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Discussion in 'Shares' started by wdongli, 2nd Jan, 2012.

  1. wdongli

    wdongli Well-Known Member

    31st Mar, 2010
    Why does market go up or down dramatically when people expect in their favorites?

    2003-2007 made some great advances. 2008 GFC crashed it in a few months. Booming trend takes long time for the crowd to join in while the fear spreads much harder. So it is always that moving up is hard but dropping down to ground is easy.

    Naturally we believe we are the best. "Oh yeah! We can get what we want." However psychologically we are coward. What if EU crash? What if China tip off? What if everything is crash.

    So too many best market players use their best time and energy to follow the best prediction of the future. We have safely betting. We have handbook for life. We just don't have any chances to make good enough return when everyone else predict we would have a bad 2012.

    Rumors in and gone quickly. Betting in and gone quickly. Every year we predict something but few really are what future could give to us.

    The acceptance of how bad 2012 would be is a fascinating illustration of the way in which behaviors and habits often tend to persist despite new conditions calling for a fresh point of view.

    With every new wave of pessimism, we are ready to abandon history and time-tested principles, but we cling tenaciously and unquestioningly to our prejudices.

    When we cling to our biases, believe we hold the handbook for life, and then we believe we can bet safely for the future even we never bet right or big enough!

    When you leave it to chance, and bet safely and confidently, then all of a sudden you don’t have any more luck.

    Business is always about to buy low and sell high with tight cost control and do the right things for direct and indirect profit goal. Once you could get your goals something wrong in your operation and intelligent analysis so that your judgement is wrong.

    In the ruins all of things are useless but how to protect yourself and hold your position where you could get the chances. Market crashes are not enemies of any market players. If anyone of them is wise and know how to use it, crashes are the opportunities to buy $1 at $0.50 price.

    You could not see the chances in ruins? It is not EU or Australia's problems but it is your own problem. You fail to do your job to find the chances and you have a stupid mental frame. Few market players admit they are stupid and repeat to twist the words cleverly and cry in the ruins. What could you expect them to get in the new year?

    They would act and get what they did in the past since they repeat insanity safely!

    Oh yeah, we can repeat to be insane and stupid as before! Why? You just have the experiences to burn the money on the fire and you never do any good things for your mental framework.
    Last edited by a moderator: 3rd Jan, 2012
  2. wdongli

    wdongli Well-Known Member

    31st Mar, 2010
    Know too much and too little!

    All of retail market players are clever since if they are not, they would never know enough to click the buttons based on the wind strength and directions. However the fact is most of retail market players know too much they should not know and too little they should know. Otherwise you could not figure out why most of the the clever retail market players don't make profit but losses.

    We all know too much what the price of the market as a whole but we all know too little about the rules and principles in the market: protect yourself and make the money. How many retail market players try all to protect their capital and paper profit? You can say all of us do so but never work!

    There are rules how to select the shares and anything we want, which define what you should do and what you should not do. Generally saying there are a few very basic rules to buy and sell, which once are broken, we lose the shirts. It has been repeated again and again.

    1. You have to diversify but it should not be excessive. Someone said you need a minimum of ten different issues and a maximum of about thirty.

    2. We have to be conservative. Quality usually means the companies of your shares should be large, prominent, and conservatively financed. It makes general sense. If you play the pennies you have to buy when all of people who want to sell have done so.

    3. The companies of your shares should have a long history. If you are conservative, they should have record of continuous dividend payments. If not you have to buy at the lowest price of their bottom channel.

    4. We have to impose some limit on the price we will pay for an issue in relation to its average earnings or potential value over the past seven years. Pennies could make killing but it usually means high risks and special knowledge about them.

    Usually pennies are played by bargain hunters, who usually have limited capital.

    Once the market in bearish time long enough, they would be last group of people to be forced to sell on fire. The key is about how to define what the bargain is. Absolutely low price? It could be much lower than your expectation. All of things are relative. When you chase absolute low, you would be buried by the ruins.

