RYM - Ryman Healthcare

[percy]

Often when a major shareholder sells down the share price will drift for a few months until those shares find a "good" home.Then if the fundamentals are good the SP will go higher.Offcourse if there is something "naughty" the SP will never recover.
Over the years we have seen a number of "smart money" sell out of RYM.
The " smartest money" was ofcourse John Ryder , cofounder of RYM, who sold to "dumb money" at approx 50cents [adj] a number of years ago.Price today is 5 times that,so one up for us "dumb money" punters.!!!!

[jmsnz]

Remember also, that the 'smart money' has identified an alternative investment opportunity that may or not be available to the 'dumb money'. Their motivation for selling out may simply be that they can get a better return somewhere other than holding a whole bunch of Ryman shares.

Discl: Happy Ryman holder

[Hoop]

Yeah...there's been a lot of successful dumb money RYM investors ...lets hope it carries on.

RYM has an unusual OBV / price divergence if I can beleive the data on these free charts....unusual to the fact that it has lasted during the entire length of the bull market to date.

When certain TA indicators misbehave I normally use others instead...no one should rely on a single indicator RYM proves this..eh.

I have to say it all sounds horribly risky to me Hoop. But I have no practical knowledge of TA.

The 'business' risk with RYM at this current point in time is so low, if you get stopped out of RYM based on Mr Market's reaction to short term price and volume changes (isn't TA at least somewhat self fulfilling if a lot of market participants are using it to make decisions?), could you not easily end up on the wrong side of the trade as the underlying business value keeps increasing and the share price catches up?

Thanks in advance for your thoughts.

Sauce..TA and self fulfilling prophesies...yep, your definitely not alone in thinking this way ...I was a long term investor using FA for 25 years and I still remember those FA/TA prophesy debates well... After having one debate too many I ended up joining the TA brigade ..if you can beat them join them.
After using TA with some FA for 10 years I now do not believe in self fulfilling prophesies anymore.

Risky business using TA on a low risk business like Ryman....Nah..Using TA as a timing tool is less risk... TA gets you in and out of the market more effectively than using emotion......Low risk investments still have their ups and downs and usually with low reward.
RYM a low risk ...hmmm ...the market didn't think so during the height of the GFC of 2007/2009. when the shareprice dropped 50% to $1.20.

Note on the NZSX50 index thread... Phaedrus MSI on the NZX50 has fallen so all stops should be strictly adhered to (thanks Trackers for carrying this on)

[Sauce]

Risky business using TA on a low risk business like Ryman....Nah..Using TA as a timing tool is less risk... TA gets you in and out of the market more effectively than using emotion......Low risk investments still have their ups and downs and usually with low reward.
RYM a low risk ...hmmm ...the market didn't think so during the height of the GFC of 2007/2009. when the shareprice dropped 50% to $1.20.

Thanks Hoop.

I'm not sure that answers my question as to how you can use these TA indicators to exit RYM (i.e. from now going forward, not backwards at historical information) and then not risk ending up on the wrong side of the trade. Perhaps you could give us a live example with RYM from now and show us how to outperform holding it?

Please remember I am just thinking about this for the first time so I don't want to sound like I'm up for a fight just genuinely interested. I have no doubt that many people make a living trading using TA - in fact I'm convinced they do - but I suspect it's much like playing internet poker. You have to have an edge on the competition and you have to beat the house rake just to break even.

I.e. Its a zero sum game right? At least to actually beat the return offered by simply holding a quality business, by trading in and out of it. As your extra profits come from someone else receiving less profit. i.e. the winners make money off the losers. So you must be better than the average trader (quicker, faster, smarter ?). And of course it's worse than that because everyone has to beat their transaction costs just to get back to the return offered by doing nothing (the non-zero-sum returns generated by the underlying business).

Internet poker is much the same and some people are very good at this. Some people have gotten very rich playing internet poker - As I am sure have many traders using TA. In fact I suspect there are possibly more books & seminars on getting an edge in poker than there are about TA. However I suspect the lowest risk, highest return, and in my opinion the smartest, players in the game are the House in both cases - i.e. the brokers and the poker websites.

