Anatomy of an Unprofitable Trade (PPG)

[Phaedrus]

It is good to re-examine your systems after any trade, looking to see if the entry and exit points could have been improved. This is particularly important after trades that gave disappointing results. Here is a postmortem examination of such a trade.

Initially my attention was drawn to PostiePlus by the low PE ratio and the very high yield, but it was in a downtrend, so I did not buy. There was a good downward trendline in place by Mid November 2003 and it was confirmed again in January 2004. My plan was to buy on the first close above this trendline. PPG appeared to bottom out at 93 cents at the beginning of March, and an uptrend was confirmed by the end of March - looking good. A break of the trendline appeared to be imminent in early May, but again prices failed to breach the trendline. This gave yet another confirmation of the trendline - Excellent. By the start of June, support had become evident at 95 cents. Seven times in two months, short-term downtrends had stopped at exactly this level as buyers moved in. A good dividend yield does tend to provide a "floor" of support, and this is what appeared to have formed at 95 cents with PPG.
On 8/6/04 PPG closed above the trendline, giving an entry at 97 cents. I placed a stop-loss at 89 cents, just below the support at 91 cents. Should it be hit, this would mean a loss of less than 9%. Good confirmation of the trendline break Buy signal was provided by the On Balance Volume breaking its downward trendline and continuing to head up. Distribution lasting 7 months had ended, and accumulation had begun. PPG trended up to 105 before returning yet again to its support level (11 times in 6 months!). This was the first real cloud on the horizon. PPG was making higher highs, but not higher lows. While the support was encouraging, it was starting to look as though after the downtrend, PPG had gone into a trading range, rather than an uptrend. so I tightened my stop-loss from 89 to 94 cents. I did not worry too much though - the On Balance Volume was still trending up nicely. Accumulation was continuing as others recognised the worth of this stock. Nevertheless, my doubts were strengthened in early October when PPG again struck resistance at 105, making a double top formation. These are often bearish, and that was certainly so in this case, because PPG continued to fall from here. By 5/11/04 I was fairly sure that the trade had turned sour because the OBV uptrend had ended. This is usually a leading indicator, and sure enough on 11/11/04 PPG broke below the support that had held for 7 months, hitting my stop-loss, giving a Sell signal and an exit at 94 cents. This was a loss of 3 cents, but because a 4 cent dividend had been received, I was lucky enough to more or less break even. PPG's weakness continued with it breaking through previous support at 91 cents. It continues to make lower lows and the OBV continues to plummet, with no sign of any reversal, as yet.
In spite of the poor financial result, I regard this as a very successful trade. [u]I kept to my plan</u>. (This is something I have never found easy). The entry was reasonably timely. The fundamentals were acceptable. I liked the high dividend yield. There was an uptrend. The low PE was good. All the ingredients were there, but the cake failed to rise. The use of just a handful of simple technical indicators got me out of this trade without losing my shirt, well ahead of the subsequent meltdown.

http://img.photobucket.com/albums/v418/789456/PPG001.gif

[Sky Tower]

Phaedrus your postings are brilliant. They are so worthwhile. Thank you very much! Keep it up! In my mind investing/trading is a continual learning experience and your postings are just superb.

[Dazza]

im wondering phaedrus (you prob have given the answer be4) , but what programme etc etc do u use to make ur graphs?!?!

nzherald is so ... 'crap' nowadays.. that i have lost my main resource for charts...

id like to also start learning some TA skillz :D

[Longtack]

Metastock.

[Dazza]

thanks LT for the reply... but could u be more specific thanks?!

[Dazza]

my bad i know what it is now.... does anyone know where i can get free TA stuff?
forking out aorund 2k... is a bit expensive for me... with my current income -_-

[Phaedrus]

Dazza,
You will find some links to free net-based TA stuff here :-
http://www.sharechat.co.nz/archives/2002/03/msg00009.shtml
I wrote this for the Education section of ShareChat 3 years ago, so some of the links are bound to be out of date. More at :-
http://www.sharechat.co.nz/education/

You can get reasonably good NZ charts free at :-
http://au.finance.yahoo.com/ or
www.fatprophets.com.au

[Major von Tempsky]

But surely better fundamental/economic analysis by industry sector would have told you it was a No-No to start with?
It was obvious by November last year that the retail sector had had an overextended run in terms of sales, consumer debt, and there was no more mileage in it.
Even the brokers were making such comments.

[zyreon]

http://bigcharts.marketwatch.com/

NZ:XYZ for entering the stock code

[Phaedrus]

MvT,
You say that "It was obvious by November last year that the retail sector had.....no more mileage in it. Even the brokers were making such comments".

There is not much point talking about November. I bought PPG back in June when retail stocks were booming - look at the huge gains made since then by retailers such as HLG, MHI, PPL etc.

You seem to have missed the fact that my [u]sell</u> signals were generated in November!!!!!! I was getting out then, not in!

I have learnt that it pays to totally ignore the prognostications of brokers, although I did tend to agree with them in this particular instance.

[waaihoek]

Phaedrus,

Thanks very much for your PPG posts and analysis, and for your ShareChat posts.

All much appreciated.

Waaihoek

[madmike]

happy new year phaedrus

nice post

a question
why not get out after the second double top? the 4c imputed dividend was announced 20/9 and you would have expected (as with a high yield stock) the shareprice to continue moving up until record date 5/11 (re cmo and lpc and cnz)...yes volume was increasing but that is expected with the "dividend chases" (again very good examples with cnz/lpc and especially with cmo)

my point...did you hold out for the dividend?.....did you alter your stop loss for the size of the dividend? i think sometimes it is better to sell before record date and buy back in after.

i beleive the second double top, given that a dividend had been announced, gave rise to a sell indicator.

also it was nice to see that the bad 1st quarter sales came out after the dividend record date (5/11 actually) giving the stock a double shareprice whammy ex dividend

THE KING says must be a terrible feeling to be looked in,, at the moment..
As for looking at the chart PPG could fall off but it wont HAPPEN.. [^][^]

[Longtack]

Applying logic and F.A. as the sole criterions to buy and sell decisions is unreliable. The market is often driven by sentiment, subjectivity, and other irrational measures.
When the price and volume weakens be prepared to sell early and when the price is going up then buy early. There are several resonably reliable T.A. signals to assist in the decision. Perhaps oversimplified but that works for me and we like to keep it simple. If the professional business analysts and fund managers get it wrong with F.A. (and I suspect sentiment too) then that's good enough for me to add other methods to the pot.