    Most of bargain hunters failed to protect them in IT bust, GFC, and this contrition time period since April 2011. On each way, there are some catches. How to protect you when you are in your catches? Don't say you are playing a game without catches. It is impossible.

    The bargain must be those which are at the lowest tail of the probability distribution. It needs the analytical and disciplined hands with right mental framework.

    It is fact that pennies as a whole are too uncertain and risky to be a vehicle for the defensive market players.

    Yes you can use the right individual selections, buy at the right levels, and later sold after a huge rise and before the probable decline. But if you could not be selective, pay the right price, and sell before the correction happen, you could lose too much.

    We can no more expect to accomplish the tasks to great picking of bargains than to find money growing on trees. Generally saying 10% yield is quite happily one for most of market players. As bargain hunters, after you have got 100% return, you still expect more, you are insane.

    Any insanity would be paid by great cost. At the April 2011, I was insane with the expectation that the prices of winning shares would be at least flat into July. It didn't and then I had to pay the cost.

    We all pay some cost for our insanity. It is not the problem but most of us paid the cost without becoming any wiser or more intelligent. It is not shameful if you lose the money in the market. But if you use excuses to pretend that you are always right, it is insane and would pay more in future.
    Last edited by a moderator: 4th Jan, 2012
  3. wdongli

    wdongli Well-Known Member

    31st Mar, 2010
    Bust, good or bad?

    Amidst the bear market that began on April 2011, a lot of retail market players feel burned. Suddenly all of retail market players sound very clever about the market risks:

    1. US lost the leadership in the global economies
    2. EU would crash onto ground
    3. China is full of ghost towns with new buildings
    4. Australians would sell their houses to deleverage.

    They are the fact or market realities even taxi drivers could tell you! So at the worst time, the crowd rushes into the safe land they believe from the stock market.

    How many retail market players swear never to buy another stock again. How many tearfully curse the darkness in the market? How many try to just save for their life.

    “After you burn your mouth on hot milk, you blow on your yogurt.” In a decade we had the IT bust, GFC, and current market contrition. All are so terrified. Many people now view stocks as scaldingly risky! However paradoxically, the very act of the series of crashing has taken much of the risk out of the stock market.

    It was hot milk before, but it is cold water mellow now or will be. Viewed logically, the future has nothing to do with how much money you might have lost by owning the money burners now. When stocks are priced reasonably enough to give you future growth, then you should own them, regardless of the losses they may have cost you in the recent past.

    That is why I gave up to run in the ruins but picked up the spade I could. What's for and what's you can get in the ruins? Tearfully crying just sounds ridiculous.

    Do you know a disturbing fact, that is if you become more familiar with a
    subject you would still tend to exaggerate how much you actually know about it. Internet and google make too many post as experts but they really never get any enough return from the market.

    In most of time for most ordinary people, the more they know, the more likely they are not to probe a stock for weaknesses. This pernicious form of
    overconfidence is very dangerous. It is so called “home bias,” or the habit of sticking to what is already familiar.

    There are a lot of market players change their course from greed to over-defensive. However they know the bust too much, which become load to stop them to be very lazy. Yes if we could save for life and become rich, why do we need to know the winds and storms in the market.

    Are you wiser or clever as before? When you cheer for your absolutely right, don't forget your could be completely wrong.
  4. wdongli

    wdongli Well-Known Member

    31st Mar, 2010
    A consequence emerges always

    All of us know public companies get finance in the stock market in two forms.

    *** 1***
    If a company already listed, additional shares are offered pro rata to the existing stockholders; the price is set below the current market price; so that it has its initial money value.

    It is the general hope and expectation that all the new shares will be taken
    by the exercise of the rights. Thus the sale of additional common stock of listed companies does not ordinarily call for active selling effort on the part of distributing firms.

    The public companies can place itself with the public of common
    stock of what were formerly privately owned enterprises.