I am guessing here but this reasoning seems logical to me - i.e. that your swimming against a pretty strong tide, but one that's not impossible to make headway if you learn to be in the strongest group of swimmers.

And now that I think about it that's not to mention the time and effort to learn, watch, track, chart. Potential tax consequences etc etc. I certainly don't think it will ever be for me - with or without your 35 years experience Hoop!

I hope you don't mind my thinking aloud here with some contrary arguments.

Cheers

Sauce

[Voltaire]

I.e. Its a zero sum game right? At least to actually beat the return offered by simply holding a quality business, by trading in and out of it. As your extra profits come from someone else receiving less profit. i.e. the winners make money off the losers. So you must be better than the average trader (quicker, faster, smarter ?). And of course it's worse than that because everyone has to beat their transaction costs just to get back to the return offered by doing nothing (the non-zero-sum returns generated by the underlying business).

Sauce, I'm not an active trader, so I'll leave a full response to those that are, but a couple of things struck me about your comment above:

Firstly, and for the sake of illustration, if a sp is in an uptrend there aren't necessarily any losers over that period (people that sold too early, sure, but that's a different thing)

Secondly, a successful trader doesn't need to be better than the average trader - just better than the average (buy and hold) investor. This has been highlighted particularly strongly over the past few turbulent years where traders have been able to surf multiple rises and falls (and profit from each leg) while investors have watched the value of their investments bounce up and down. Volatility creates worry for investors but is the life-blood of traders. Personally, I think this is one of the reasons that many investors avoid the share market: they feel, rightly, that it is no place for those who don't have the time, inclination or skill to constantly monitor the market and that it is really the (dangerous) playground of the active trader.

[Beagle]

Interesting discussion. FWIW I use a combination of TA and FA. I see the 100 day moving average is currently sitting at $2.57, if there was a proven break below that line I'd be concerned. The apparent inability to break $2.80 on the upside doesn't concern me, its only a matter of time, lets remember this stock was $2.00 one year ago !! At this stage I'd say the market just needs time to digest this placement. The company is clearly performing well and still growing strongly and has done so throughout the GFC. I'm happy to hold.

[Sauce]

Firstly, and for the sake of illustration, if a sp is in an uptrend there aren't necessarily any losers over that period (people that sold too early, sure, but that's a different thing)

Hi Voltaire

I appreciate your thoughts. I am not convinced though. I didn't say owning shares was a zero sum game. I said "to beat the return offered by simply holding a quality business, by trading in and out of it" was a zero sum game. I.e. All aggregate profits that are greater than those connected to the underlying value generated by the business come from the aggregate losses of other market participants. That must be a mathematical certainty?

In other words: if good active trading investors like hoop and Phaedrus made an additional 5% compounded annually than the return to owners who simply held RYM over the last 12 years, by trading in and out of it, where did that 5% come from? It can't come from value created by the underlying business or everyone would be the beneficiaries. The only place I can see where it could come from is from a transfer of value from the market participants on the wrong side of the trade. I.e. losing traders, those selling or buying too high or low due to emotion or need, or losing positions bought for insurance/hedging.

Individually, if some traders make oodles, other traders must lose money (relative to underlying economic returns). But the overall winner in terms of the total aggregate effect on wealth of all market participants is the brokers.

Secondly, a successful trader doesn't need to be better than the average trader - just better than the average (buy and hold) investor. .

Since the results of someone who buys and holds RYM will simply reflect the economic returns of the business over time, for an active trade to do better they have to make a higher return than the underlying business economics. Therefore those returns must come from the aggregate losses of other traders. I think you are referring to value that could be transferred by an emotional investor panicking and dumping shares too cheaply but that by definition is not a buy and hold i.e. that is active. The whole point of fundamental analysis is to ignore price fluctuations and focus on the business economics.

