TUA - Turners Auctions. A Case Study.

[Snoopy]

I managed to grab a few at the opening, at 135. Have been watching them for some time, and should have bought earlier of course. They seem to have made a pretty good job of getting their house in order again, after the market slump and the fraud case. Trouble is, the liquidity is poor, and with this type of small company it is hard to offload any decent-sized parcel of shares in a hurry if the trend starts to deteriorate.

Colin, it appears that despite our quite different investing styles we have ended up with shares in the same company bought at the same price! Well, OK my average price is $1.37, a couple of cents above what you paid. Then again I'll wager I have rather more shares than you. Since in contrast to your scramble at the opening bell, I have been accumulating TUA for three and one half years!

It is always easy to say with hindsight that one 'should have bought earlier'. But should *you* have bought earlier, really? The car market is still very depressed. And with unemployment still rising, it is hard to see that reversing soon. TUA have made noises about gaining market share since the latest decline started. But how were you to know that would make enough of a difference after two or more years of TUA decline, which saw profits almost evaporate? OK, TUA did issue a profit upgrade on 22nd October last year at which point the share price jumped to around $1.20. But there was no indication that the coming FY2010 might be better than FY2009 until Friday's full year FY2009 profit announcement.

Now the contest is on to see who will get out with the bigger profit. Since I have no plans to 'get out', I guess it will be you. However, I think I will claim victory if the share price moves higher after you depart the share register. You have correctly identified the problems trading a share such as this:

"Trouble is, the liquidity is poor, and with this type of small company it is hard to offload any decent-sized parcel of shares in a hurry if the trend starts to deteriorate."

The solution to this conundrum is however, relatively simple. The old adage "Buy into weakness, Sell into strength." applies here.

SNOOPY

[winner69]

Wonder what all ears on the other channel is thinking now

[Phaedrus]

The old adage "Buy into weakness, Sell into strength" applies here.

Just how good is that old adage? You and others were "buying into weakness" all the way down as per the charts that began this thread. By contrast, the green arrows mark buying into strength. Which worked out better?
Why would you want to "sell into strength"? No-one knows how far any uptrend will run. Look, though, at where red arrows mark selling into weakness. A nicely timed exit, yes?

"Trouble is, the liquidity is poor, and with this type of small company it is hard to offload any decent-sized parcel of shares in a hurry if the trend starts to deteriorate.".

Certainly TUA is a relatively lightly traded stock but you overestimate its trading difficulty. For example, after triggering Sell signals, the shareprice moved little for about 4 months, allowing plenty of time to exit. You can't expect to unwind a substantial position in a small company in a single day.
Similarly, when buy signals began triggering, the shareprice moved little for 4 months allowing a leisurely entry.

I have been accumulating TUA for three and one half years!

Yes, and the result is an average price paid of $1.37 and a position that has been underwater for the greater part of those three and a half years. You would have been far better off not accumulating during the long downtrend, but buying anytime at all once the uptrend began. You and others were focusing on the low PE and the "13%" dividend yield - while your capital was being eroded at well over 40% pa!

It is always easy to say with hindsight that one 'should have bought earlier'. But should *you* (Colin) have bought earlier, really? .

Yes, as a TA, of course he should have! He should have been buying at around 75 cents, when all the indicators were firing off BUY signals for the first time in over 4 years. The exact same indicators that gave such good exit signals years in the past.

There was no indication that the coming FY2010 might be better than FY2009 until Friday's full year FY2009 profit announcement.

TUA was in a steady uptrend, so the market was clearly optimistic.

Go back to the first 2 posts on this thread and see just how well 6 simple indicators have performed with this stock - using parameters that were set in 2004 and have remained unchanged ever since. Every so often, someone claims that TA leads inevitably to "overtrading" and is unsuitable for longterm investing. This chart gives the lie to that. 2 trades in 8 years will NOT turn you into a wild-eyed crazy trader!

See how the the market "knew best" with seemingly good results failing to influence the ongoing downtrend. Only staunch fundamentalists and those impressed by low PEs were buying into the slide. Buying downtrending stocks is not a good idea - regardless of the dividend yield!