    It is mainly to be sold about the controlling interests and enable the company owners to cash in on a favorable market and to diversify their
    own finances.

    This activity to raise the money from the market always follows a well-defined pattern. It is the nature of the share markets which must bring many losses and disappointments to the public.

    The dangers arise from two things:

    1. Companies have to get its finance when the market conditions make the financing possible.
    2. As the time passes by, less and less people would like to hold their share due to their preference has been changed.

    Human is very easy to brace with the prejudices. Sometimes the crowd like the venture companies. The prejudices, like many others, tends to become weaker as the time moves forward.

    In a bull market, the large and quick profits shown by stocks as a whole are sufficient to drag anyone who wants the quick money, which are the human's instinct.

    In the boom time, most of market players don't worry about any risks ahead since it could not be seen. Any good results can be exaggerated by the public and actually they were not impressive at any time before.

    So the following consequences emerge in somewhere in the middle of the bull market:

    1. The first IPOs make their appearance in the market.
    2. Even the boom make prices higher but not unattractively, and some large profits are made by the buyers of the early issues.
    3. As the market rise continues, more IPOs appear to the public to satisfy the market demand.

    Anythings relative to humans have the days to end. It is one sign for the market to approach end of a bull swing that IPOs of small companies are offered at prices somewhat higher than the current level for many medium-sized companies with a long market history.

    The crazy crowd and greedy investment banks tilt the scale of the demand and supply too much and at last make the price collapsed. It was the scenario in IT booming and bust or peak before GFC and GFC.

    In many cases the losses were so big and forced a lot of retail market players leave from the market forever. At bottom, the crowd has a real aversion to the very kind of small issue that it bought so readily in its
    careless moments.

    In the ruins all fall down so that most of shares are much below their true value as they formerly sold above it.

    As a market player, you need an ability to resist the blandishments of IPOs during bull markets; you need an ability to invert what you have seen.

    Always remember we tend to buy when we feel good even the results could be disasters. When the price up and market booms, more speculative elements would be into the market.

    We all naturally like easy money but if you don't lock it, which would be easy to be gone. You must remember that the best buying always happens when no one wants to buy.

    If you still have some energy to cry, it is better to stop and use your energy to update your mind and rebuild your mental framework.

    Are you sure that the boom would come back next year? Could new IPOs become mad? Who knows it?

    If you are wise enough you should not forget what happened in IT bust and GFC. You need to be sure you could buy something when all of the market cry for the end of the history. You have to lock the profit when all say the market is wonderful for easy money!

    It is not hard to know but quite hard to follow. Have you lost your shirts before and do you know the reasons? You need to question yourselves.

    If anyone cries in the ruins and cheer in the euphoric market here or there, do remember the sign for the market to turn a round are nearly there.

    It is the time to think about the chances ahead. More would follow to cry or cheer but they would be consumed by the market.
    Last edited by a moderator: 6th Jan, 2012
  5. wdongli

    wdongli Well-Known Member

    31st Mar, 2010
    Defense and offense

    Everyone is special and everyone needs to know the relationship between defense and offense based on his personal environment.

    People tend to say "the best defense is a good offense and the only real defense is active defense." In the market we all know it is keeping to fluctuate but few of retail market players could use these words to get best defense when the market tries to crash everything and everyone down.

    All we know best defense is not crying in the ruins or find a few books as the Handbook of life or turn 180 degree U turn from extreme optimism to extreme pessimism or hold the flag, "saving for life" after serious failure in the market crash.

    Never and ever forget the best defense is the defense for the purpose of counter-attacking and taking the offensive when the intelligent analysis and judgment tell it is time for you. However you have to know no one could destroy the market as no one could destroy the Ocean. Often success rests on your ability to find the best defensive shares when the market crashes everyone into the ruins.

    There are too many active retail market players but don't know on what and when they should be active. They tend to be active and go extreme after they have seen some price movement. However the fluctuation can change its direction in surprises. Most of retail market players don't know they should be ready before the turning points.