This has been highlighted particularly strongly over the past few turbulent years where traders have been able to surf multiple rises and falls (and profit from each leg) while investors have watched the value of their investments bounce up and down. Volatility creates worry for investors but is the life-blood of traders. Personally, I think this is one of the reasons that many investors avoid the share market: they feel, rightly, that it is no place for those who don't have the time, inclination or skill to constantly monitor the market and that it is really the (dangerous) playground of the active trader

I totally agree that volatility causes many people to make bad decisions. It appears that humans, on average, are not built with the appropriate instincts for modern markets! And your conclusion seems sound in my limited knowledge, except I would add that the playground may not be quite as profitable a place as people think. And also, as volatility is the life-blood of the active trader, true economic growth is the life blood of the investor.

I think Hoop makes an excellent point that an active trading strategy is better than making buying or sell decisions on emotion (while temperament of emotional control would surely be a pre-requisite for success of any trading strategy I guess having a plan would help many people). My guess is that if you have a good brain and are dedicated, you can consistently gain an edge on average traders/investors with a disciplined strategy. A bit like the financial equivalent of being a pick pocket, trying to pinch value from those less skilled, less intelligent or less able to control their emotions (That's an attempt at tongue in cheek cynicism; pure value investing using FA has similar elements of wealth transfer of course).


I appreciate the thought provoking discussion Voltaire

Regards,

Sauce

[Voltaire]

Hi Sauce, apologies for the late reply - I wanted to make sure I had time to reply in kind to your well argued post.

Hi Voltaire

I appreciate your thoughts. I am not convinced though. I didn't say owning shares was a zero sum game. I said "to beat the return offered by simply holding a quality business, by trading in and out of it" was a zero sum game. I.e. All aggregate profits that are greater than those connected to the underlying value generated by the business come from the aggregate losses of other market participants. That must be a mathematical certainty?

Yes, there's no real argument here. I understood your assertion re the zero-sum game (and by and large I agree with it) - I was challenging your assumption that successful traders need to be better than the average trader. My point was that many successful traders make their profits at the expense of poor frightened stuck-in-the-headlights investors who often enter/close positions at extremely sub-opportune times. Active traders, even those who don't participate in shorting, face many more opportunities for profit than those who trade less frequently (though, granted, they also incur more costs in brokerage and potentially tax). This, the relative willingness to trade frequently and to act quickly on buy/sell signals, is the nub of the issue - the question of at what point on the continuum one demarcates "traders" from "investors" is necessarily arbitrary (and thus of little interest - at least to me).

In other words: if good active trading investors like hoop and Phaedrus made an additional 5% compounded annually than the return to owners who simply held RYM over the last 12 years, by trading in and out of it, where did that 5% come from? It can't come from value created by the underlying business or everyone would be the beneficiaries. The only place I can see where it could come from is from a transfer of value from the market participants on the wrong side of the trade. I.e. losing traders, those selling or buying too high or low due to emotion or need, or losing positions bought for insurance/hedging.

Agreed (and as above), though I'm confident that in the stocks they are active in Hoop and Phaedrus would make well beyond a 5% margin p.a. on buy & hold investors.

Individually, if some traders make oodles, other traders must lose money (relative to underlying economic returns). But the overall winner in terms of the total aggregate effect on wealth of all market participants is the brokers.

No argument about the brokers being onto a good thing - no such thing as a losing trade for them! - but again I point you to the fact that in a long-term uptrend (any uptrend in fact) there may not be "real" losers. It is theoretically possible for every participant to have made money on their transactions - not as much as they might have made had they timed perfectly their entry and exit at the beginning and end of the uptrend, but a profit nonetheless.

Since the results of someone who buys and holds RYM will simply reflect the economic returns of the business over time, for an active trade to do better they have to make a higher return than the underlying business economics. Therefore those returns must come from the aggregate losses of other traders. I think you are referring to value that could be transferred by an emotional investor panicking and dumping shares too cheaply but that by definition is not a buy and hold i.e. that is active. The whole point of fundamental analysis is to ignore price fluctuations and focus on the business economics.

There's an old argument here about whether the "underlying business economics" are usefully measured by any metrics other than the share price. I'll avoid that argument but I think the evidence is that many buy & hold investors do exit positions on the basis of fear. You want to argue that that is contrary to the doctrine of the noble flag they have signed up for. Perhaps, but it might well be rational behaviour nevertheless (I'm not going to hang around to argue the wisdom of mass hysteria if the hysterical crowd is heading in our direction!)

