Buying in a Downtrend.

[Phaedrus]

Nothing like buying in a down trend, if u do your homework! Technically, Tricha, you would have to be classed as a slow learner! You make a habit of buying downtrending stocks and pay a very high price for your folly. Here is an example of the actions of people (not just you) that had "done their homework" and bought regardless of the fact that the stock in question was in a clear downtrend. We can all learn a lot from these ill-advised comments and actions.

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

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!

[Snapper]

Thanks, Phaedrus, from one who has committed all of the above follies but has resolved never to do so in future!

[Entrep]

Great post

[Corporate]

Very good post for those new and old. Cheers Phaedrus

[iceman]

I second the above posters. Very good and helpful summary Phaedrus. I have made many of the "mistakes" you mention. But as long as we all live and learn I suppose. Thanks again for this and many of your much appreciated posts.

[macduffy]

Thanks, indeed, Phaedrus!

I've probably said this before but Phaedrus' posts are the best guidance I've had in over 40 years investing. I still make mistakes but they don't cost as much as they once did. Provided I stick to the discipline of course!

[Voltaire]

Excellent post, many thanks Phaedrus.

Now, on a tangential but related matter (and feel free to reply via another thread if it seems too tangential): the security, or otherwise, of stop-loss (or other conditional) orders. I'm interested from hearing from those with more market experience (and hopefully also from some who have worked as brokers) as to how transparent these orders are within the broking firms (i.e. what limits are placed on access to them).

An example: I had a disturbing experience where I had a conditional sell order actioned inappropriately by my broker. The disturbing aspect was that the buy order came from another client of my broker (i.e. it was an internal trade) and that the sp hadn't otherwise fallen to the level required to trigger the trade - i.e. the transaction was self-catalysing! A terse conversation with the broker ensued and I was told that the transaction was the result of human error and the trade was duly reversed.

But it got me to thinking - who has access to read the database of stored conditonal orders and how do brokers prevent/track the obvious potential for serious abuse and manipulation of these orders?

Any wisdom/insight appreciated ...

[moimoi]

Voltaire, I believe your query is worthy of a new thread.

Thank you Phaedrus.

[ENP]

The underlying business and the stock price are two different things.

If the business itself is improving and you are happy to be invested in it, then you as an investor should much prefer lower stock prices.

[steve fleming]

The underlying business and the stock price are two different things.

If the business itself is improving and you are happy to be invested in it, then you as an investor should much prefer lower stock prices.

I generally agree. However, there are often industries/sectors going in/out of favour (or other market structural changes at a macro level) which will impact share prices long term irrespective of the business improving.

But generally, in an 'ordinary' market, improving fundamentals will win out over the long term.

In all my large multibaggers (EKMO - 50 bagger, CEOO - 30 bagger, AVBOB 20 bagger) I have increased my holdings through averaging down, buying into a falling share price. In each of these cases I assessed the downside risk as being very minimal and the upside substantial, so I continued to buy.

This has helped to significantly increase my returns when the price has been re-rated.

Its all about being smart about your investment decisions.

[Voltaire]

Voltaire, I believe your query is worthy of a new thread.

Done (& thanks for the prompt):

http://www.sharetrader.co.nz/showthread.php?8474-Security-%28or-otherwise%29-of-conditional-orders

[gazprom1]

I generally agree. However, there are often industries/sectors going in/out of favour (or other market structural changes at a macro level) which will impact share prices long term irrespective of the business improving.

But generally, in an 'ordinary' market, improving fundamentals will win out over the long term.

In all my large multibaggers (EKMO - 50 bagger, CEOO - 30 bagger, AVBOB 20 bagger) I have increased my holdings through averaging down, buying into a falling share price. In each of these cases I assessed the downside risk as being very minimal and the upside substantial, so I continued to buy.

This has helped to significantly increase my returns when the price has been re-rated.

Its all about being smart about your investment decisions.

Agree with your sentiments SF. I have historically added to some positions even though they would no doubt be categorised as being in a downtrend. This has paid excellent rewards provided one is patient and that is the key - patience.

I am sure that there are a large number of ST contributors who have bought during the recent weakness in the markets even though stocks may have been in a down trend. Provided one is patient IMHO we should well rewarded in the coming months.

Gaz

[bull....]

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!

greta reminder moka wise words from mr P

[macduffy]

Thanks for the reminder from the great Mr P. A sad day when he stopped posting to Sharetrader.

[Louisphan]

90% of the people make the same mistakes and say to themselves "next time i will do differently", however, they will buy the downtrend or average their price again and again.

[Entrep]

The main reason I have stayed out of SKT all this time

[Ferg]

The main reason I have stayed out of SKT all this time

That exact thread came to mind when I read the original post. The attached image from the post is almost word for word.

[Snow Leopard]

The main reason I have stayed out of SKT all this time

My charts show that SKT is currently in an uptrend:
It began on 5-Aug-20, though obviously we would not have known this at the time;
The long downtrend ended on 6-Oct-20 by my criteria;
Today close confirmed this is indeed an uptrend with a close of 16.8c exceeding the 16.6c of 9-Sep-20.

So I pose the question to all, when do you decide that the downtrend is over and thus the stock is buy-able?

[Baa_Baa]

My charts show that SKT is currently in an uptrend:
It began on 5-Aug-20, though obviously we would not have known this at the time;
The long downtrend ended on 6-Oct-20 by my criteria;
Today close confirmed this is indeed an uptrend with a close of 16.8c exceeding the 16.6c of 9-Sep-20.

So I pose the question to all, when do you decide that the downtrend is over and thus the stock is buy-able?

Why ask the question, when you could post one of your proprietary charts (very cool software) which shows everyone what you mean, like exactly where the breakout happened. Log scale of course. OTY

[Snoopy]

The underlying business and the stock price are two different things.

If the business itself is improving and you are happy to be invested in it, then you as an investor should much prefer lower stock prices.


Trend investing is something that applies if you invest in sync with the trends, are prepared to watch the market and change your position when the trend ends. It doesn't always follow that someone buying in an uptrend is the wise one and the person selling to them is a fool. Different investors can have different time horizons, so both buyer and seller can be 'right' depending on their time horizons. If your time horizon is greater than a particular share typically holds its trend through the business cycle, then it doesn't really matter what the share price trend is when you buy. All that matters is that you buy low. For someone like me, I like to do my own valuation before I buy. That means I often buy in a downtrend. Because if my valuation is too high, I have to wait until the price comes down into my buy range, and that means I have to wait for the price to drop. If I get it 'wrong' and the share price goes lower I don't mind, because I usually buy on some kind of projected yield multiple. If someone buys lower and gets an even better yield multiple than me then good on them. I don't worry about that as my own objective of buying at a certain yield point has been satisfied, and I have avoided 'missing out' if under the alternative future the share price had turned and gone the other way. I don't have to buy right at the bottom for my investment strategy to work. I should add trend investors never buy right at the bottom and that doesn't seem to harm their strategy either.

If I do get it wrong (in the eyes of some), then my 'penalty' is often continuing to rake in dividends until the share price comes back up to my buy price. This is no real hardship, and often a better option than leaving that money in the bank.

In deciding when not to buy a company, I am very cognisant of a company's debt position. By using different indicators like this in combination with downtrends, you can usually tell whether a share price slippage is normal business cycle behaviour or a death dive, and so reduce your 'buying in a downtrend' risk this way.

Each to their own as far as buying in downtrends goes I guess. But to have a simple 'never buy in a downtrend' mantra means you are a TA bigot who is unable to accept that other ways of strategic investing are possible.

SNOOPY

[Snow Leopard]

4 Baa2:

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