    1. They cry actively in ruins and find all of excuses for the justices for their failure.
    2. They follow the doomsayers rather than to think about how to build their defensive line.
    2. They rush for a seat in the last party of the market after paying the most expensive ticket.

    One of my friends asked me the reason why I take a old spade. The followings are my reasons:

    1. The market had crushed everything down, good or bad; damages have been done;
    2. I have made serious mistakes before and while it happened; You have to know if you lose too much you have to face the losing reality. Don't pretend you could win forever. In the market all make some mistakes time by time.
    3. I don't want to sell on fire, which I believe is stupid option; You were wrong before the crash which resulted in your losing position. Selling in the blood or sale on fire is all a business should try to avoid if it would not close the door.
    4. Keep the seeds in the soil if you could not be sure you could make them safe, try to cover them with some protection, and read and write to understand why you make loss.
    5. How to protect your seeds which leave in the market in the ruins? I don't really know how long this crash would last even I believe it could not last forever.
    6. I have to get more cash from my bond type investment for good enough cash position.

    6.1> I have to admit I have missed some great points to build a strong position in my bond type investment;
    6.2> I have to use my labor value to get my defensive position very strong or at least strong enough.
    6.3> It is not a matter what you want but what you have to do. It is best defense in my environment I could take.

    Why don't you "save for life" by holding "dollar cost average?" I want to be active in the market first; I believe at some points market would unfold some excellent opportunities after the crash; I have accumulated enough assets after I work and play in the market in the past even not excellent result.

    "Dollar cost average" is a good weapon for youths who don't want to play in the market actively but do want to accumulate something for their retirement. I have got enough to retire without lower my living conditions. I want to get a last place to challenge myself and make my own personal legend! I am not young anymore. I could not save for another 30 years and average them into the market. It doesn't work!

    But you still don't need to take a spade, don't you? I need something to do. I don't think we could do too much but keep staying still in the market at moment. It is a time the more you play in the market the more you would lose. Everywhere seems pitch dark. I could not disagree to that the market is very bad. I just could not disagree to the prediction that the market would be pitch dark next year or years. It would change its course for any fluctuation matters even I don't know when it would turn the course.

    As always if you want to be active in the market, you have to identify the true bargains. I still believe I hold the true bargains since I did

    1. Buy in low markets but fail to sell in high markets in April 2011
    2. Buy carefully by choosing the dirty-cheap fishes at their low end of tail of their probability distribution based on the historical normal
    3. Buy bargains when I believe they are at the lowest price of bottom channel
    4. Buy into “special situations”

    The crash since April 2011 does crash down my paper profit from the bargains I got in October 2010. I did think about tax avoidance legally but failed to recognize the risks of the fluctuation caused by GFC. I did become greed when the market become euphoria and fail to lock the profit when the price rise too much and the risk to change course is huge. I did fail due to my over-optimism after big profit in the paper.

    I failed to build a right mental framework or not good enough when the music starts in a euphoric and lovely parties. I want to and have to put more time to continue the updating of my mental framework.

    In 2000, I had accumulated $400,000 paper profit since 1997 and then I became greed. In April 2011, I had accumulated $180,000 paper profit since Oct 2011 and then I became greed again. In 2000, I didn't really know what's wrong in myself and I did curse the market and everything but not myself. In June 2011, I did realize my mistakes and I could not curse anything else anymore but my stupidity and greed. Seriously saying I never bought anything in the market if I didn't believe they were the true bargains but I did fail to sell bravely when everyone wants something in the market.

    There are too many clever people in the stock market. It doesn't tolerate any mistakes, especially those caused by our primary instincts. These mistakes caused by the instincts once happen, usually are high consequences. We could not get rid of all of our instincts but we could lead them into the right place and put good enough barriers for defense. Most of failure in the market are the results that we fail to be self-aware and environment-aware.