After the dbl top I hope that I would have been setting a tight stop if I'd been a holder, particularly after seeing other stocks weaken after a divvie announcement and before the record date. Perhaps the holders were disappointed with the $0.04. Who knows? Who cares! It's irrational and the current s.p. is 90% of all that matters.

Thanks Phaedrus for your useful analysis.

[Snoopy]

quote:Originally posted by Longtack

Applying logic and F.A. as the sole criterions to buy and sell decisions is unreliable. The market is often driven by sentiment, subjectivity, and other irrational measures.


Funny definition of 'unreliable' there Longtrack. If you have sold something that you deem to be overpriced using F/A, then you have absolute certainty about what you will receive. You can't get any more reliable than that!

OTOH if you use T/A to determine your sell price, then you don't know what price you will want to sell at and you don't even know if there will be sufficient liquidity to allow you to exit at that price. It is hard to imagine a process that is *less* reliable than that.

Of course if you sell using F/A there is no guarantee that you will get the maximum short term price (unless the sale is the result of a fair auction in a takeover battle). Maybe that is what you meant?

Possibly selling using F/A, you will receive a less than maximum price (in the short term) and the irrational market will drive the price up further. But gambling that something irrational like that might happen is not a 'reliable' strategy - just the opposite in fact. What happens if the price plunges again to fair value (or below) robbing you of your opportunity to sell at above market value? Where is the 'reliability' of you system then?


quote:
When the price and volume weakens be prepared to sell early and when
Perhaps the holders were disappointed with the $0.04. Who knows? Who cares! It's irrational and the current s.p. is 90% of all that matters.


I guess it depends how you drink your F/A.

I don't think the share price of Postie Plus is irrational at all. PPG is a weak unproven player in a competitive market. There are cheaper, better quality retailers out there, with a better history of how they respond to 'distressed retailing times'. I'm not saying that PPGs share price could never get low enough to interest someone like me. But that 'interest price' is far below current levels.

SNOOPY

discl: no PPG, never tempted

[duncan macgregor]

SNOOPY, You can set a buy with fundamental analysis [what the company is worth what it earns etc etc. Selling is a completely different kettle of fish. Let us suppose i buy a section for $200 k and build a house on it for $200k, the fundamentals show i can expect a return of $400k. The price of the property is what the market decides what it is worth, fundamentals dont count at sell time,it is the market that decides the price. We invest in the market, and use whatever system in buying and holding, but in the end the only thing that matters is the end price. With a bit of technical analysis to find out what the market thinks, and see where it has been, and likely to go to, and with a time stop when it goes nowhere, or a stop loss when it drops. We live in a computer age buying and selling is inexpensive and easy. We dont need to be a short term trader, neither do we need to hold a share on a down trend. The only important things in buying a share is getting the fundamentals right. The only important thing in selling a share is TA [knowing what the market thinks]. Stop loss time loss fundamental buys all are equally important to me. CHEERS macdunk
PS nice to see you back in the fray

[whiteheron]

Phaedrus

Thanks for the very clear explanation and accompanying chart --- one of the most concice and easily understood articles I have read on Technical Analysis
Right to the point

I am continuously trying to improve my trading techniques and I must be doing most things fairly well (for my style ) as I have been producing some really excellent trading results in the last few months , much improved on prior times

Your posts always produce good healthy discussions without the derogatory statements that are to be seen in some other places

Are you open to suggestions for future subjects ??
I have one or two matters that could do with your expert TA help

[Phaedrus]

Rip into it Fred - ask anything you like. One thing at a time would be good, though. Start a new thread for each maybe?

[patsy]

Phaedrus - I've noticed you've recommended the charts from Fatprophets. As an aside, what do you think of their picks and recommendations in general?

[winner69]

One good feature of the fatprophets charts are the percent (movements) choice ... tied in any chosen time period (you chose the starting date)is quite powerful

[Phaedrus]

Patsy,
Fatprophets are one of the very few online sources of free NZ charts. The charts themselves are nothing marvellous, but you don't look a gift-horse in the mouth, right?
I am not in a position to judge the worth of their stock recommendations. Looking at the historical performance figures given, it is clear that they have had some good years in the past. I did notice, though, that in their "1 Year Annualised Rolling Return (1st Dec 2003 to 30th Nov 2004)" their recommendations are currently underperforming the All Ords Index.

[Snoopy]

quote:Originally posted by duncan macgregor

SNOOPY, You can set a buy with fundamental analysis [what the company is worth what it earns etc etc. Selling is a completely different kettle of fish.


Can't agree with that Macdunk. Last time I sold something I'm fairly sure it was to a buyer. Buying and selling are just different sides of the same coin.


quote:
Let us suppose I buy a section for $200 k and build a house on it for $200k, the fundamentals show i can expect a return of $400k. The price of the property is what the market decides what it is worth, fundamentals dont count at sell time,it is the market that decides the price.


Perhaps they do things differently in Auckland MacDunk, but I can assure you that if I was paying $400k for a house for investment I would be doing a *lot* more than looking at the medium price trend in the suburb in which I was buying, and doing trend interpolation.


quote:
With a bit of technical analysis to find out what the market thinks, and see where it has been, and likely to go to,


Technical Analysis does not tell you where a share price will go. New information can make a share price behave as it has never done before. In this particular case PPG tested a support level seven times in two months, and eleven times in six months, yet that support level did not hold. So even if you *think* you know where a share price is likely to go, you will not get the benefit from that price movement unless the share price actually goes there. And if where a share price goes is not dependent on where it has been then any predictive method you create from chart patterns becomes no better than coin flipping.


quote:
and with a time stop when it goes nowhere,


If the price is going nowhere yet the intrinsic value is going up, then buying at a price that is 'going nowhere' can prove very rewarding.


quote:
neither do we need to hold a share on a down trend.


As a fundamentals investor you tend to be a natural optimist. After all if you didn't think a share was going to do better you wouldn't have bought it in the first place. There is also a natural tendency for a fundamentals investor not to admit that they are wrong. Admitting you are wrong after the event tends to suggest that you were sloppy in the first place and no-one wants to admit that- right?

That means there is a natural tendency for a fundamentals investor to hold on to poor investments for too long. But what happens if you can train yourself to fight this natural tendency?

What if you are' dog enough' to ' put paw on heart' and say that your original fundamentals analysis wasn't good enough and that with new information and better use of existing information you could do it better? Is this irrational optimisim? If you can keep your fundamentalist 'naturally optimistic bias' out of it, then I say no.

You have to be willing to start with a clean sheet of paper today and forget about what you bought yesterday. The only question you need to be able to ask is:

' What if I invested at this price 'today'?

[whiteheron]

patsy

I subscribe to Fat Prophets Mining

As I trade frequently ( virtually every day ) I consider that they are well worth while for my purposes

They point me in the direction of about five or six stocks each week and I usually end up purchasing about one , after doing my own research
I simply havent got the time or the inclination to try and research all of the approx 550 mining and resource stocks on the ASX and probably about 95 % of them are duds in any case !

Where FPM are particularly useful to me is in the technical mining stuff and over the last year I have learnt heaps in deciphering and interpreting this ( they have two mining geologists on their staff )
At first it was like a whole lot of gibberish but I feel that I now have a reasonable handle on it


The FPM recommendations are generally well researched I feel and they do periodical updates on their recommendations

If you dont buy or sell very often then the price may be a bit much , but for me it is reasonable

[Phaedrus]

Madmike,
You ask "why not get out after the second double top?"

Strictly speaking, that is exactly what I did. A Double top formation is not complete until/unless price action drops below the dip between the peaks.

Any trade must be viewed within the context of its intent. I was wearing my NZ hat here. This means that I was looking for a medium/longer-term trend trade, on a sound stock with good fundamentals that paid a good dividend and had adequate liquidity. So, I was primarily interested in the overall trend, and was not interested in trading the secondary fluctuations that comprised that trend. Now, when PPG made those 2 peaks, it was still in an uptrend. Add to that the fact that the OBV was rising and that there was good support below at 95 and you can see that, given the objectives of the trade, selling was totally out of the question at that time. Things can change quickly though. Look at what happened on 11/11/04 when PPG closed at 94.
(1) A downtrend began. (the uptrend that I bought into had ended)
(2) Seemingly strong, established support at 95 was broken.
(3) The OBV broke its trendline and was falling
(4) The bearish Double Top formation was confirmed.
(5) My stoploss was hit.
Just as selling was unthinkable prior to this point, now, holding was equally unthinkable.

Did I hold out for the dividend? No. I selected the stock partly because of its high dividend, but the trade was controlled by the trend.

Did I alter the stop loss for the size of the dividend? No. It was set just below the established support level.

"Sometimes it is better to sell before record date and buy back in after". What! Do myself out of the divvy that I use to buy milk, bread, newspapers, cashew nuts and caviar? Purposely forgo the dividend that was one of the reasons for my selecting this stock in the first place? Never! Anyhow, statistically, the reverse is better. On average, stocks tend to drop a little less than their div when they go ex. In any case, in this instance I was not interested in that sort of trading activity.

Mike, I wonder if you are overly concerned with the dividend thing. I can't help but notice that every point you raise and every one of your questions relates directly to the dividend. It was only 4 cents - not that big a consideration really. The dividend yield here was only part of my initial stock selection process. From then on - [u]from the trade management angle </u>- the dividend was irrelevant to me. I was trading the trend.

[patsy]

quote:Originally posted by whiteheron

patsy
I subscribe to Fat Prophets Mining

The FPM recommendations are generally well researched I feel and they do periodical updates on their recommendations

If you dont buy or sell very often then the price may be a bit much , but for me it is reasonable


Thank you for your comments, W.H. I came across them a couple of years ago but have been unsure of the value-for-money of their research.

[leanmeanfightingmachine]

Why did you sell if you were buying for a divi? I mean you lost your shirt because you sold for less than you brought for and you had your money in an investment for 6mnth that returned nothing. I like you thinking on what you said but it got in the way of your long term goal or reason why you brought postie plus shares.

Simple thought: You only lose when you sell for less than you brought and you not losing if you holding.

The funny thing is there is a flip side to the bad weather that is causing slow sales in summer fashions. And that is that what happens if the bad weather continues and we have a early winter? What happens, is clothes retailers sell there winter clothes (or autum) at top dollar and they get rid of most of there stock, meaning a long winter season with little sales needed to off load stock.

If this increased sales happens this covers what was lost in summer meaning Postie Plus shares are worth a touch more than 97c with a divi to go.

So i would buy at 82-84 cents and wait for the price to correct itself.

Leanmean






leanmeanfightingmachine




[quote]quote:Originally posted by Phaedrus

It is good to re-examine your systems after any trade, looking to see if the entry and exit points could have been improved. This is particularly important after trades that gave disappointing results. Here is a postmortem examination of such a trade.