It's nice to see signals derived from such very different indicators correlating so well.

[percy]

Phaedrus, thank you for tua chart.I brought on 17/3/08 at $1.02 for yeild ,low PE and strong brand.As you pointed out buying in a drowntrend is poor investing.TA is a very helpful tool in investing,and rather than thinking some share is good value TA can tell you what the trend is.The real point is should I have used TA I would havebrought twice the numder of shares for the same amount of money.Lesson learnt.

[Phaedrus]

If I had used TA I would have bought twice the number of shares for the same amount of money.

It's not quite that good, Percy. If you bought at the Close on the day all indicators triggered Buy signals, your entry would have been at 75 cents. Say you invested $10,000. At your $1.02 entry, you would have 9800 shares. Waiting for TA buy signals gave an entry at 75 cents and a holding of 13,300 shares for the same amount of money. That is 3,530 shares more, for the same outlay.

I see that you bought because of the high yield and low PE. You were certainly not alone in this. (See this chart.)

One of the problems with FA is that these parameters just keep on getting better and better as the downtrend continues. That is one of the reasons for the continual averaging down seen with this stock. The market was unimpressed by the comforting company results and they did absolutely nothing to arrest the ongoing slide.

13% sounds such a good dividend yield - until you realise that your capital was being eroded at about 43% pa as the downtrend progressed!

Why buy any falling stock when the odds are that you will be able to pick it up cheaper later on?

[Snoopy]

You and others were "buying into weakness" all the way down as per the charts that began this thread. By contrast, the green arrows mark buying into strength. Which worked out better?

Certainly TUA is a relatively lightly traded stock but you overestimate its trading difficulty. For example, after triggering Sell signals, the shareprice moved little for about 4 months, allowing plenty of time to exit. You can't expect to unwind a substantial position in a small company in a single day.
Similarly, when buy signals began triggering, the shareprice moved little for 4 months allowing a leisurely entry.

A straw man argument as far as I am concerned Phaedrus. I can't speak for those 'others'. But I was certainly *not* buying all the way down as shown on your chart. The most I ever paid for TUA shares was $1.70. If I consider the dividends received over the last three and one half years even my 'worst' positioning into TUA is back in the black. "Buying into weakness" is simply a strategy to get around the liquidity problems of lightly traded shares. (I note that one indicator that you have not shown on your chart is the actual volume of shares traded.)

Those green buy signals of yours were generated after the release of the CY2008 annual result. As your own chart shows Phaedrus, the share price subsequently fell 10-20% *below* the entry prices recommended on the chart. Our hypothetical TAer would had had to have had a cast iron stomach to get through that!

Finally your trendline was drawn as the share price rose from 45c to 50c. Far from an obvious trend starting point of the recovery, the first few months of CY2009 was a time of real risk for the company. The possibility that sales would fall and costs would not be able to be consummately reduced meant that even I had doubts about investing in TUA at that time. Waiting for some real financial results to be dished up (March 2009) was the way to mitigate this risk. And even after the results were released, it was far from clear that this upturn could be maintained. So much for the reality of that 'leisurely entry period' you talked about. The TA might have stacked up for you. But the FA certainly didn't stack up for me.

Why would you want to "sell into strength"?

To get around the liquidity problems.

The result is an average price paid of $1.37 and a position that has been underwater for the greater part of those three and a half years.

It is the price at the end of your investment period that matters. The fact that the price dips between when you buy and ultimately sell may affect your nerves. But it need have no effect on your returns.

You would have been far better off not accumulating during the long downtrend, but buying anytime at all once the uptrend began. You and others were focusing on the low PE and the "13%" dividend yield - while your capital was being eroded at well over 40% pa!

You are quite wrong there Phaedrus. As it turned out I made a dividend yield of some 10% every year and a modest *capital gain* throughout one of the most turbulent periods in sharemarket history. That is a huge outperformance by TUA bought at $1.37 of any NZX benchmark you care to name.