    Do you drink? Are you drunks? Do you prefer to drink in pub or home or street? What happen after you drink too much in pub? Drive away after drunk or call a taxi or ask a friend to give your lift? All about alcohol, right? It is the same about bargain hunting or dollar cost average or stop loss or rich become richer logically or philosophically. Do you agree with this logic? Don't say it needs clever mind to know the meaning. Count your winnings and losings and do you find too much which are due to your IQ is too low? Most of failures are made by the High IQ and clever people in the stock market. They cheer or cry when they should not!

    In the ruins pundits tend to cry for "rich becomes richer and poor becomes poorer." In social term, it is a issue and only could be fixed by second wealth distribution. However it is ridiculous to use it as guideline in the market. Don't say you are not lucky or you are not capable to be richer. When you say so you give up your responsibility! Why don't you make you richer and put the extra for your poor loves so that you could reduce the load of the society?

    The problems are we give up to update our mental framework and then our responsibilities. After we fail to be richer, we envy others to be richer and use the justice and fairness to let us sound great or responsible. It is not easy to be rich, keep to be rich, let alone to be richer. How to use the richness? It is not a matter about the market. If you want rich help poor, you should be fair to yourself and others first which include the poor or rich.

    Don't mistake me and guess I am rich. I am not. Who you are or what is right are different matters! In the war you have to fight. In the market you have to be richer otherwise you are the losers!

    I do believe all of winning need some lucks. I know I could not win if a drop of water just could choke me to die. If no sky anymore all of us are losers. It is fate and don't cry for it! However I do curse myself since all of my loss of the paper profit was caused by my stupidities. When I read the words about "Handbook for life" or any words to show our cleverness or any assertion for absolute right statement such as "save for life" or "dollar cost average", I am scared. No conditions and contexts all of good words or statement would lead their believer into prejudice, which always result in failure...

    We are not in the offices where we have to show we seem know everything and best or at least OK for what you are paid for. Have you just shown your best even you know you are not in the offices? It is the environment you have to do so even you dislike. The market is completely different from the offices. In the offices you want to sell yourself for your best labor value. In the market you have to buy and sell but not yourself. In the market you are the choosers for what you buy and sell! Unfortunately few know how to buy and sell! Me? One of the market crowd in boom market.

    Why do you punch on my ideas?

    Don't be upset please. I have too much prejudices too. You could punch on my ideas too. Ideas are useless until it could get some cheerful result! I have given up personal provoking for ideas. I want to conflict my ideas against others to update my mind and build a trustful mental framework. I do hope you could get a new mental framework too. How could we be humble and do our job in the market? It is a question I really want to get a right answer! Not easy and that is why few could be richer than the crowd and few could help others even their loves, such as their elder parents!

    I want to be wiser even less clever everyday! At some age, you just could not be more clever! It is new for life where you must be wise enough. I don't want to compete with anyone for cleverness. The time for cleverness is gone and gone forever.

    Could you and me be wiser and richer? If we want and put efforts in we could. Every long journey starts from the first step. I should know it in 1997 after I jumped into the stock market first time. 1997? A remote year and it is long enough for success but I do see old gone and new come with new statements or ideas for failure!
    Last edited by a moderator: 7th Jan, 2012
  6. wdongli

    wdongli Well-Known Member

    31st Mar, 2010
    Not everything for bargaining!

    Too many market players hold a false belief that market could not be timed. Could you time the spring, summer, autumn, and winter? Not in Australia? Is it logically ridiculous?

    The fact is few really are good enough to timing the market let along to know the possibilities and limitations of timing the market for your success. There are always thin air between the insanity and consciousness in the market.

    Timing the market is very difficult and you can timing the seasons but you can not timing the wind course in seconds!

