3SOF

Quote from: David Randolph on December 06, 2006, 05:14:17 PM
I disagree with your signature:

QuoteLong term investments are short-term investments that have gone wrong.

I would say: all trades start as short term trades, but good trades are long term. Don't expect to beat the market doing short term trading. Over time you'll just feed the brokerages.

David,

Thanks for your comments as always. About my signature first...it was a specific signature for the type of trader that I see myself as.....i.e a position/short-term trader. The gist of my trading style is to buy into a breakout, or buy into an anticipation of a breakout, out of numerous kinds of consolidation/congestion patterns. Having defined my style, it's imperative that I stick to my style in the time-frame I've given myself and the stock as well. If I do not see the anticipated move as I've expected to see, then I ought to be disciplined enough to get out in search of another stock breaking out. Holding onto the first stock hoping and waiting has only done me bad (once again, this signature is specific to my trading style). The best example I can think of is when I made a bundle on AOOR back in May, but lost more than what I made, coz' I ended up holding and hoping it would turn back up after it started pulling back. I broke my rules on my short term trading style and I paid a hefty price.

About CHINA, I think it's going higher...but I made some trades on it for 2 - 3% profits twice (trading on margin, so dollar wise, it was a decent profit). But I am expecting the trending indictors to cause a pullback on CHINA. I would be a buyer of CHINA (short term only) if it broke yesterday's high of $9.35

We have different trading style and strategies....whichever works best for our mindset and our motives and whicever gives us the "confidence" is what I believe we ought to stick to. As they say, once you have that "confidence" in your trading style, money follows you automatically. So, I think, trading well is a matter of building confidence in one's own style/strategy and sticking to it all the way.

Quote from: David Randolph on December 09, 2006, 06:23:40 AM

QuoteAlso, there is a 3 cent microgap from the opening today that probably held back a number of traders.  I think without that little gap there would have been more upside.  Of course, the bottom of that gap can just provide another potential support when/if it gets filled (my money says its close enough to get filled unless some news comes out soon).

Yes, there was that micro-gap ... do you mean you sold and you'll try to buy back at $9.08 if/when the gap gets filled?

I hope you're lucky enough to do it, but you know, I don't think that is a sound long term way to speculate, since you're risking losing a $3 to $5 move to save $0.20 or $0.30.

Look at the mistake I made on NWACQ.PK, what a shame . Not buying because of a gap up and yesterday watching it fly another 48%

I'm starting to go deeper on the notion that I should invest on the main moves and forget about the short term fluctuations.

CHINA's main move is up, fundamentals support an even higher valuation, I'll continue holding it.

No, I still have my position in CHINA, didnt sell.  I agree that this one is pushing higher.  At this point I dont have a large enough position to make it worth the risk that the gap doestn fill just to try and gain a few dollars.    I do think CHINAs microgap will fill as it can still be consolodating around this leve before the real push higher, but again that is just an academic prediction for me (even though I said "my money says" that is actually just a figure of speech in this case.)

When I have a lot to gain though by a likely gap close I often risk selling, this has worked well for me recently.  However, it hasnt worked so well when I have decided not to take a position waiting for a gap (recently examples are ATI and PCU).  

I see what you mean about the main moves though.  For example I recently realized that if I had held AOB though all its ups and downs over 1 year I would be up 300% on that position from where I bought it about $4 if I recall correctly.  Of course, the skill is knowing which stocks can return 300% in a year to begin with!

Thanks for the description of your trading style vic666, I really appreciate it. It reflects the Trader 2 Trader environment we're creating here at 3 Stocks on Fire. 

QuoteWe have different trading style and strategies....whichever works best for our mindset and our motives and whichever gives us the "confidence" is what I believe we ought to stick to. As they say, once you have that "confidence" in your trading style, money follows you automatically. So, I think, trading well is a matter of building confidence in one's own style/strategy and sticking to it all the way.

