolve and become a 100% trader thanks to some great advice around here...

The smartest people I know of are long term investors
The Best returning people that I know of are Traders...
does that make sense?

seeing the savage returns to be made trading volatile stocks is just too great to pass up on....
:cool:
.^sc

[axion]

Great post!

Also, while I agree EMH isn't real, it's not hard to see why some people believe share prices are 'random'. heck, these are four graphs which look like a share prices and all they actually are is excel randomly generating either -1 or 1 and then cumulatively adding them...

[Mick100]

Brokers, investors, will tend to hold on and hold on and be prepared to "go down with the ship at all costs"...

Traders are totally different... they have no attachment, and therefore do not need to hold a stock indefiantly into the future to prove themselves right...some investors are real special, but I am seeing over and over that traders outperform every time...


:cool:
.^sc

your showing your age and relatively short investing/trading experience shrewd. What you have said is certainly true if your referring to the past 12 months (traders have come out on top). But if you look at a longer time frame - say 10yrs, then I wouldn't be so sure that trading is more profitable than investing - and don't forget that trading profits are taxable while cap gains from investing are not.

I could go further and argue that even buying into a down trend will eventually pay off, in most cases, if your investment horizon is long enough - (still, it's best to wait until the downtrend reverses as phaedrus points out)
I have made this point before on the forum, that the disagreement between the likes of phaedrus and snoopy can often be reconciled by acknowledging the very different investment horizons of these two - one is short medium term while the other is very long term

Shrewd - get out your calculator and punch in a number - say $50,000 and multiply it by 1.2 twenty times - that will show you the power of compounding 50,000 by 20% for 20 yrs

ps, shrewd, have you heard of warren buffett

[Crypto Crude]

ps, shrewd, have you heard of warren buffett

Mick,
Have you ever heard of Yao Ming?

7 foot 5 inch of brut dynasty mate....
:cool:
.^sc

[Crypto Crude]

I accept your response Mick...
I dont agree with it... you are entitled to your opinion...
:cool:
.^sc

[Halebop]

your showing your age and relatively short investing/trading experience shrewd. What you have said is certainly true if your referring to the past 12 months (traders have come out on top). But if you look at a longer time frame - say 10yrs, then I wouldn't be so sure that trading is more profitable than investing - and don't forget that trading profits are taxable while cap gains from investing are not.

I could go further and argue that even buying into a down trend will eventually pay off, in most cases, if your investment horizon is long enough - (still, it's best to wait until the downtrend reverses as phaedrus points out)
I have made this point before on the forum, that the disagreement between the likes of phaedrus and snoopy can often be reconciled by acknowledging the very different investment horizons of these two - one is short medium term while the other is very long term

Shrewd - get out your calculator and punch in a number - say $50,000 and multiply it by 1.2 twenty times - that will show you the power of compounding 50,000 by 20% for 20 yrs

ps, shrewd, have you heard of warren buffett

Firstly, I am a long term investor. I've been investing for 26 or so years. In that time my modus operandi has distinctly changed 4 times (although that is in retrospect and wasn't a conscious "right, from now on I'll do this..." decision). But investing over a long time frame is what creates compounding, not modus operandi (i.e. not Fa, not TA, not Trading, not Holding). Market conditions can change a lot, rendering certain approaches sub optimal for years at a time...

Trading versus Investing Taxation can be as much due to structure as nature of the hold and conditions as period of hold. If I base myself or my structure in the right country I can quite legally mitigate or delay tax in numerous ways. Even if paying tax, a good trader can still handily beat a typical passive rate of return, particularly in a ranging market.

If buying into a downtrend can still prove profitable, buying closer to the bottom must surely be more profitable. : As Phaedrus has been at pains to point out in the past - TA need have nothing to do with time frame - if the share is in an extended uptrend over a period of years, TA will keep you in it. Personally in those more colourful FA vs TA debates, the TA just corroborates what my own FA indicates in disagreement with alternate FA scenarios. The trick is we can fool ourselves into some subjective FA. When TA relies upon trending, you can't hide from the truth. It's a built in BS monitor for the flaws in your decision making. Those disciples of Buffet must know the weighing vs voting quote. After 5 or 6 years of bull market, there is a good chance the market has [i]weighed...