Initially my attention was drawn to PostiePlus by the low PE ratio and the very high yield, but it was in a downtrend, so I did not buy. There was a good downward trendline in place by Mid November 2003 and it was confirmed again in January 2004. My plan was to buy on the first close above this trendline. PPG appeared to bottom out at 93 cents at the beginning of March, and an uptrend was confirmed by the end of March - looking good. A break of the trendline appeared to be imminent in early May, but again prices failed to breach the trendline. This gave yet another confirmation of the trendline - Excellent. By the start of June, support had become evident at 95 cents. Seven times in two months, short-term downtrends had stopped at exactly this level as buyers moved in. A good dividend yield does tend to provide a "floor" of support, and this is what appeared to have formed at 95 cents with PPG.
On 8/6/04 PPG closed above the trendline, giving an entry at 97 cents. I placed a stop-loss at 89 cents, just below the support at 91 cents. Should it be hit, this would mean a loss of less than 9%. Good confirmation of the trendline break Buy signal was provided by the On Balance Volume breaking its downward trendline and continuing to head up. Distribution lasting 7 months had ended, and accumulation had begun. PPG trended up to 105 before returning yet again to its support level (11 times in 6 months!). This was the first real cloud on the horizon. PPG was making higher highs, but not higher lows. While the support was encouraging, it was starting to look as though after the downtrend, PPG had gone into a trading range, rather than an uptrend. so I tightened my stop-loss from 89 to 94 cents. I did not worry too much though - the On Balance Volume was still trending up nicely. Accumulation was continuing as others recognised the worth of this stock. Nevertheless, my doubts were strengthened in early October when PPG again struck resistance at 105, making a double top formation. These are often bearish, and that was certainly so in this case, because PPG continued to fall from here. By 5/11/04 I was fairly sure that the trade had turned sour because the OBV uptrend had ended. This is usually a leading indicator, and sure enough on 11/11/04 PPG broke below the support that had held for 7 months, hitting my stop-loss, giving a Sell signal and an exit at 94 cents. This was a loss of 3 cents, but because a 4 cent dividend had been received, I was lucky enough to more or less break even. PPG's weakness continued with it bre

[scamper]

Leanmean: if you chopped your name in half, the page would be wider, and we wouldn't have to right and left arrow to read it!! Cheers.

Many thanks Phaedrus, and Happy New Year.

[limegreen]

quote: You only lose when you sell for less than you brought and you not losing if you holding.

Wait until you've lost 80% of the value of a stock, and see if you still believe that rhetoric. It's a painful lesson, but when you realise that the stock has to rise 500% for you to get back to break even, then you've sooooo lost by holding. There are times when it is right to sell, and you are losing if you are holding. I've done this the hard way, and I now firmly believe that cutting your losses is appropriate.


quote:you lost your shirt

Losing your shirt implies a massive loss. Selling when you're just down is like losing a button. Holding and holding and holding and losing 80% is losing your shirt.

[leanmeanfightingmachine]

There are not many stocks that drop huge amounts on the nzx. some drop 20-40% and most come back. I agree there is a right time to sell, and you not making money unless you are selling. But a company like PPG is not going to drop 80% which is the company i was referring to. The key is not to panic. I have never brought a stock and and sold to count my loses. And if you are buying companys blind that drop 80% you done jack study so you derserve to hand your money over to another investor.

leanmeanfightingmachine

P.S. Great weather about time that sun turned up for summer.




quote:Originally posted by limegreen


quote: You only lose when you sell for less than you brought and you not losing if you holding.

Wait until you've lost 80% of the value of a stock, and see if you still believe that rhetoric. It's a painful lesson, but when you realise that the stock has to rise 500% for you to get back to break even, then you've sooooo lost by holding. There are times when it is right to sell, and you are losing if you are holding. I've done this the hard way, and I now firmly believe that cutting your losses is appropriate.


quote:you lost your shirt

Losing your shirt implies a massive loss. Selling when you're just down is like losing a button. Holding and holding and holding and losing 80% is losing your shirt.

[Ted2]

[quote]Originally posted by leanmeanfightingmachine

There are not many stocks that drop huge amounts on the nzx. some drop 20-40% and most come back. I agree there is a right time to sell, and you not making money unless you are selling. But a company like PPG is not going to drop 80% which is the company i was referring to. The key is not to panic. I have never brought a stock and and sold to count my loses. And if you are buying companys blind that drop 80% you done jack study so you derserve to hand your money over to another investor.

leanmeanfightingmachine

Geezus!!! Heaven help us.

[whiteheron]

Leanmean-----

"you not losing if you holding "

I dont usually use this language on ShareTrader but that statement is BULL****

Holding on to a losing trade is the quickest and easiest way to lose money

If I had to give one piece of investment advice it would be "dont hold on to a losing position "

Your statement tells me at least two things ;

Firstly , that you believe that the reduction in the value of your holding is only temporary and will return to soar to great heights in due course ,thereby proving to you that your investment decision was right all along and that the market didnt realise the value of your little gem

Secondly , that you are too proud to admit to the error that you have made , an exceptionally common investment error especially with beginners

You may think that I am being pompous and lecturing , but believe me , I have been there and done that and it is not smart

A few points to ponder;

Never be too proud to admit a mistake ( we all make them ), if it costs it is your money --- and funnily enough nobody else will really care

You must be in this to make money , so dont let inaction and hope eat up your hard earned cash

You dont have to make up losses on the same stocks that you made them on
There are lots of good stocks out there that are headed up rather than down
Quit losers and move to winners

There are many other such statements resulting from real life experiences

I speak from experience on this matter , experience that cost me heaps in earlier times , and I am volunteering it to you for free !

If I can pursuade you to at least contemplate carefully what I have said then I believe that I will have done you a favour

[leanmeanfightingmachine]

nice comments. thanks for the offer. no have not brought any shockers since starting trading 6yrs back. always keen for any new ideas.

Yep you right with your first point. Example of this is PVO:

Brought at 50c when called advantage. Down to 40c brought again down to 30c brought again and again at 25c(i think it was 24).

Stock came back. On the way continued to buy I brought at 30c, 40c and 50c. Now at 75-80c. I could have pulled out and lost my shirt but believed in the hard research i had done on the stock. Backed myself and did not panic and stuck to what i thought the stock should be worth when a few minor problems got ironed out. Which was 65-70 cents.

Applied the same to WRI ,Frucor and THL. Over the last 3-4yrs.

I spose what i am really saying is do the hard research, don't panic, stick to what you know about and back yourself. Oh and try not over complicate things. I mean i am not going to buy WDT because i am a little short on that sector and will not have the time to give it a good go.