If you told me this one year ago I would promptly say: «That's it man, I agree 100%». But now, with some more bruises on my trading body, I hesitate in saying that ... I'm starting to think there are thousands of ways to lose money in the market, but just a few ways to make it. I'm starting to lose my believe in "you need a trading style that suits your personality, so, different personalities should have different trading strategies". I fear that this "different personality - different trading style" theory is a way to rationalize a behaviour that over the long run will lead to losses, not profits. Maybe I'm wrong, but I have this fear ...

For example, I think what you say here ...

QuoteAbout CHINA, I think it's going higher...but I made some trades on it for 2 - 3% profits twice (trading on margin, so dollar wise, it was a decent profit).

... is a trading behaviour that over the long term will make you lose. You shouldn't trade with margin so that a 2 - 3% move shows you a "decent" profit in dollar terms. You're trading with more money to be more right, but more money won't make you right, only trading right. Betting on 2 - 3% fluctuations isn't a right way to trade, because, what if when you're looking for a 2% profit, on margin, you get a sudden 10 or 20% move against you due to some unexpected news (or just a normal technical development)? Another thing is that your way, or anybody's way to predict 2 - 3% moves has many flaws ... it looks like it works, but it doesn't if you make it long enough.

Please, don't understand me wrong. I spent years of my life doing what you're doing, and even made little money out of it ... (probably that's why it took me so long to learn more of the game). But I made much less money than I ought to, given what I knew about the market.

So I had to adapt and learn more. I had to learn fundamental analysis to have more confidence and hold stocks longer. Because the big money is made on the big moves.

I know why you want to have that short term trading style. You're either trading for monthly wages or you want to get rich fast, making, say, at least 20% a month? What if I tell you that if you make 50% a year, in 25 years you'll be one of the richest men on the planet? You would probably say "I don't care about 25 years down the road, I care about 5 years, and with just 50% a year I still won't be rich enough in 5 years time!" And then I would answer: "yes, but if you waste 5 years several times not doing the right thing, maybe when the 25 years are gone, you look back and think: "I could have done the right thing!"

Man, I should write an article with these thoughts (and probably I will, over the weekend). I wish you the best of luck vic666, thanks a lot for sharing your trading experience

QuoteI see what you mean about the main moves though.  For example I recently realized that if I had held AOB though all its ups and downs over 1 year I would be up 300% on that position from where I bought it about $4 if I recall correctly.  Of course, the skill is knowing which stocks can return 300% in a year to begin with!

I'm glad you're still holding CHINA tokyopua . Yes, you need fundamental analysis to find and especially hold a stock for a 300% move, because stocks never go up in a straight line and technical analysis gives you too many false signals.

Considering CHINA, we had this news ...

China.com Chosen Exclusive Online Partner of the 6th Asian Winter Games

... that had no effect on the share price, which was up a bit. I'll continue holding CHINA.

Quote from: David Randolph on December 11, 2006, 07:05:39 PM



I know why you want to have that short term trading style. You're either trading for monthly wages or you want to get rich fast, making, say, at least 20% a month? What if I tell you that if you make 50% a year, in 25 years you'll be one of the richest men on the planet? You would probably say "I don't care about 25 years down the road, I care about 5 years, and with just 50% a year I still won't be rich enough in 5 years time!" And then I would answer: "yes, but if you waste 5 years several times not doing the right thing, maybe when the 25 years are gone, you look back and think: "I could have done the right thing!"

Man, I should write an article with these thoughts (and probably I will, over the weekend). I wish you the best of luck vic666, thanks a lot for sharing your trading experience

QuoteI see what you mean about the main moves though.  For example I recently realized that if I had held AOB though all its ups and downs over 1 year I would be up 300% on that position from where I bought it about $4 if I recall correctly.  Of course, the skill is knowing which stocks can return 300% in a year to begin with!