Compounding can be achieved by any method - TA, FA, term deposit or monkey with darts. One contiguous hold for 20% compounded is an incredibly rare event - market averages tell us these are outlying numbers even in the turbo charged conditions of the last 20 years. Simply grabbing the calculator and compounding does not "prove" the argument that the longer term FA approach is the best way to achieve this. I've personally beaten 20%pa over the last 26 years and am proud of the achievement and the fact that my performance is an outlier. To so flippantly suggest we should simply grab a calculator and compound is in one part offensive (to my sweat equity) and another part disingenuous - most investors of any ilk don't achieve that sort of result.

[Mick100]

the main point in my argument, which you have completely dodged halebop, was "investment horizon" - not compounding

those with short investment horizons will have a different approach than those with a long investment horizon. Put another way, for a long term investor having a particular share in one's portflio could be seen as a good investment whereas the same share in the portfolio of a short term investor could prove to be a disaster - (same share - same investment)

I'll give an example
seeing as this thread refers to ADY
I bought ADY about two yrs ago for 10.5c (I think there's a good future for lithium) None of the momentum investors bought for 10c - they watched and waited until the price was 20-30-40c. They didn't buy because the believed in the lithium story - They bought because the shareprice was moving higher in spectacular fashion and I guess most of have now sold out at a lower price than they bought at.

OK, phil Thomas is a spuiker and capital for developing mining projects is hard to get at the moment but the lithium story hasn't changed at all.
Nothing much has changed for ADY accept the shareprice.
There is a possibility the the co could go broke and there's also the possibility that this lithium thing comes good and the co prospers
It hasn't beeen such a bad investment for me - most of my other investments are well in the red at this moment

[Halebop]

the main point in my argument, which you have completely dodged halebop, was "investment horizon" - not compounding

It is returns that compound, not horizons. If I earn 25% per annum from day trading, it wasn't my "horizon" that earned 95% in 3 years, it was the compounding. You have not showed that the horizon is a reason for out-performance.


those with short investment horizons will have a different approach than those with a long investment horizon. Put another way, for a long term investor having a particular share in one's portflio could be seen as a good investment whereas the same share in the portfolio of a short term investor could prove to be a disaster - (same share - same investment)

I'll give an example
seeing as this thread refers to ADY
I bought ADY about two yrs ago for 10.5c (I think there's a good future for lithium) None of the momentum investors bought for 10c - they watched and waited until the price was 20-30-40c. They didn't buy because the believed in the lithium story - They bought because the shareprice was moving higher in spectacular fashion and I guess most of have now sold out at a lower price than they bought at.

I bought into ADY at 20 on the basis of technicals - my original chart is probably still in the thread somewhere.

I sold at an average of 50 something on the same basis a relatively short time later. My charts around that time were still there the last time I looked.

I've since posted numerous "this share is trending down" warning charts, mostly ignored or argued against by patient investors with long term horizons...


OK, phil Thomas is a spuiker and capital for developing mining projects is hard to get at the moment but the lithium story hasn't changed at all.
Nothing much has changed for ADY accept the shareprice.
There is a possibility the the co could go broke and there's also the possibility that this lithium thing comes good and the co prospers
It hasn't beeen such a bad investment for me - most of my other investments are well in the red at this moment

I guess if your benchmark is losing money, then yes, it hasn't been so bad. But that bar is set very low and again I'm not clear how this proves the modus operandi superior? ...course, my original "inferior" trading money could now deliver 4x the original number of shares.

[Mick100]

OK haleplop

you just want a "mines bigger than yours" debate

I'm out

[Halebop]

OK haleplop

you just want a "mines bigger than yours" debate

I'm out

If we are talking ADY holdings, this is no longer true, but I suspect mine probably was. I'll give you horizons though, yours is bigger than mine. ...Seriously though, I think I was just disagreeing.

The real tragedy is that I like the fundamental ADY story despite some well argued short comings. But I ain't going to hold it from 60+ to 10 just to hear the tale. But If it rises again I could well be on the bandwagon at 20 and you'll be able to tell me how your profit is twice mine.

[shasta]

If we are talking ADY holdings, this is no longer true, but I suspect mine probably was. I'll give you horizons though, yours is bigger than mine. ...Seriously though, I think I was just disagreeing.

The real tragedy is that I like the fundamental ADY story despite some well argued short comings. But I ain't going to hold it from 60+ to 10 just to hear the tale. But If it rises again I could well be on the bandwagon at 20 and you'll be able to tell me how your profit is twice mine.

Mick100 has a valid point none the less...

As someone who uses extensive FA, i bought into ADY at 21c.