    1. Most of traders want to timing the market in seconds or days. They challenge themselves for impossible tasks.
    2. Most of "dollar cost average" people give up the efforts to timing the seasons and too many of them bought at the peak before GFC and most of them don't understand their persistence could be broken out very easily.
    3. We all want to get the easy money. Most of passive investors don't know the basic how to "dollar cost average" even they believe it. Do you have the personalities for "dollar cost average?" Do you know you need to do some necessary jobs for it? What are them?

    Zoom out the stock price chart and what do you see? Could you find the enter points if the history could repeat? Yes, all we could and it shows that if you can enter the market when it is depressed and selling out in the advanced stages of a boom. Have you googled for news for each entering points in history? What have you got?

    For many and many years in the past this bright idea, to buy in depressed and hopeless time appeared both simple and feasible, at least from first inspection of a market chart covering its periodic fluctuations.

    The history has shown very clearly there were the points you have to be in the market and its feature was blood was full of the Wall Street. However if you want to use some system with some trustful formulas to timing, you are bloody idiots.

    All of human history have shown ruefully that the market’s action has not lent itself to operations of this sort on any mathematical basis. The fluctuations that have taken place, while not inconsiderable in extent, would have required a special talent or “feel” for trading to take advantage of them.

    This is something quite different from the intelligence which we are assuming in our offices, and we must exclude operations based on such skill from the book sellers or predictors. Bargains are about the value. Seasons in the market need the sense mentally!

    Why do genius lose their shirts in GFC, IT busts, or now? They may be clever but no sense at all! They don't have the sense for time when both of genius and bums win or lose! To protect the self-esteem, the genius and funds for commissions tell us we could not timing the market! It is shi**! We can but we just don't know how! Could we fly? We could not, don't we? How do we make us to fly? Buy a ticket of a economic flight which is affordable and quite safe, isn't it?

    Not everything for bargaining but sometimes all of things are sold at bargaining. When you get the bargains and they have been appreciated enough, if you want more ridiculous, you will fail. I failed always since I want more greedily after the dirty-fishes become swans temporarily!
  7. wdongli

    wdongli Well-Known Member

    31st Mar, 2010
    Sound logical could be illogical selection!

    Who doesn't want to select the future killings? However it is hard to counter into the killings. What could make a killing or kill yourself in the market? Too many are confused about killing or killed by the market. All of killings should be few and short life since too many would put too much load on the human minds. They would be crazy and then the killings become the tools to kill the crowd. Crowd must be the losers for grand profit or killing.

    Here it is easy to get a illogical conclusion from the right point. All of things try to go the easiest way for their destination. From right start, people tend to go short cuts and then at last they find they go a wrong way and have to pay what they don't want.

    1. All like to select the stocks that will do better than the average over a period of years. It is why so many market players start to hold "dollar cost average" but miss the way later.

    2. Ever heard the words, growth stocks? We do. They are those that have done excellently in the past and is expected to do so in the future by the market crowd, big or small.

    The above is not bad and could be helpful to make killings. However this seems very logic observation and deduction usually are abused. It seems if you want to play in the market, you have to concentrate upon the growth stocks.

    Logically market is not very complicated but human minds tend to complicate the realities by using some ideas in the wrong place and time.

    1. Environment and its changes define the future possibilities and how you response defines whom you are, the losers or winners.
    2. Do you know statistics? Generally growth stocks in some very big extend are defined statistically. It is just a way to identify something that have “outperformed the averages” in the past.
    3. There are great Growth in the past and future. You could try all to pick up them but you hold the dead dogs in future.
    4. You want and how you get what you want are different from any human senses.

    Everything has its catches. If no catches, there will be not this market and life. There are catches for our great belief about growth.

    1. A stock with good records and apparently good prospects will be sold
    at correspondingly high prices.
    2. You may be right in your judgment of their prospects and still not fare particularly well. It is because you have paid in full for future prosperity.
    3. It is a full risk and mistake business to predict future. You can simply be proven wrong and completely wrong.
    4. Nothing can grow up into the moon. Unusually rapid growth cannot keep up forever. After a business has already expanded brilliantly, it needs some great breaking out to be great in future. It is never easy!
    5. At some point the growth curve flattens out, and in many cases it turns downward.

    It is obvious that if we confined ourselves to a few chosen growths, based on hindsight, we could demonstrate that fortunes can readily be either made or lost.

    How can we judge fairly of the overall results in future and be sure we could be good enough at least for the future results before we could see? Do you know if your judgment is based on the statistics, you have to think all of the following deduction statistically? This is a matter how to increase the probability of good results in future.

    To get the killing and keep the profit from the killing you have to know when to buy for bargain, hold to the value appreciation, and run away with your profit in your pocket.

    The statics tells us a growth or killings would come with a lot of dead dogs in the market. Some studies have shown that growth as a whole were not better than general stocks in the market. Sometimes they run up greatly and sometimes they run down ruthlessly.

    The catches could kill you in the market very easily for what you believe!

    Inverting and inverting, and always inverting to get out of the ways of your catches.

    What's the catches of my dirty-cheap fishes? They could be the falling knifes when I am in sleep. I need to lock the profit before I feel my head is too hot.
  8. wdongli

    wdongli Well-Known Member

    31st Mar, 2010
    Don't say you are sane always!

    We need to be disciplined, analytical, and self-reliant in the market for good return, which is absolutely right. However if you say you will get good return since you are disciplined, analytical, and self-reliant, you are wrong. It is necessary conditions for you to get good enough return but not the sufficient conditions for any sure good results.

    It is illogical to use necessary conditions as the sufficient ones and burst you hold the future and could give others the excellent opportunities for 20 people only. You could be much better than the average intelligent market players but you still could lose the shirts in the market. You don't need any big mistakes to lose your shirts but a tiny one could be enough to put you into the hell.

    Consequently we should advise ourselves always we are the animals who tend to lose all in the market. How do you protect you from the damage too big for you under any conditions. All of us calculate for future but we always have the mistakes in the calculation. What if you are wrong? Could you have to commit suicide if your calculation wrong, which comes from your simple mind or the complicated system you really love?

    Get your corner and run around your corner. Make you corner bigger and then run around it... Venture life is happy life if we know we have got our last defensive line.

    With your last defensive line life is good!
  9. wdongli

    wdongli Well-Known Member

    31st Mar, 2010
    Unpopular and deserted items in ruins

    It is simple concepts to buy “unpopular large companies” and its execution with diversification.

    It is the habit of the market to overvalue when there are excellent growth or glamorous results for whatever the reasons. It is logical that it will undervalue relatively. It could be caused by companies that are out of favor
    because of unsatisfactory developments of a temporary nature.

    It is a fundamental law of the stock market, so that it could be both conservative and promising to buy the unpopular and deserted shares in the ruins.

    1. You can concentrate(logically should be much safer) on the larger companies that are going through a period of unpopularity.
    2. You could buy small companies, which may also be undervalued for similar reasons.
    3. Generally saying, the small shares entail the risk of a definitive loss of profitability and also of protracted neglect by the market in spite of better earnings.

    Big unpopular companies have a double advantage over the others.

    1. They have the resources in capital and brain power to carry them through adversity and back to a satisfactory earnings base.
    2. The market is likely to respond with reasonable speed to any improvement

    Market is inherently speculative because of widely varying earnings tend to sell both at a relatively high price and at a relatively low multiplier in their good years, and conversely at low prices and high multipliers in their bad years.

    The market has sufficient skepticism as to the continuation of the unusually high profits to value them conservatively, and conversely when earnings are low or nonexistent.(if a company earns “next to nothing” its shares must sell at a high multiplier of these minuscule profits.)

    Generally saying unpopular big shares usually have the features:
    1. low multiple of P/E
    2. low price corresponding to historical average

    The key to be successful to play the unpopular shares is to get them at the price not too far from their lowest one in their bottom channel and understand the channel may need sometime to build up.
  10. wdongli

    wdongli Well-Known Member

    31st Mar, 2010
    What's a bargain?