Leanmeanfightingmachine








quote:Originally posted by whiteheron

Leanmean-----

"you not losing if you holding "

I dont usually use this language on ShareTrader but that statement is BULL****

Holding on to a losing trade is the quickest and easiest way to lose money

If I had to give one piece of investment advice it would be "dont hold on to a losing position "

Your statement tells me at least two things ;

Firstly , that you believe that the reduction in the value of your holding is only temporary and will return to soar to great heights in due course ,thereby proving to you that your investment decision was right all along and that the market didnt realise the value of your little gem

Secondly , that you are too proud to admit to the error that you have made , an exceptionally common investment error especially with beginners

You may think that I am being pompous and lecturing , but believe me , I have been there and done that and it is not smart

A few points to ponder;

Never be too proud to admit a mistake ( we all make them ), if it costs it is your money --- and funnily enough nobody else will really care

You must be in this to make money , so dont let inaction and hope eat up your hard earned cash

You dont have to make up losses on the same stocks that you made them on
There are lots of good stocks out there that are headed up rather than down
Quit losers and move to winners

There are many other such statements resulting from real life experiences

I speak from experience on this matter , experience that cost me heaps in earlier times , and I am volunteering it to you for free !

If I can pursuade you to at least contemplate carefully what I have said then I believe that I will have done you a favour

[Phaedrus]

LMFM,
"Paper" losses are, unfortunately, only too real. You HAVE made a loss and whether you choose to crystalise it at any point is immaterial. It is interesting to note that you make the same error of logic regarding profits when you say "you not making money unless you are selling". Nonsense. Anyone that has been holding a steadily appreciating stock for many years has made a lot of money - whether they sell or not. You have made a lot of money on your house - right? It would be silly to pretend that you had made nothing unless you actually sold it. The value is there and can easily be turned into cash at any time by selling at the market rate - just like stocks.

You ask "Why did you sell if you were buying for a divi?" I sold because my NZ stock holding criteria were no longer being met. Oversimplifying just a little, I require :-
(1) An uptrend.
(2) Reasonable fundamentals.
(3) Adequate liquidity.
(4) A good dividend.
I sold because PPG was no longer in an uptrend - it had begun a downtrend.
Can you see that the dividend had absolutely nothing to do with the timing or reasons for my exit? I do not believe in holding falling stocks simply because they pay a dividend. But then, unlike you, I do not subscribe to the belief that "you not losing if you holding." !!!

Just to clear up a few other possible misconceptions, I did not "lose my shirt" on this trade - in fact, I made a very small profit. I did receive a dividend. I did not sell in a panic. I do not expect to make a profit on every trade. I expect to make "mistakes". I try to minimise the damage to my account when a trade does not go as I planned or hoped. As I said before, with PPG, all the ingredients were there, but the cake failed to rise.

In my opinion, my "Sell" decision has been well and truly vindicated - look at what has happened to the shareprice since then. Wrong to sell? - I think not! Wrong to buy? Yes, but there was no way of knowing that at the time.

I was very interested in your statement "I have never bought a stock and sold to count my losses" Does this mean that you have never made a losing trade? If so, this is quite remarkable - I know of no-one else that could claim such a perfect record. Have you ever been in a Bear market?

It is important to differentiate between skill and a Bull market when things are going well!

[limegreen]

I find it rather hilarious that you used Advantage (PVO) as your example of when not to sell. Ironically, it is exactly that stock which taught me the benefits of selling!

I bought early in 2000, and was doing pretty well with it. After it peaked and around $5.60 and started to fall, I was confident (under my now also hopelessly misguided system) that it would recover. Using what I know now, I would have been well out by $4 (and probably earlier). Or at the very least I might have considered exiting after it broke resistance at $2.50 or $1, rather than riding it all the way down to 15c. So even though it has rebounded well, and been brilliant for many people here, I would have been far better to sell it.

Of course, I also know that my reasons for buying into PVO were shoddy, but I was just a beginner back then. I would have been far better to pull the money out and pop it in some of my other holdings at the time (such as GPG, MON, FRU & AIA), all of which would have easily made a lot more than I have lost.

It was an expensive lesson, but a lesson well learned.

[leanmeanfightingmachine]

yes you did make a small gain. But what was your reason for buying you might have said but i missed it. I spose what i am saying is that i don't mind holding if i believe it will come back. An if so will continue to buy.

Yep that's right have never made a losing trade. not saying i will not. less face it no one picked enron. The reason been is i keep my stocks under 5. If you spread yourself you introduce risk.

If you chopping and changing as the market does you are just paying follow the leader. Sometimes good things take time- maybe PPG might come back to 1$ and then move forward. Will be interesting.

Yea over the last 6 years i have kept a small portfoilo, carefully buying shares but never holding more than 5 at one time. sometimes only 2. I often wait to something good comes along. Sticking to companies i no alot about and the sector they are in. Liked Canwest of late and then give it a good nuge. Also have PVO still, but are wondering if i should cash in and move on to my next pick. So at the moment have only two. Sold THL to buy canwest. But would like 2 more but are not prepared to rush it.

To tell you the truth i am struggling to find another good purchase as alot of the shares are well priced. I like Skellmax as a 1-2 yr buy. What you think?
Do you have any thoughts?

Leanmeanfightingmachine








quote:Originally posted by Phaedrus

LMFM,
"Paper" losses are, unfortunately, only too real. You HAVE made a loss and whether you choose to crystalise it at any point is immaterial. It is interesting to note that you make the same error of logic regarding profits when you say "you not making money unless you are selling". Nonsense. Anyone that has been holding a steadily appreciating stock for many years has made a lot of money - whether they sell or not. You have made a lot of money on your house - right? It would be silly to pretend that you had made nothing unless you actually sold it. The value is there and can easily be turned into cash at any time by selling at the market rate - just like stocks.

You ask "Why did you sell if you were buying for a divi?" I sold because my NZ stock holding criteria were no longer being met. Oversimplifying just a little, I require :-
(1) An uptrend.
(2) Reasonable fundamentals.
(3) Adequate liquidity.
(4) A good dividend.
I sold because PPG was no longer in an uptrend - it had begun a downtrend.
Can you see that the dividend had absolutely nothing to do with the timing or reasons for my exit? I do not believe in holding falling stocks simply because they pay a dividend. But then, unlike you, I do not subscribe to the belief that "you not losing if you holding." !!!

Just to clear up a few other possible misconceptions, I did not "lose my shirt" on this trade - in fact, I made a very small profit. I did receive a dividend. I did not sell in a panic. I do not expect to make a profit on every trade. I expect to make "mistakes". I try to minimise the damage to my account when a trade does not go as I planned or hoped. As I said before, with PPG, all the ingredients were there, but the cake failed to rise.

In my opinion, my "Sell" decision has been well and truly vindicated - look at what has happened to the shareprice since then. Wrong to sell? - I think not! Wrong to buy? Yes, but there was no way of knowing that at the time.

I was very interested in your statement "I have never bought a stock and sold to count my losses" Does this mean that you have never made a losing trade? If so, this is quite remarkable - I know of no-one else that could claim such a perfect record. Have you ever been in a Bear market?

It is important to differentiate between skill and a Bull market when things are going well!

[limegreen]

I bought PVO on a broker recommendation, and was told they would come back, also by a broker. That was the second lesson of PVO, do my own research. That is why I didn't mention it intially, as I know that it was a bunk reason. However, if a stock that my own research suggested was good underperformed as badly, I'd still sell it now.


quote:f you chopping and changing as the market does you are just paying follow the leader.

Oh definitely not. I've held most of my stocks for a very long time, as long as they're going up (e.g., AIA, GPG, RIN.AU).

I'm not sure on SKX, I hold, and am considering exiting. My return is only just above what I could be risk-free getting from returning it to my mortgage. However, if the dollar drops, profit may increase, and if interest rates drop, the yield may make it attractive, so I'm continuing to hold.

I also bought ADV/PVO on a broker's rec' at around $5.00 and paid attention to the Chief Op' Officer's presentation. I held on until around $2.50.
George Soros also bought a swag of ADV at between $3 and $5 I think. I expect he did his research too but I doubt that he is still holding his original tranche.

[whiteheron]

leanmean-------------

You state that you have never made a losing trade but you look much more like an investor than a trader to me ( few shares held and held for a long time )

An investor tends to buy and hold for the long term (say several years in the main ) whereas a trader buys and generally holds for the short to medium term ( a few days to maybe a year or so )

The term trade or trading is often used when discussing long term holds (investments ) whereas it should be more correctly be reserved for true trading situations

I dont want to sound critical or nit picking but wish to point out that the trade/trading terminology should really relate to just that

Investors should really stick to the long term hold/investment terminology if for no other reason than to avoid any possible tax implications , for obvious reasons

[leanmeanfightingmachine]

yes you right i am a little loose on terms. yep dont really trade that often, maybe 4 times a year at most. but do buy more of the same stock if feel good about it. Brought canwest at 1.58 and got stuck in again at 1.80. Might have another shot at 2.20.

Leanmeanfightingmachine





quote:Originally posted by whiteheron

leanmean-------------

You state that you have never made a losing trade but you look much more like an investor than a trader to me ( few shares held and held for a long time )

An investor tends to buy and hold for the long term (say several years in the main ) whereas a trader buys and generally holds for the short to medium term ( a few days to maybe a year or so )

The term trade or trading is often used when discussing long term holds (investments ) whereas it should be more correctly be reserved for true trading situations

I dont want to sound critical or nit picking but wish to point out that the trade/trading terminology should really relate to just that

Investors should really stick to the long term hold/investment terminology if for no other reason than to avoid any possible tax implications , for obvious reasons

[whiteheron]

Phaedrus

Re suggestions for future topics

Thanks for the offer --- I will take you up on it , but I am going on holiday tomorrow for up to a couple of weeks so suggest that we pick it up on my return

My initial thoughts are that I will pick something like "the relevance of technical analysis to TRADING in stocks "( as opposed to INVESTING in stocks )

To give you a choice I will sort out several stocks so that you can pick ONE to do some TA on , if that is okay

[Winston001]

I just want to say thankyou to Phaedrus for a very interesting and educational post.

Here we have Phaedrus flying his colours and showing his decisions and analysis. The trade didn't prove to be a winner. We can all learn from that. Nobody can win all the time. Including Warren Buffett.

I'm rather astonished at the thread which developed suggesting Phaedrus lost his shirt, and should have done better. To my mind, it is disrespectful and churlish to criticise. All it does is discourage posters from being open and sharing experiences.

[duncan macgregor]

WINSTON001, Most people are gratefull to PHEADRUS and other posters that share their knowledge to the people starting out. We all learn from each other the nit pickers or idiots, are the people with nothing to offer other than abuse. I derived my own systems from ideas i would never have thought up if it had not been for people like PHEADRUS and dare i say it SNOOPY. Anyway you two guys incase you get a big head, i am kicking your ass at the moment. Keep up the good work. MACDUNK

[Phaedrus]

That sure turned out to be a good Sell signal - PPG has been in an ongoing downtrend ever since.
An interesting feature of this chart is the near perfect correlation between the OBV trend based signals and those derived from the price action. This doesn't always happen so precisely and you can't guarantee that it will continue, but so far, signals from the 2 systems have corresponded very well indeed.
You would have to be very brave (or foolish) to buy this stock especially while the technical outlook is so bleak.
There is a nice tidy confirmed trendline in place, so if you think that PPG looks "cheap" and are considering buying, at least wait for price action to break above the trendline. More prudent investors would wait for a clear uptrend to begin.

http://img.photobucket.com/albums/v418/789456/PPG514001.gif

[winner69]

THE KING said this would go to 58 cents ,,, went there once and no doubt will again

Long time until the full year loss is announced so who will be interested in this

[kittydashwood]

Hi there P. I have still been utterly bemused by the relationship between money flow and OBV.

Is this a chicken or egg scenario, does falling money flow mean OBV will eventually fall. Do mining and resource stocks fit the model. Why should OBV rise why money flow falls.

Sorry to go on about this but it's really bugging me. Watched the money flow for PCU (DJ) gradually turn negative and the share price continued to rise with OBV, creating what looks like a bubble of difference between expectations and reality?
Of course PCU has recently fallen over 20% fromit's highs as copper prices tumble, and brokers re-evaluate the China effect........

[rocket science fiction]

hey mister P, whats your definition of a double top?

because it seems to be against all other definitiions i have read, and im ailways willing to learn.

[Bling_Bling]

Bling dont like PPG. My Mrs says Arbuckles linens runs in the wash and will never shop there again. Also, why is a clothing store with a post office name?

[Phaedrus]

RSF,
What is it that you do not like about my PPG "Double Top" example?

A common definition of a Double Top would require :-
(1) Two distinct tops
(2) Less than 3% variation between them
(3) Preceded by an uptrend
(4) Peaks at least a month apart
(5) A decline of 10% or more between the tops
(6) After the second top, prices must fall below the middle low
without rising above the second top.

Some people have even more stringent requirements than the above, insisting on a decline of over 20% between the peaks, for example. Others want the preceding uptrend to have run for at least 3 months, etc. etc.

The trouble with making your definitions too rigid is that the formation in question may become excluded from charts using a shorter timeframe. To my mind, a Double Top formation on an intra-day chart is just as valid as one on a 12 month chart. The same principles apply and the same thing has happened.

The stock was in an uptrend but struck resistance at X. It failed to break above the resistance and a retracement followed as the price fell to Y. A little later it rallied but again struck resistance at X and again failed to break above this level. Prices then continued to fall, breaking below the previous support level of Y. The stock was in an uptrend, hit resistance, twice failed to break above it, then fell further, breaking below previous support and now in a downtrend. A Bearish reversal pattern - yes? "Double Top" is just shorthand for all the above. You could use all that text if you wanted to, and not even mention the "Double Top" formation as such. The bottom line here is this :- What has actually happened and its interpretation is the same no matter what you call the formation and no matter what the timeframe.

A Bearish reversal pattern remains a Bearish reversal pattern, whatever you call it.

[Andrew]

While I am not one to espouse systems and advice, we must pay attention to advice from many sources. Buffett has stated many a time that if you want a stock you should be happy with the product and get the feeling for the product. Postie Plus has never had product which you could call "in demand" therefore their product needs quite a bit of promotion to sell. I dont believe their product is even in equilibrium with the normal demand for clothing for the average New Zealander.

This company is designated to keep reducing its wealth until the bitter end.

[Caesius]

Andrew, I've always read that that sort of stuff is irrelevent to charting. Without ignoring *major* issues (foot and mouth say) can't the majority of other small fundemental stuff be ignored? I mean, don't the charts themselves show most of the infomation needed to work from?

I have heard, that Buffett hates TA anyway.

[Long Strangle]

FYI.

http://www.chartfilter.com/signals.htm

[rocket science fiction]

thanks for the explianation phaedrus, very informaitive.

i guess chart patterns are a bit more subjective than i first thought. (you say yourself some people have more stringient requirements than you do. i mistakenly assiumed everyone had the same requirements)

i wouldnt call that a double top because from your chart to me it doesnt look like an evident and clear uptrend which has reached a climax. (the "uptrend" didnt even get its own trend line in your chart, and it seems to be of a shorter length than the gap between the peaks):D

from my limited knowiledge, i agree that whaitever we call it its a bearish sign. price failed to break resistance at 1.05 and that should have been a warning. good spotting

[JAMP]

I am willing to stick my neck out and state that at this point in time I am seriously considering more than tripling my small-holding in PPG.

&lt;gasp&gt; ...that lad JAMP still hasn't learnt a thing.

I don't believe that they have done anything significantly wrong, and they are working positively toward extracting improved economies of scale from their existing business model.

I still have a couple of weeks to chew this intention over, as Masthead Equities Limited won't be sending me my cheque in the mail until late-May/early-June. Short of further market advice to the contrary, they loom large on my radar screen.

Regards JAMP
NZX: FTX MCH MVN PPG RBD SAN SKX SPE SPN VTX
Unlisted: BRK

[foodee]

Jamp
This is an astounding statement-what are the reasons if I may ask?
There must be an easier game somewhere!

I am in a similar situation when Masthead pays up. I have earmarked the funds (plus some addition) for aquiring Vector - I think this is probably the only time when Vector is at its best value.

cheers

[Nimble]

JAMP,
You might find the following article helpful. Comments from the MD like "too optimistic", "proved more difficult than anticipated" "often the benefits flow through in 2-3 years" etc etc suggest there is still lots more work to be done. Definately won't touch till trend changes and even then prefer companies with more proven systems/formulas. Thanks Phaedrus for your insights!!!
Disc. ex shareholder

Chastised Postie Plus ‘on the way up
01.04.05
Postie Plus Group’s shares have taken a thrashing, which is hardly surprising considering the fall in profitability in its latest first half. Even before the company started warning of a poor result from its first-quarter sales report last November, the market had taken a distinctly unloving attitude towards the stock.
After floating in August 2003 at $1.25 a share, the stock has consistently traded below that level, bumping along round the dollar mark for most of last year before its latest collapse to 75c. With its market capitalisation now at $28.8 million, that means the market thinks the company is worth $21.2 million less than when it floated.
The float allowed the owners of the Postie Plus clothing chain to further expand. Before the float in October 2002, it had already acquired the Babycity chain and it paid $7.02 million in May 2003 for the Auckland-based Rendells specialty department store chain, then seven stores. The float proceeds allowed it to buy the 20-store Arbuckles manchester chain for $9.5 million.
At the time, I said the Arbuckles purchase looked like a bite too much for a company with so many other areas needing work, particularly on Rendells, whose profitability had been declining since 2000. I also questioned the sustainability of Arbuckles’ earnings since its net profit in the year ended March 2003 was double the previous year’s results. Unfortunately, my comments proved prophetic.
Managing director Paul Young, whom the prospectus credits with bringing the Postie Plus chain back from unspecified "significant losses" since he took over the top job in 1996, now agrees it was "a pretty adventurous project" to meld those chains into a single company.
"It would be fair to say that any acquisition becomes a lot more difficult than people anticipate. Often, the benefits flow through in year two and three and you’re sometimes overly optimistic," Young says.
With its first profit report a month after the shares started trading, the company managed to better its prospectus forecasts with a $1.24 million net profit against the $950,000 forecast for the five months ended July. But it would have been scandalous if it hadn’t, given it was so soon after the float.
In October 2003, the company expanded further, buying the 10-store Gardner Fashions chain with the intention of converting them to Rendells women’s fashion stores.
But from then on, Postie Plus started to disappoint the market, reporting lower-than-expected sales at Rendells and Arbuckles. By the time it reported its results for the year ended last July, it was talking about "additional restructuring expenses of $574,000 that were not foreseen at the time the prospectus was prepared".
That meant the bottom-line profit was $4 million compared with the $4.35 million prospectus forecast, although its sales were slightly higher than forecast at $108.5 million.
But by the end of October, the company came to the realisation that its strategy to make Rendells into a national chain wasn’t working. It converted five of the seven Auckland stores to the Postie Plus brand. The other two Auckland stores, in Henderson and Pukekohe, were too close to existing Postie Plus outlets and they and four of the former Gardner stores are still trading under the Rendells brand. Young agrees a chain of just six stores doesn’t look like a viable brand but says the company hasn’t yet decided what to do with them. "They’re actually trading reasonably well," he says.
While the company had researched Rendells before buying it - finding it had a reasonably strong following in Auckland - "we probably confuse

[JAMP]

foodee & Nimble, thanks for confirming that PPG remain on the outer. I shan't have to sweat too hard on there being a dramatic lift in their shareprice over the next fortnight to three weeks.

I am not recommending PPG to anyone else. Perhaps I am just stating for the record that I believe they have advanced along the path toward being a recovery stock for 2006/7.

I can't see too much more upward currency risk ahead for them. It has already been well documented that whilst an appreciating currency has reduced their purchasing costs, it has also required importer-retailers to sell more product in order to just stand still. PPG have also had plenty of time to lock in any hedging they wished to undertake at attractive rates. Which way do you expect the NZD to break next?

I also can't see too much more upward interest rate risk ahead for them. It has already been well documented that the OCR is well above what is deemed to be neutral, and there are signs of an economic slowdown pending. I acknowledge that there is some risk of headline inflation forcing the OCR to be pegged higher, but probably not until after the uncertainty that always surrounds election year has abated...and there is plenty of definitive economic data to flow under the bridge between now and then.

For PPG 2006/7 looms potentially as a year with rising revenues/margins in an environment of largely static purchasing costs and stable/improving interest rates.

And then there is the fact that by then PPG management will be beginning to get some complementary behaviour from their business units.

Any more positive and I'd be labelled an eternal optimist...either that or a raving lunatic!?!

Regards JAMP
NZX: FTX MCH MVN PPG RBD SAN SKX SPE SPN VTX
Unlisted: BRK

[K9]

up 15%+ in 2 weeks

trendline break

not a word;)

[JAMP]

Whilst I don't think me sticking my neck out on 16 May 05 is responsible for 1 cent of the recent price movement, I am pleased with the recent price activity.

I am not so pleased that I wasn't able to pick any additional PPG shares up at 60-61c. If only Masthead Equities Limited had gone unconditional with their bid for Vertex a week earlier.

Regards JAMP
NZX: FTX MCH MVN NZR PPG RBD SAN SKX SPE SPN
Unlisted: BRK

[Sky Tower]

JAMP: FTX ??

[JAMP]

What can I say...I live in my own wee world.

Regards JAMP
NZX: FTX MCH MVN NZR PPG RBD SAN SKX SPE SPN
Unlisted: BRK

[K9]

well done Jamp, I had spent quite a few hours going over PPG figures and ANNs in the low 60s thinking it was overdone.

PE was very very low.

I do think 60 may prove cheap unlike other retailers bouncing around and still heading down..WHS


RCL another good buy recently under $2.85

[JAMP]

As a generalisation, New Zealand retail stocks haven't been performing too badly of late. Whilst not setting the world on fire, PPG have quietly been getting on with the business at hand. I note that a short-term up-trend is in place now too.

Whilst not ecstatic about paying in the high 60s, the averaging down exercise I entered into early last month is now beginning to contribute nicely to my overall PPG position. I look forward to their full-year announcement being released in around 6-7 weeks times. It could be a case of making or breaking my top-up.

As an aside, we passed through Westport a couple of weeks back whilst on holiday - the old home-base for Postie+. We happened to stroll through the local store whilst checking out both sides of the main street. Seeing the Postie+/Arbuckles cluster format reminded me of the complimentary nature of their businesses. It also helped reinforce the benefits of such a business model.

From my perspective, it is hoped that the commentary in the annual report indicates an intention to strengthen their existing store positions (including small-town New Zealand) by conversion to cluster format stores where possible. eg in Timaru, they have a Postie+ store, but no complimentary Arbuckles or Baby City. IMHO it is hard for the promotional power of FlyBuys advertising etc to work well for them when they only have the one string to their bow.

Regards JAMP
NZX: AIA CHA LPL MCH MVN NOG PPG RBD SAN SKX SPN
NZAX: CVT
Unlisted: BRK

[winner69]

What you think of the full year result jamp

I love it when directors get excited about a turnaround ..... makes you think they have done a fantastic job and all that .... gives you the warm fuzzies ..... until you see that in the second half of the year they only made about the same as last year


Suppose a turnaround is a turnaround so investors will be happy on that count and there is some hope for the future

Get back to last years $4M profit would put them at only 7 times earnings .... so probably somewhere as low as it can go