Within 6 weeks it hit a high of 67c, & i sold 1/3 at 63c (2 bags full) & free carried the rest. (So once again i identified a stock BEFORE TA), in fact i have on numerous threads, ABA being a classic!

I also posted on the ADY thread what i did & when, for all to see!

I also sold 1/2 of the free carry holding at 42.5c (still a bag full)

So i kept 1/3 of my original holding & eventually gave the profits back to the market.

Greed & ADY management's bullish statements meant i bought back in, & therein lies my mistake, the trend was going down...:(

As i had bought in originally for fundamental reasons, ie the Lithium business, i foolishly stood by "expecting" ADY's management to deliver, never thinking i should have an exit strategy as i was in a "free carry" position, & the fundamentals hadn't changed.

Whilst i believe highlighting this case is beneficial for "newbies", & serves as a reminder for others, it was a little too bias towards TA, & a little loose with the facts.

It's always much easier to point out mistakes in hindsight, than it is to "pick winners" in advance & stick your neck out.

[Phaedrus]

You can't help but be struck by the overwhelming similarity to the first chart. This may perhaps be explained by the fact that several of the same posters featured prominently in both examples.

We, each of us, take what we want from a chart like this. Here's what I see :-
The same faith in fundamentals, especially PE ratios
The same contempt for those selling
The same scoffing at the use of Stop losses
The same contrarian glee at buying into obvious downtrends.
The same pretence of hoping for yet lower prices (to buy more)
The same talk of "value", buying because it was "cheap"
The same longterm "Buy, hold and forget" approach
The same blaming of "dumpers" for the slide
The same distinction between "paper" losses and "real" losses
The same total disregard of the fact that the stock was in a downtrend.
The same reluctance to recognise the initial buy as a mistake
The same exhortations to "get on board or miss out"
The same insinuations of price "manipulation"
The same buying in the face of acknowledged adverse TA
The same staunch vows to hold, no matter what
and most important of all, the same blatant averaging down.

I would find this all profoundly depressing but for one small thing. Take a look at the second to last entry. Here is someone who actually learnt something from this debacle. Someone who, I guarantee you, will not make the same mistake again.

http://h1.ripway.com/78963/PEM2008.gif

[Phaedrus]

UnderDog, this is a composite chart. Many posters contributed (albeit unwittingly!) - the buying noted in it was spread across quite a few individuals. My money is on the man that saw the light!

[Corporate]

Love your work Phaedrus - your contribution are fantastic.

[h2so4]

OK its me.I'm sorry, I promise I wont do it again, now can we just get on with it.
Whats TA and whats FA?

[Sideshow Bob]

TA = Technical Analysis (eg Charts such as Phaedrus posts)
FA = Fundamental Analysis (analysis of financial information)

[Sideshow Bob]

You can't help but be struck by the overwhelming similarity to the first chart. This may perhaps be explained by the fact that several of the same posters featured prominently in both examples.

We, each of us, take what we want from a chart like this. Here's what I see :-
The same faith in fundamentals, especially PE ratios
The same contempt for those selling
The same scoffing at the use of Stop losses
The same contrarian glee at buying into obvious downtrends.
The same pretence of hoping for yet lower prices (to buy more)
The same talk of "value", buying because it was "cheap"
The same longterm "Buy, hold and forget" approach
The same blaming of "dumpers" for the slide
The same distinction between "paper" losses and "real" losses
The same total disregard of the fact that the stock was in a downtrend.
The same reluctance to recognise the initial buy as a mistake
The same exhortations to "get on board or miss out"
The same insinuations of price "manipulation"
The same buying in the face of acknowledged adverse TA
The same staunch vows to hold, no matter what
and most important of all, the same blatant averaging down.

I would find this all profoundly depressing but for one small thing. Take a look at the second to last entry. Here is someone who actually learnt something from this debacle. Someone who, I guarantee you, will not make the same mistake again.

http://h1.ripway.com/Phaedrus/PEM831.gif

PEM I presume?

[winner69]

suntboy has just posted his latest update on this stock.....

I hope they stay around the lows for another few months ......... am continuing to average down ........ Last parcel was at .45 ......... Amazing to think what price they were 12 months ago or even when I first bought at $2 that I could now own over 100,000 shares

But I suspect suntboy is just taking the mickey out of phaedrus

[Snoopy]

You can't help but be struck by the overwhelming similarity to the first chart. This may perhaps be explained by the fact that several of the same posters featured prominently in both examples.

