systems

[duncan macgregor]

The only way to beat the market is have a system that works for you, and fine tune it to the changing times. My system is derived from what i picked up from the web sites like this. The site is in danger of being over run by mindless idiots insulting and abusing each other over everything except the markets. I would like to learn more about how you operate your system, and what works for you.
Do you take into account brokers fees with the ammount invested if you operate a TA system. How many companies is to many. We need to share information more I have a good idea about how Pheadrus and Snoopy operate, but what about the rest of you. Do you beat the average investor, if so tell us how. My methods are well known and my forecasts, it is your methods and predictions that interest me. I dont give a damn if i end up with egg on my face, who cares i have the satisfaction of knowing so far 100pc correct. Straight out common sense with a touch of TA and FA to boot is my method how about yours?. cheers macdunk

[Risk]

like you, my system developed from reading hundreds (probably thousands) of webpages, books and articles on trading...and trying to learn lessons from each one as I went.

common sense is an underlying factor that comes across: have a plan, cut your losses, let profits run, trade with the trend, money management etc.

personally, as soon as I enter a trade I take buy and sell brokerage into the equation. this is a proportionally insignificant amount, but I like my software/spreadsheets to show exactly how I stand at a glance.

One of my biggest improvements has been in the area of diversification. I diversify less than I used to, and it suits me great. I used to hold a minimum of 10 companies, but now I hold a max of 7. currently I'm only trading 5 (4 in oz and 1 in nz, and I'm about 80% invested.)

my own software identifies potential candidates, then I use TA focusing mainly on trendlines, support, resistance levels, breakouts and MAs. I trade short term but also look at long term weekly charts.
I rarely use indicators such as DMI,MACD etc. to make decisions..although I do occasionally look at them. my feeling is I am trading price, not indicators...and most indicators have big disadvantages.

when it comes to TA, I treat each company differently on its own merits.... I do have written rules which must exist (eg price must be above a certain MA etc.), but I make the final artistic judgement call manually ;)

once TA gets the ok, I look at basic FA, and try to read up a little about the company and the sector (if its something I havent traded before...lately its nickel) but unless FA is particularly bad, then I go with what the charts said.

thats more or less it. I dont know if I beat the average investor and I dont care. Im not trading for the recognition from peers, to be a millionaire, to be right, or many of the other reasons that many in this forum seem to be after.
I trade because I enjoy it, and I can make a living from it.

I often also make mistakes, end up with egg on my face, and then lick my lips and keep going.

when this forum started I used it as a place to learn from others, but for the last couple of years I mainly use it for its entertainment value. (although theres a half dozen posters which I still occasionally learn from). or to try and pass some of the lessons that I have learnt, or my experiences on to others who may be asking (like you)

[OldRider]

Hi Duncan, I'm an investor, not a trader,but do have a small company that looks to hold higher potential/risk companies,and trade more often than my other holdings.Certainly not a sort term trader.

For the most part I have a system something like the Lichello AIM system, it follows solid companies looking to buy just after the bottom of a signicant downtrend, when I have some idea as to what caused this, and the likelihood of a continuing uptrend becoming established,then selling,often after holding for several years, when the cycle reverses.

This has a fairly low requirement timewise,gives good peace of mind,yet gives returns,whilst not spectacular,probably near double the market average. It has the advantage of producing good dividend income as well,which I have some reliance on as I live mainly off this investment income.

Examples of companies owned over the last year or two have included AGL BIL CPU ION MAP QBE and CSL.

[Stock Man]

Hi Duncan,

Good thread.

Like Risk, I myself have read thousands of trading articles, and dozens and dozens of books on FA and TA.

I would like to take a different tack, and suggest that traders should get to know themselves first. All of us have a different makeup, different values, different objectives and goals.

I incorporate both FA and TA. I tend to browse fundamental reports, then review charts. I also do the opposite nowdays, review charts, then look at the fundamentals.

I have spent a lot of time finding 3 systems that suit my personality. I now have set defined rules for trend, breakout, and reversal trading.

I would like to think my system is simplicity in itself, and I dont believe in trying to complicate issues - lets leave that to the brokers. If the fundamentals pass then...

I look at long term charts - a lot can be learnt from the longer term charts. I only switch to dailies for an entry. I have my favourite indicators; wilders dmi and rsi - which I use on both short and long term charts! I also like stochastics, ER, ROC and a couple of volume based indicators.