    The last decade was a decade when retail bargain hunters lost their shirts. The very basic reason for their failure mainly is because they really didn't know what is the bargain in the stock market.

    The bargains are not defined by price or absolute price only. It needs a basis of facts established by analysis. If a share is a bargain, it has to appear to be worth considerably more than it is selling for. The bargains could be blue chips, dirty-cheap fishes, bonds, or even the houses.

    Anything could be a bargain when its price is below some thresholds, from which you would get margin of safety, the gap between the price and value.
    It was suggested that an issue is not a true “bargain” unless the indicated value is at least 50% more than the price.

    What kind of facts would warrant the conclusion that so great a discrepancy
    exists? How do bargains come into existence, and how do you profit from them?

    You need someways to define what is bargain and what is not bargain. Generally there are two methods:

    1. By the method of appraisal, it relies largely on estimating future earnings and then multiplying these by a factor appropriate to the particular issue.

    If the resultant value is sufficiently above the market price and if you have confidence in the technique employes, you can tag the stock as a bargain.

    2. Know the value of the business to a private owner. This value also is often determined chiefly by expected future earnings, in which case the result may be identical with the first. But here more attention is likely to be paid to the realizable value of the assets, with particular emphasis on the net current assets or working capital.

    In the market crash, especially last long enough, such as half year or a year, a large proportion of stocks usually become bargain issues, as measured by these standards. Thus the wisdom of having courage in depressed markets is vindicated not only by the voice of experience but also by application of plausible techniques of traditional value analysis and price of normal time and the price probability distribution.
    Last edited by a moderator: 9th Jan, 2012
  11. wdongli

    wdongli Well-Known Member

    31st Mar, 2010
    It is fond to make valleys and peaks

    Market recurrently establish a bargain condition in general. There are always many individual bargains at almost all market levels in the valley of market. The market enjoys to make mountains out of molehills and exaggerating ordinary vicissitudes into major setbacks.

    People's mood can affect each other. Market could be in depressed without any fundamental support. Even a mere lack of interest or enthusiasm may impel a price decline to absurdly low levels. That is main reason why we have what appear to be two major sources of undervaluation:

    1. currently disappointing results and
    2. protracted neglect or unpopularity.

    However, if considered by itself alone, any one of these two reasons
    can not be relied on as a guide to successful market playing. You have to ask some questions further:

    1. How can you be sure that the currently disappointing results are
    indeed going to be only temporary? Yes, we can find excellent examples of that happened in history. Some stocks used to be famous for their cyclical quality, and the shrewd buyer could acquire them at low prices when earnings were low and sell them out in boom years at a fine profit.
    2. Is it a standard behavior? If this were the standard behavior of stock market with fluctuating earnings, then making profits in the stock market would be an easy matter.

    Unfortunately, we could cite many examples of declines in earnings and price which were not followed automatically by a handsome recovery of both. The many experiences of this type suggest that the we would need more than a mere falling off in both earnings and price to give us a sound basis for purchase.

    To be profit from the bargains, it require an indication of at least reasonable stability of the prices after the crash, the earnings over the past decade or more if you would like to play the blue chip. Blue chips and dirty-cheap fishes are different market animal. They need different ways to raise for profit.

    To blue chips, they should have no year of earnings deficit, plus sufficient size and financial strength to meet possible setbacks in the future, if you want to be sure you would not lose any money at least. The ideal combination here is thus that of a large and prominent company selling both well below its past average price and its past average price/earnings multiplier.

    Low average and low multiplier are very tough for buying. We must know if the blue chips have their low-price years, they are generally accompanied by
    high price/earnings ratios.

    As a market player, we have to remember that there is a world of difference
    between “hindsight profits” and “real-money profits” as there are always gaps between our imaginary world and real world without matter how hard we try to know the real world. The question is if the gaps put your capital and return unpleasant what you would do?