I'm glad you're still holding CHINA tokyopua . Yes, you need fundamental analysis to find and especially hold a stock for a 300% move, because stocks never go up in a straight line and technical analysis gives you too many false signals.

hi,
intersesting post david ( iam still holding china)
couple of things . does this mean that 3stocks on fire is changing to 3stocks for the long term? because every stock no matter how good their fundamental story will have technical failures which will take the stock lower for a period. Look at the 3sov picks and that is obvious. so when do you sell?  when is fair value ? fundamentally no one really cares about a company ,say , like china , we only care that it goes in the direction of our purchase of the stock. the company does not benifit from our puchase because they don't get the money , ( only on the ipo) after that we are just selling to eachother.  it adds intrinsic value to the company but if they go bankrupt you aren't gonna see the money from your share purchase .
like tech signals which are lagging indicators fundamentals can change behind the scenes without the share holder being any the wiser i.e. enron. ( well, they were crooks from the start.)
one morning you wake up and your stock has tanked from some peice of news.
i.e. diet. 
do  you buy aapl at 20 dollars in 2004 and now it is at 180dollars (pre split price)  or do you find those stocks that rise 100% in a few days ? the market is full of both possibilities. as for being a rich man in 25 years! what good was it to jesse livermore? he commited suicide so it was totally useless to him . it obviously didn't make him a happy man. wareren buffet ? the same. didn't even give to his kids.
but he did give most of it away to the richest man in the world , bill gates, so at least it is utilized.
which brings me to my next subject. when you are a rich man what will you do with it?
what is it for . you can't take it with you and you can't leave it behind because it is part of the gossama thread that is this world in which we play a game called life believeing that something lasting is really occuring here. of course everything points to the total illusory nature of the universe....................lol
that doesn't mean i don't wish i had held  gigm aob xing aapl and the list could go on.
lol sorry for the ramble but it is an interesting conversation  to get into if anyone is willing . sorry to be so far off the  topic of china.
maxi

The post by rickjust does echo some of my recent thoughts too (well, except for the gossamer thread stuff lol).  I like the new emphasis on fundamentals because that is where my game is now weak.  But I wonder about the goal to make 50% per year when 3SOF managed to make about 200% in its first year!  I guess that is harder when you get larger capital invested?  I am also wondering about the new momentum strategies here, like T3ML and STEPS, those have been working pretty well.  Its kind of hard to resist those kind of opportunities, so how to strike a nice balance.  The old super fast portfolio might be good to resurrect for those (just an idea  ).

Quote from: tokyopua on December 11, 2006, 10:48:05 PM
I am also wondering about the new momentum strategies here, like T3ML and STEPS, those have been working pretty well.  Its kind of hard to resist those kind of opportunities, so how to strike a nice balance.  The old super fast portfolio might be good to resurrect for those (just an idea  ).

As you've noticed most of 3SOF big gains fitted to that T3ML strat:

3sof big gains are: AOB, HSOA, BRVO, GIGM, VPHM, IIJI, XING, NVAX, CHINA & some others...

Why not use this kind of strategy backing up with fundamental analysis, I think  it is proven, I've been trying to piece these together almost two years now.

Quotedoes this mean that 3stocks on fire is changing to 3stocks for the long term? because every stock no matter how good their fundamental story will have technical failures which will take the stock lower for a period. Look at the 3sov picks and that is obvious. so when do you sell?  when is fair value ?

Great questions rickjust, thanks

No, 3 Stocks isn't about short or long term, it is about achieving the highest profit with the least risk. I look to buy stocks that look attractive, both from a technical and fundamental standpoint. And I'll look to sell those stocks both when technical and fundamental analysis say sell. The ideal selling point is when a stock is fundamentally overvalued and the medium/long term trend turns from bullish to bearish.

Quotelike tech signals which are lagging indicators fundamentals can change behind the scenes without the share holder being any the wiser i.e. enron. ( well, they were crooks from the start.)

I agree.

Quoteone morning you wake up and your stock has tanked from some peice of news.
i.e. diet. 

That can always happen, whichever your approach is.

Quotedo  you buy aapl at 20 dollars in 2004 and now it is at 180dollars (pre split price)  or do you find those stocks that rise 100% in a few days ? the market is full of both possibilities.

I'll buy both, if I can, but they're harder to find than it seems.

Quoteas for being a rich man in 25 years! what good was it to jesse livermore? he commited suicide so it was totally useless to him . it obviously didn't make him a happy man. wareren buffet ? the same. didn't even give to his kids.
but he did give most of it away to the richest man in the world , bill gates, so at least it is utilized.
which brings me to my next subject. when you are a rich man what will you do with it?
what is it for . you can't take it with you and you can't leave it behind because it is part of the gossama thread that is this world in which we play a game called life believeing that something lasting is really occuring here. of course everything points to the total illusory nature of the universe....................lol

Lol. I want to earn a lot of dollars because that is a byproduct of what I do. The more I earn over the long term, the better I did.

I loved your post. My last remark is: by all means, I didn't meant to say fundamental analysis is all there is to the game of stock speculation. It isn't, it is just a part of it, a rather important part, as technical analysis and inner psychology.

QuoteBut I wonder about the goal to make 50% per year when 3SOF managed to make about 200% in its first year!  I guess that is harder when you get larger capital invested?

Well, the more the better Tokyopua, given that the risk is controlled, because if the risk is too high, it doesn't matter how much you make in a year, you will lose it back to the markets over the long run (as happened with Livermore - although probably his final bankruptcy had more to do with the 1929 - 33 economic depression and 90% fall in the Dow Jones than poor money management).

I say 50% because one should look for reasonable profits, or else he'll risk too much and lose it all. But of course, given my money management rules, I'll work to get the highest possible return.

QuoteI am also wondering about the new momentum strategies here, like T3ML and STEPS, those have been working pretty well.  Its kind of hard to resist those kind of opportunities, so how to strike a nice balance.  The old super fast portfolio might be good to resurrect for those (just an idea  Wink).

Thanks for the idea Tokyopua. I don't know enough about the T3ML and the STEPS strategies, for now. It would be nice if they were tested on a portfolio like the 3 Stocks on Fire Portfolio for a long period, but of course Terliso and AussieTrader probably don't have time or the will to do it, as it brings great, great stress (not to me because I'm used to it, but I remember when I started doing it in March 1999 ...). I know they're purely technical approaches, and as I've been saying, I know there's more to the game of stock speculation than technical analysis (i.e. I don't think a man can get rich trading solely using TA, but I can be wrong, good luck )

You say it's kind of hard to resist those short term opportunities, well, nobody ever said that long term successful speculation was an easy game. It is one of the hardest endeavors a man can take.

Quote3sof big gains are: AOB, HSOA, BRVO, GIGM, VPHM, IIJI, XING, NVAX, CHINA & some others...

I just found out there's a bug on the previous trades table that I need to ask Ramsburg to fix, but as I recall it, 3 SOF made good money on those stocks, but a lot less than what it should have made, given the moves the stocks made. Where I made 60% I should have done 200 or 300%. There's a big difference there.

QuoteWhy not use this kind of strategy backing up with fundamental analysis, I think  it is proven, I've been trying to piece these together almost two years now. 

Thanks for the suggestion Terliso, good luck on your trades

Well, fortunately CHINA hasn't been making great moves lately, so we can spend time on these amusing issues. The stock barely moved today, I'll continue holding it.

Quote from: David Randolph on December 12, 2006, 05:00:58 PM
I just found out there's a bug on the previous trades table that I need to ask Ramsburg to fix, but as I recall it, 3 SOF made good money on those stocks, but a lot less than what it should have made, given the moves the stocks made. Where I made 60% I should have done 200 or 300%. There's a big difference there.

Fixed
(http://www.3stocksonfire.org/closed_trades.php)

Down pretty heavy for seemingly no reason.  It may be a good time to add shares here under $9.

Ouch.   >:(Had to sell some here.  Will look to buy again later.

Yes, I made the mistake of letting a small gain turn into a huge loss.

It could drop another $1 before reaching the trend line.  We'll see what tomorrow holds, but I will be selling on any weakness.

This was indeed an ugly red marubozu. I wasn't expecting it, as the stock was behaving in such a calm manner.

I read this entire thread again (especially the initial analysis), to check if my foundation for this trade was really solid. The conclusion is that CHINA isn't terribly cheap, just somewhat cheap, in comparison with its industry peers.

I see that everything that's China related took a beating today.

Anyway, the company's historical revenue and profit growth is outstanding, and I can only expect this to continue over the next few years. I hesitate between "take your 21% profit now, or you'll cry tomorrow" and "hold on to those shares for the long term, or you'll cry for ten years when you get to 50 years old" (because I believe short term trading won't make me money over the long term).

Imagine CHINA indeed continues to grow revenues 25% a year and profits 40% a year for the next ten years. Revenues in 2016 would be $2.8 B and EPS would be $8.39. Apply an average earnings multiple of 16 and CHINA would be a $134 stock in ten years time.

$134 means the share price would rise about 32% a year on average between now and 2016.

This is interesting. I'm not sure I'm satisfied with 32% a year. I know Warren Buffet would be pleased, since his long term  average annual profit is 24%. But I would like to make 50%, is that even possible over the long term?

You might think: "of course, that's easy, even last week I bought a stock that went up 50%". But I tell you, nobody has ever done it before, nobody in the world has ever made 50% average annual profit for a period as long as 20 years. So, maybe, it is impossible. Buffet himself made 24% and he's the most successful stock investor ever.

Why does this CHINA thread always deviates from CHINA's stock?

I guess that if 24% are enough for Buffet, 32% should be enough for me, don't you agree?

But, of course, there are risks. I'm having a hard time making up my mind, but ok, I decide not to blow it all just because of a one day red marubozu, I'll continue holding CHINA.

There are flaws on my previous analysis. If revenue growth is just 25% for the next 10 years, EPS growth could never be 40%, it would be less. Why?

Because a $8.39 EPS translates into a $945 M net income in 2016, on just $2.8 B in revenues. That would be a 34% net profit margin, and that's impossible. The current net profit margin is just 5%.

So, let's go back a little. Say revenues grow 25% a year for the next 10 years, so revenues would be $2.8 B in 2016. Now apply a 5% net income margin and get $140 M in net income. This translates into an EPS of $1.24, multiplied by a 16 earnings multiple gives me $19.88 for the share price.

This means the stock's price average annual growth would be $8.55*(x^10) = $19.88 <=> x = 8.81%.

So, according to these estimates, buying CHINA now and holding for the next 10 years will deliver an average annual profit of only 8.88%.

That's not enough, but it is quite realistic. I guess the necessity is making me push harder on fundamental analysis. I have a 21% profit on CHINA, and a 10% loss on another stock I'll probably let go.

I'll take that profit, so the trading plan is to SELL CHINA around tomorrow's open !

David...pardon me for telling this, but I sense some confusion in the "holding period" of stocks in the 3SOF portfolio...or for that matter, a general uncertainty in the time frame for holing stocks...I mean, is 3SOF changing more into a long-term investment kind of portfolio, because if that's the case, you got to understand that many members in 3SOF (I'm sure I cannot speak for everyone) trade from a shorter time frame with lesser capital to invest...

it's essential that we have a separate topic to discuss and understand better where 3SOF in general is going...and may be have some feedback. I can sense your strategy nowadays has evolved into a longer term holding one...but if that's the case, I believe it's better to outline this clearly in some fashion.

If I've misunderstood something please forgive me.

I'm very sleepy because it's almost 2 AM here, so my short answer is:

"If it's good for long term I'll hold long term. If it's good for short term I'll hold short term. If it's no good I don't want it."

See you tomorrow vic666