Managing the trade is of the utmost importance, and also knowing when to exit, or having defined exit criteria, i have found important.

Everyone is probably different, and several ppl here manage dozens of stocks with ease. I currently hold 9 asx stocks. Do I beat the avg investor...who knows? Of course I have to take into account brokerage fees - who doesn't? My system took into account fees, you will not see me entering and exiting 10 times a week. Although, do feel free to tell me where I can trade for free:)

Again, like Risk, I enjoy trading. I try to refrain from letting emotions get to me, and all my decisions are made 'out of market hours'. I keep accurate records. I review my mistakes (ohhhh this can really hurt [B)]) I formulate my 'game plan' at night. Sometimes I dont feel like trading, so I dont, and I never trade for the sake of it. (or at least havn't yet) There are so many opportunities everyday - you just have to think.

Hope this helps.

Duncan, I dont know your method, why not share with us.

Rgds

[Lawnmower]

I have long term portfolio, plus am a short term trader, my trading is mainly on ASX, but hold NZ shares for longer term.

Over the years, my basic rule is "Research" ie Not to play around with what you don't understand. (Even for short term punt) To make research easier, I specialise in one particular market segment, rather than trying to keep abreast of "everything" in the marketplace.

Cheers

[clips]

for those of us that are not right up with the jargon pls clarify
TA / FA ...[?]

[OldRider]

Welcome clips-
TA = Technical analysis - conclusions from the study of patterns in price movements & volumes usually viewed as charts.

FA = Fundamental analysis - conclusions from the study of the basic financial figures of a company.
earnings per share, rate of profit growth, profit margins etc.

[Lawso]

Systems - Schmystems!

I have the greatest respect for you pro's, and take note of a lot of what's on ST, but I don't have the time, the inclination, the software or - probably - the brains for all that TA stuff. What's more, I don't like paying tax or brokerage.

So though I've been trying to reduce the number of stocks I hold (have recently dumped BCA, FRE, ALH & MAP, and before that RBD) my philosophy is basically Buy & Hold.

I prefer the NZ market because it's easier to get to know the companies and the people - and it's tax efficient. The fact that the NZ market has been such a star performer over the last four years or so is a welcome bonus.The main things I look for in a stock are:
Solid track record
Proven management
Moderate p/e
Reasonable yield and eps
Preferably in a not too competitive sector, e.g. AIA, CEN, CAV, NUF, NPX, or a dominant position if the sector is competitive, e.g. TEL, FBU, WAM.
When something goes sour, e.g. WHS, GEN, I'll tend to sit and ride it out, maybe buy more if it seems too cheap.

All pretty simple stuff, but it's worked for me so far. (Must admit, I enjoy breaking the rules with the occasional punt, e.g. Widespread Portfolio.)

[Capitalist]

Risk: Im not trading...to be right.

Huh? The only way you make money on the market is by being right. Everyone is betting on their brains. Who buys stock not caring if they are right or wrong, regardless of the system they use?

A bizarre comment.

[rosey]

yes good thread
i use a little of both fA and TA altough lean more to TA
cant see any sense in holding a stock that falls below an up trend as there is generally a reason for the fall
It would be interesting to note what shares people hold (all though it is personal) as it can give a little insight into why people reason the way they do by what stocks they hold
i personally hold FBU,FPA,PPG,NOG,NOGOC
of these what should i not hold
I learn a lot from the likes of phaedrus and others who give a lot of helpful info on different shares and i am only a beginner at this

[duncan macgregor]

Interesting response guys tell me more. The more systems we know about the better chance of beating average. and collectivly thats what you are. To work out average is like scoring par on a golf co****. Take the average dividend plus what the market rose or fell over a given period and that is par. I make it easy to work out i call the average divi 5% which is probably completely wrong and add or subtract the rise and fall in the market. I only have 5 companies max at any given time and only hold 3 at the moment. When i buy into a stock i pick what will trend and place 50pc of my stake with a strict stop loss but after proving i was right i place the remaining 50pc with a more liberal stop loss. My method is get out if i see the share about to fall below the stop loss i owe nothing to the company unlike some who stay on board through thick and thin as if they are being disloyal. Common sense tells me what to avoid and with a high dollar get out of the farming sector low dollar get back in. Common sense tells me a well run company with good news in the pipeline will trend up especially if the share has stagnated and the sector is on the up. If i used only TA i would miss the first rise but when it comes to selling TA is my best tool. most of the time i broadcast what i hold its not a secret, and by selecting good solid companies reduce the risk level. I hold POT which i bought because it was a good solid company trending up and still will. HQP i bought because the change of direction, plus the assets far exceeded the share price, almost doubled my stake with them. PWC almost ready to abandon ship hanging out for more before it happens. IFT about to buy whenuapai in mind. Its good fun am still on a learning curve average time in a share 9 months. If a company is not performing get out fast dont bleat on about why.

[hirzelz]

A fantastic thread.To assist in assessing companies against each other and creating a spreadsheet of the top performers, I can research all listed Companies in NZ within 30 Min. using the ASB Research section, where they list 4 main indicators for each share. Rated from 1 to 5 on Value, Risk, Growth, and Income. By simply typing the letter A under the heading of security Name, all companies starting with A come up and I then list only the ones that are in the top 2 groups in say Income for best returns, or Share value for entry point. This is the start for further research, all the way through the alphabet.

[willy_wonker]

Willy walks his dog in Remuera and gossips with house wives.

[OldRider]

ASB intended to allow searches to be made of this Aspect data base, with various filters, so far this has not happened.

NINEMSN do allow this,you can print out a complete
list for almost the whole ASX if you wish,or run a few set filters.To customise I think you have to pay a membership fee.

The site is slow,and at first looks as if a subscription is required, but there are some free
choices:
http://investor.ninemsn.com.au/investor/resource/tools/shares/default.asp

[Risk]

Cap, if you read up on the psychology of trading, you might understand what I mean.

Some personality types, like to think they are always right. (are you one of these? ;))
this is one of the major reasons why a lot of traders fail after the first few years.

These people often cannot accept that their analysis may be wrong...they will blame everything else but themselves. They will hold on to losing shares or even buy more because they feel the market is wrong, and that they are right. The trade might turn around and they might make a profit...but eventually this personality flaw will cost them dearly.

as strange as it may sound to you, ,you dont have to be right most of the time to make money on the markets. what you need is money management skills. you need to ensure your losses are proportionally smaller than your wins.

like duncan mentioned in his original post, "it doesnt matter if he gets egg on his face"...in other words, it doesnt matter if he is not right...my statement is not bizarre at all...it is just common sense.

I am not trading to be right.

[goodguy]

I'm retired, have been in the market for 30 years or so, would probably have made more mistakes than anyone else here....fortunately you can learn from your mistakes and experience is worthwhile.

I tried charting for 11 years and it got me nowhere. The big changes since then are the advent of the net and masses of data and information, plus the developement of computers and TA software.

I have put together about 100 books on investing. Books these days are marvellous teachers, 100 times better than the ones we could buy 30 years ago. The eye-openers for me were the Buffettology books along with the nifty financial calculator. What this easy-to-use calculator does is to help you get looking longer ahead and to settle down and start selecting quality shares that might last the distance....it helps make life easier, more pleasant, and more profitable.

[Capitalist]

Thanks Risk, but it's simple-- if you are right you make money, if you are wrong you don't.

as strange as it may sound to you, ,you dont have to be right most of the time to make money on the markets. what you need is money management skills. you need to ensure your losses are proportionally smaller than your wins.

Strange as it may sound to YOU, I used to be a money market dealer b4 I had kids, and yes, to be a successful dealer one only has to be right 49% of the time. But the most successful have the 'killer instinct', and DO hate to be wrong, but yes, I agree that one has to be able, psychologically, to take losses. Like in the Australian dealing room you can be 5million down, you just have to claw your way back up. It is very stressful, hence dealer burnout.

Live long and prosper anyway.

[thereslifeafter87]

hirzelz, and oldrider.
I find you have to be extremely careful when using other peoples numbers for companies.
Standardised ratios taken from reported numbers don't assist in determining value for a lot of companies. They tend to ignore factors peculiar to individual companies - ie: has the company had a large one-off expense? does it have large amounts of goodwill? are stock options or B shares taken into account?

Thats the problem with computerised stock screeners. I don't think you will find great stocks that way without being very lucky.

I also don't think there are any great stocks in NZ, and there are very few in Australia. By great stocks, I mean shares with the potential to ten-fold in a few years.

My investment technique?

I tend to trawl the ASX announcements come reporting time, and see who has done well that half/full year. I see if profit is up, if Return on Equity is good, then I look at the companies price and chart on Yahoo. The lower the PE ratio is, the better - though this can also be a warning sign. If the company looks cheap, it is often cheap for a reason. I generally look for a company whose price is above what it was a couple of years ago. If it has been growing consistently, then generally the chart will reflect this.

I prefer a company with a solid track record of growing earnings and achieving a high ROE, while being priced reasonably compared to its expected growth. I would pay 18x earnings for a company I expect to grow at 50% per annum, but not for a company that grows at 20%.

I also look mainly at micro-small caps (they have the most room to expand).

The trick is to find a small, well-run, consistently profitable, growing company, with a large % of shares held by insiders, a high return on equity, large free cashflow, solid margins, operating in a niche industry/or possessing a competitive edge, with a low PE ratio. To find all these factors combined into one requires discovering a company that has been overlooked by the market. If you ever find one, please tell me, as I've only ever seen one company that came close to fitting the bill, and I was late on the purchase.

If you find companies like this, then you get the benefit not only of compound earnings growth, but also the 'double-dip' effect of a market re-rating of the company's PE as it continues to perform. The market will re-rate such a company eventually.

Take ATR on the ASX as the example. at aroung .60 less than a year ago, it had a PE of 2. It was returning over 50% on equity, and had earnings growth averaging around 30% a year. The price is now the equivalent of $6.40 and the PE is around 14. In this period earnings grew by 60% - an outstanding result - but, the market re-rated the company to a much higher PE, with the result that the share price increased dramatically more than earnings did.

Dividends don't mean too much to me. I would rather a company that achieves upwards of 30% on equity reinvested profits into further growth.

I will hold companies unless I see (much) better value elsewhere, or unless I consider a company heavily overvalued. Once you find a great company, whats the point in selling?

On the converse, where I make a mistake (CLH, ASC, CLI, RBD) I have learned from experience to bail out as soon as my mistake becomes apparent. I will echo duncan and say that if a company is not performing, get out. It doesn't owe you anything, and you can get better returns elsewhere.

That said, it only takes one good company to offsett all your losses, and make your returns look good.

Duncan - No one is ever right 100% of the time except in a bubble type situation. You will be wrong at some stage.


Everyone - beware of beginning your investment times in a bull market. If the whole market is rising, then it doesn't take much skill to pick winners.

I was lucky, I started out in a Bear market, and learned the hard lessons earl, before I had too much at stake.

[duncan macgregor]

If you are a beginner log on to share chart and go to the education section which is free. Lots of usefull tips to ponder over. The site i frequent most is stocknessmonster.com this site you can find on sharechat if you go to external links or do it the conventional way. It gives you quotes trades charts news on any company up to the minute stuff. That is the most informative web site all for free that i know off. At least you can tell if its only mums and dads selling, or the big boys bailing out. macdunk

[skinny]

I don't have a 'market beating' system worked out yet, and I'm not sure I ever will.

But I do have a strict reporting system set up. Once a month I tally up the gains and losses in a spreadsheet across the markets I hold secruites in (currently NZ, Oz, US, Sth Korea and Canada) and compare performance to 3 benchmarks:
- holding NZ cash
- the NZ40
- the world MSCI hedged to the NZD (off planit)

Relative to these benchmarks gains and losses are cumulated each month so I can see a picture develop about whether:
1) I am beating the market
2) the currency risk I take by investing in overseas markets is worth it.

[Enumerate]

Thanks MacDunk, for starting an interesting thread.

I am, fundamentally, a market timer. I let to get in when interest rates are dropping - and get out when interest rates are rising.

In terms of stock picking, I suppose I am a "value investor". Best of all possible worlds is to buy a high NTA stock, in a defensive/growth sector yielding a high income stream. Of course, the real world does not dish these up often. I tend to take a lower yield with real defensive characteristics; rather than high yield with minimal defensiveness. I make most of my money on the "correction".

I like property stocks, in New Zealand. I like resource stock, in Australia. I like technology stocks in the US and UK.

At the moment - I am mostly out of the market. I think the US$ will go lower and I think NZ interest rates will go higher. Very nervous times, at the moment.

[zyreon]

most people have probably seen these before...

http://www.moneyquestions.co.nz/zurich_axioms.htm

good to-the-point tips for trading