Buying downtrending stocks is not a good idea - regardless of the dividend yield!

Not true, as proved by this example.

SNOOPY

discl: hold TUA

[Phaedrus]

I was certainly *not* buying all the way down as shown on your chart.

The chart featured anyone that was buying into the established downtrend. Unfortunately, you were not the only one!

The most I ever paid for TUA shares was $1.70.

Fine, but the question is this. Was it a good move to be buying a stock that was in a steep ongoing downtrend? Wouldn't you have been better NOT buying at $1.70 and waiting for the downtrend to reverse before investing?

I note that one indicator that you have not shown on your chart is the actual volume of shares traded.

All technical indicators had triggered buy signals by 1/4/09. Over the next 4.5 months, at prices never exceding 80 cents 788,605 TUA shares changed hands for $572,145 at an average price of 72.5 cents. That's enough to get you into the "top twenty shareholders list" five times over!!!!!!!! TUA liquidity is an issue, but it is not as big a problem as you make out.

Those green buy signals of yours were generated after the release of the CY2008 annual result. As your own chart shows Phaedrus, the share price subsequently fell 10-20% *below* the entry prices recommended on the chart. Our hypothetical TAer would had had to have had a cast iron stomach to get through that!

Not at all. What was the main technical reason for buying TUA? The fact that the long downtrend had ended and a new uptrend had begun. There was a confirmed uptrend, with a confirmed trendline in place. Did any subsequent fall in price come anywhere near breaking this trendline? No. The trendline remained intact and was in fact re-confirmed twice more in July.

The first few months of CY2009 was a time of real risk for the company. The possibility that sales would fall and costs would not be able to be consummately reduced meant that even I had doubts about investing in TUA at that time. Waiting for some real financial results to be dished up (March 2009) was the way to mitigate this risk..... the FA certainly didn't stack up for me.

I appreciate that Snoopy. I can understand that you might not want to buy at such a time. But surely the time for you to buy was after the March 2009 results? When market sentiment agreed with your fundamental analysis and TUA was in an uptrend?

The TA might have stacked up for you.

It stacked up for anybody - for the first time in over 4 years!

It is the price at the end of your investment period that matters. The fact that the price dips between when you buy and ultimately sell may affect your nerves, but it need have no effect on your returns.

Of course it will have an effect on your returns! Your purchase price is the most crucial factor. The fact is that had you not bought any TUA when it was in a downtrend and waited until it was in an uptrend (and the March report was out) before buying, you would now have a much lower average TUA entry price.

[Zito]

The obvious inference to be made from Phaedrus's post is that if you put your money into a downtrending stock and justify it by pointing out the low PE and the excellent yield, you may as well have your money safely in the bank, obtaining yield that way without the risk of capital erosion.

[J R Ewing]

The obvious inference to be made from Phaedrus's post is that if you put your money into a downtrending stock and justify it by pointing out the low PE and the excellent yield, you may as well have your money safely in the bank, obtaining yield that way without the risk of capital erosion.

I'm pretty sure nobody buys a stock expecting it to go down. The point is whether the low PE, yeild etc. is a reliable (better) indicator that it will move up, or if you can pick that the trend has changed from charting more reliably. I'm not much up with charts, so don't shoot me down in flames, but I reckon Phaedrus's chart must have been VERY close to showing a buy signal in early 2008. It seems easy to see where to draw those lines after the fact to keep you out of the stock during that spike upwards but get you into the stock when the "real" uptrend started.

[percy]

I am finding TA a very helpfull and usefull tool.Phaedrus's input has made me look at charts with more confidence.A couple of weeks ago I had to find money to take up a SPP .
I was unsure whether to sell TLS or WTF ,both in aussie.I looked at both ,was unsure where TLS was going but could see WTF was in a very strong up trend.I sold the TLS.Since doing this TLS has really fallen away while WTF has continued onwards and upwards.Would have been well out of pocket should I have sold WTF.Phaedrus's charts are excellent and reading his inteligent coments certainly helped me do it right.