We, each of us, take what we want from a chart like this. Here's what I see :-

The same faith in fundamentals, especially PE ratios <snip>


I don't use T/A (well O.K. perhaps I am something like 95% F/A and 5% T/A). Also I don't invest in what I call the 'minnow mineral companies'. However, I have followed the PEM saga mainly because it was the hot tip of my old sparring partner Macdunk, and the first step in his grand 2008 plan of quadrupling the his money in the market in just a year. That was just before he upgraded his 2008 investment plan to quitting the market completely.

I am not qualified to comment on the T/A mistakes of others. But as for the 'fundamentals mistakes', I do have something to say.

The glib use of fundamental statistics without any real understanding of what they mean is disturbing. Take P/E ratio. If a P/E is 1.0, that means the price you pay will be recovered in earnings by that company in just one year. If a P/E is 5 that means you price you pay will be recovered in earnings by that company in which you invest in just 5 years. That still on the surface sounds good. (I am assuming here for simplicity of explanation that earnings do not change year to year).

The problem with PEM, IIRC, was that the material available to mine in the only ore reserves to which the company had production access would be exhausted in around five years. That meant that even conceiving of buying this company with a P/E of over 5 was an almost certain way to lose money. That is because after 5 years it is conceivable that that this company would have no ore left to mine - in fact no business left at all. Buying into a company like this on a P/E ratio of *greater* than 5 would be equivalent to spending money for nothing - an insane investment proposition.

Note that this is in spite of the fact that buying into a company with a PE of 5 which has a business presence stretching out into the future might 'normally' be seen as a conservative thing to do. Being more careful in your 'understanding of the fundamentals' would be a good way of steering clear of an investment such as this.

SNOOPY

[Snow Leopard]

Perhaps Phaedrus will do a graph of RBD next?

regards
Paper Tiger

[Snoopy]

Perhaps Phaedrus will do a graph of RBD next?


Phaedrus has already done that Paper Tiger. He is months ahead of you.

http://www.sharetrader.co.nz/showthread.php?p=116499#post116499

Phaedrus even pinpointed a good entry point for me later on in April 2008, a big call because it was the first trendline break in years.

http://www.sharetrader.co.nz/showthread.php?p=194044#post194044

I did buy some RBD shares in March 2008 (in advance as F/A buyers are always ahead of T/a buyers) at 80c, which looks smart according to the above graph. However, subsequently the share price plunged below that long time support level of 80c. Thus T/A failed me. Not that I'm worried about that of course. I'm quite comfortable with my position in RBD. I have even bought more since, at less than 80c.

So despite what *some* T/A exponents think, T/A isn't a 'shortcut to wealth' and T/A can't be used on its own successfully (IMO).

Getting back to the role of 'fundamentals' and in particular P/E in all of this, I am budgeting on underlying earnings of some $7m this year (7.2cps) which means that at 72c RBD is on an underlying P/E of 10. This is not a demanding multiple, despite being twice as high, multiple wise, as PEM. Surprisingly, the supply of chickens is not about to run out and nor are the number of people demanding quick convenient dinners.

SNOOPY

[Crypto Crude]

Phaedrus,
Do you mind me asking what stocks you hold?
:cool:
.^sc

[Phaedrus]

Yes, I do!

I have in the past disclosed which stocks I held but stopped when I found that some people were treating these as buy recommendations! The responsibility was too much for a sensitive soul such as myself. My aim here has always been to get people to think for themselves and not blindly follow others. We've all seen where that can lead.

I am a fairly active trader in Aus and at a practical level it would be a big job to keep ST fully informed of all my actions - and why should I? Added to that is the fact that I "step" into and out of positions in maybe 6 tranches as buy/sell signals fire. To keep you lot up to date with all of these transactions is more than I am prepared to do.

My value (if any!) to this site lies in my providing an alternative (TA based) perspective.

The charts are the same whether I hold the stock in question or not.

[winner69]

I would find this all profoundly depressing but for one small thing. Take a look at the second to last entry. Here is someone who actually learnt something from this debacle. Someone who, I guarantee you, will not make the same mistake again.

http://h1.ripway.com/Phaedrus/PEM831.gif


An updated version of this chart would be even sadder (at least todays view) ... but heck look again in a view months and it will all look good again

[dumbass]

I take exception to that second from last comment !

[h2so4]

I take exception to that second from last comment !

I would too. What he should have said was conclusion: we all make dumbass mistakes.:D:rolleyes: