|March 18, 2014||Posted by Ernie Cooper under Theories|
Warning: More of a free flow idea dump here… I might meander around.
My background is computer programming, math, and logic. When I started to get interested in stocks back in the late 1990s, the fundamental theories of investing very much appealed to me. Look for stocks with a low P/E ratio, good Asset/Debt ratio, good profit margins, good ROI, etc. etc. Very quickly I would notice some stocks would have very ‘good’ fundamentals but the stock would continue to drop. I would also notice many stocks had very ‘bad’ fundamentals but would continue to go up. I started to notice that ’good’ fundamentals for one sector of the economy wasn’t so good for another sector. For example, oil stocks typically have lower P/E ratios on average than retail apparel stocks. So, I would do comparative analysis of stocks of the same sector. For example, CVX might have better metrics than XOM, so I would buy CVX.
After years of doing this, things started to stick in my mind. Firstly, with fundamentals, how do you decide when to cut your losses? If a stock was a great buy at $50, and it drops to $30, and their fundamentals haven’t changed, its now an even better buy, right? Secondly, I noticed the vast majority of stocks that had very nice gains had very high P/E ratios. Obviously people were buying a stock based on different criteria than what I thought was important. Thirdly, I would typically be attracted to stocks that wouldn’t move much… and it started dawning on me that maybe these stocks were ‘cheap’ for a reason.
Then I started doing some crazy stuff like thinking about art, auctions, and poker, and how they relate to stocks. When I see the values of some stuff on antique’s roadshow, I think to myself…. ‘I wouldn’t pay $10 for that and they are saying its worth $20,000′. Poker players make investment decisions (their bets on their hands) based on all sorts of stuff besides the ‘mathematically correct’ value of their hand. In auctions, ego, desire, competition, instant gratification play huge roles in the final price…. at least as much as the value of the object being bid upon. All of this started to lead me to the idea that maybe my idea of what is a good stock isn’t the most important thing. More importantly, maybe focusing on trying to find out what the magic formula is for determining a good buy isn’t the most important thing.
I later stumbled upon Bill O’Neil’s (of Investor’s Business Daily (IBD)) system. This made a lot of sense to me. He did a lot of research and he determined what metrics typically were important for winning stocks. He also used technical analysis to time his purchases. Equally as important, he came up with a system to cut losses that made sense to him. After using his system for a while, I started to think in terms of this saying:
“Fundamentals tell you WHAT to buy. Technicals tell you WHEN to buy.” (Risk management tells you how much to buy).
The more I used the IBD system, the more important technicals became to me… the less important fundamentals became. I started to see that the most important thing was what the market was doing, not what I, Bill O’Neil, Warren Buffett, or anyone else thought of the income statement of the company. I also adjusted my stop/loss theories a bit away from IBD. Instead of a fixed percentage loss, I would set my stop/loss to a previous consolidation. For example, if a stock traded in a $26-$30 range for six months and made a double bottom breakout that I bought at $30.50, a stop/loss of $26 makes a lot more sense to me now than just picking 7% of my purchase price.
The great thing about technicals is, it works in all markets. Tell me, whats the ‘correct’ price of corn? or gold? or the euro/dollar? Whatever you think it is, its likely not at that price, or it won’t be for long. What I think something is worth doesn’t seem to matter much, and doesn’t seem to help me make money investing. However, the more I understand price action in a security, the more it seems to help me make money.
Ever notice when a stock makes a huge move, say 15% or more, the ‘typical’ reaction is “wow that’s crazy, too expensive, I wouldn’t buy right now!”… but more times than not that stock CONTINUES TO GO UP? The exact same thing seems to happen when a stock goes down sharply. My personal opinion of the worth of the stock doesn’t help me at all. TSLA is my all time example of this. Stock makes no sense to me. Didn’t make sense at $70, $100, $120, $150, $180, $200, $250. My opinion didn’t matter. Fundamental analysis didn’t matter.
Do I think fundamental investing is ‘wrong’? No. There are many ways to invest successfully. I just find, for me, especially with my low risk tolerance, technical trading is more profitable. Besides, if fundamental investing is the only way to go… it seems to me the smartest thing to do is to buy stocks that successful value investors own. Look and see what Buffett, Einhorn, or your favorite value investors own and get some of those shares. I have actually done this in the case of DVA, but I liked the chart when I got it
|February 25, 2014||Posted by Ernie Cooper under Trades|
Sold BIS, my top calling the IBB Friday didn’t work, cut losses.
Bought CLR on a breakout
Bought CRZO options, it reports this week, wanted to gamble on its upside with a little capital.
Sold some SAM shares. It reports this week and wanted to lighten my exposure.
Bought MIDD on a breakout, it reports today (2/25)
2/25 – Bought EBAY – following Jon Boorman
|February 22, 2014||Posted by Ernie Cooper under Uncategorized|
Currently 92% invested, 8% cash.
Lightened up my position in CMCSA. It merged with TWC is my biggest position. Its not going the way I’d like, so taking some risk off here. Its still a large position.
Bought more CORN May $31 calls on weakness Friday.
Bought SPY March $184 Puts for insurance to my longs
Sold part of my TTWO stake
Sold half of my ATHN stake
Bought BIS (inverse IBB) as further insurance to my longs
(no activity on 2/20)
|February 20, 2014||Posted by Ernie Cooper under Trades|
Sold half of AAPL long. The chart suggests short term resistance at this level, if it drops back to $500ish and bounces again I’ll rebuy that amount at that level.
Bought TASR; again, another follow of Jon Boorman.
I’m starting to get frustrated at my CMCSA/TWC positions. Its acting pretty illogical to me, I might shave some of the position off.
|February 18, 2014||Posted by Ernie Cooper under Trades|
First off, I love being up decently when the S & P 500 is up 0.12%.
1. Bought TAN, the solar ETF. It broke out today on strong volume. $39.50 seems like a reasonable stop.
2. Opened positions in SIAL, TYC, and TOL. These are trades Jon Boorman, @JBoorman put on today. If you are not following Mr. Boorman on twitter or stocktwits, I strongly suggest you do. His website is a must read.
Any day now I’m likely to close my TLT position. The positions I’m most excited about right now is CORN and TTWO.
|February 16, 2014||Posted by Ernie Cooper under Trades|
Giving more color about my positions, my entries and exits, why I took the trade, etc. (more…)
|February 15, 2014||Posted by Ernie Cooper under Theories|
Positions are updated in the Portfolio Section.
The market looks pretty bullish; the dip/correction looks over. With earnings season over and the government out of the news there doesn’t appear to be any negative catalyst on the horizon, keeping in mind the stuff that hurts is the stuff you don’t see coming.
I’m pretty much fully invested now. I’m very curious to see how the market will react next week, since we are almost at the all time high. I wouldn’t be surprised if it forms a bull flag to the 50 day line. I’ll likely continue to nibble at SPY OOM put options as insurance. If the market blows past 1850 its likely smooth sailing for several weeks.
I have quite a bit of TWC shares; they are undervalued in relation to CMCSA’s offer. I view them as a good risk/reward and wish to scale out of them as they approach the 2.875 ratio described in the buyout offer.
SAM reports next week, the only name I have doing so.
I added some non-stock names to my portfolio: FXB and SLV. Both charts look constructive and I’d like to think this may also serve as diversification.
Will continue to watch the charts and listen to people I respect for new ideas, but I’m currently pretty happy with my portfolio.
|February 14, 2014||Posted by Ernie Cooper under Trades|
CMCSA is a long term hold of mine. (more…)
|February 14, 2014||Posted by Ernie Cooper under Trades|
I live outside Atlanta and we got hit by a pretty good storm. Internet/power was out a good bit of the time; only connection to the world was my iPhone.
2/12 and 2/13 Actions
2/12 – bought more LO, I think the sell off was overdone. This is a long term hold.
2/12 – sold DOW (used this liquidation to buy more LO)
2/12 – sold my AMZN puts, made a pretty good profit.
2/12 – sold short YELP – mainly as a hedge to my long portfolio
2/12 – Bought SPY mar 22 $179 and $175 puts, as a hedge to my long portfolio
2/13 – Sold FEYE, my speculation play didn’t work…. oh well. cutting losses
2/13 – Bought more TWC stock. I’ll opine about this position in a separate post. IMO it is a FANTASTIC risk/reward
Going long RAD. Following JBoorman on this trade. I have a pretty good sized position in WAG which is a sister company in the sector. I’m going to keep 1/3 of my WAG position on a tight stop and look to take profits in with it, since I’m going on RAD here… too many eggs in one basket stuff.
If the market is up today, that means SPY puts should be cheaper, I’ll look to nibble buy some more as hedge protection.
If TWC becomes rational and shoots up I’ll look to take some profit.
|February 12, 2014||Posted by Ernie Cooper under Trades|
Read an article:
Seems he is thinks DOW’s buyback will actually be a shorting opportunity in the near future and he like EMN in the space. If his theory is correct, $53.72 is the most I should expect from this stock, and maybe sell when it approached $50.
EMN is a better stock in the space to him; looking at the chart $81 would be a breakout point to go long. Will watch.