I totally agree that volatility causes many people to make bad decisions. It appears that humans, on average, are not built with the appropriate instincts for modern markets! And your conclusion seems sound in my limited knowledge, except I would add that the playground may not be quite as profitable a place as people think. And also, as volatility is the life-blood of the active trader, true economic growth is the life blood of the investor.

I think Hoop makes an excellent point that an active trading strategy is better than making buying or sell decisions on emotion (while temperament of emotional control would surely be a pre-requisite for success of any trading strategy I guess having a plan would help many people). My guess is that if you have a good brain and are dedicated, you can consistently gain an edge on average traders/investors with a disciplined strategy. A bit like the financial equivalent of being a pick pocket, trying to pinch value from those less skilled, less intelligent or less able to control their emotions (That's an attempt at tongue in cheek cynicism; pure value investing using FA has similar elements of wealth transfer of course).


I appreciate the thought provoking discussion Voltaire

Regards,

Sauce

Likewise, I've enjoyed the exchange. I wish Phaedrus was still with us - I'm sure his contribution would add a great deal. A last point - you talk a lot of managing the emotions as being critical to success. I think at least as much comes down to time and inclination - many people fall victim to risk/loss on the sharemarket because they simply aren't able to monitor the markets in real-time. It's not that they lack the requisite strength of character it's just that they're too busy doing actual useful stuff in the real world to be able to respond in a timely fashion to opportunity and risk.

[Sauce]

Yes, there's no real argument here. I understood your assertion re the zero-sum game (and by and large I agree with it) - I was challenging your assumption that successful traders need to be better than the average trader. My point was that many successful traders make their profits at the expense of poor frightened stuck-in-the-headlights investors who often enter/close positions at extremely sub-opportune times.

Over the life of any business the total returns available to investors in aggregate is no more or less than the sum of the economic value that was created or destroyed by it during in its lifetime. Traders try to beat that economic return by stealing economic worth off those on the other side of the trade, whichever strategy they are employing. It seems we agree upon this.

However..

It reads as if you are implying that short term traders are more often taking economic value from unsophisticated longer term holders, that's a mathematical impossibility because short term traders implicitly make up more of the volume they trade against. Remember the only way to look at it rationally and objectively is to consider the system in aggregate - not your perception of possible individual situations. Longer term holders will, ON AVERAGE, see returns closer to the economic returns of the business. Shorter term holders will, ON AVERAGE, make returns related more closely to their ability to pinch value from other market participants. And the losers (economically speaking) will include proportionately more shorter term holders than longer term holders. That is a mathematical certainty. And as you wisely point out, it is meaningless to attempt to define the intangible boundary between long and and short term - its a general overview.

But don't take me wrong here, I am not necessarily advocating that this is a reason not to trade ! To the contrary, clearly people can make it work, and if it works then stick to it. But I believe it's an important point to understand.

I try to buy businesses when I believe the economic value is much greater than the share price reflects, and being successful at this has not dissimilar implications. For instance It also relies on the same human blunder within the system to serve up the opportunities. The value is stolen from those less sophisticated also. Although it's generally a wealth transfer from the impatient to the patient, it's all part of the same game. I lay no stake to superiority. It also needs a serious amount of time and learning and a certain emotional temperament to do successfully.

Agreed (and as above), though I'm confident that in the stocks they are active in Hoop and Phaedrus would make well beyond a 5% margin p.a. on buy & hold investors.

Well I think that's the wrong discussion to get into (Their returns are intangible to us and the variables make it meaningless anyway). But there are some interesting mathematical implications that would occur if a good trader could consistently beat all his brokerage and tax AND the economic return of quality businesses such as RYM healthcare (which was my original reference to the 5%) by a margin as high as 5%.

I believe that if we were to look at the track records of lots of successful investors (all flavours; traders, long term etc) over an entire lifetime (it's the only total aggregate returns of all their investing that counts) the compounding growth rate will usually be a lot lower than what we (and often they!) think - even if they are very wealthy. It doesn't take much out performance to compound to some ridiculous numbers over time. So it is logical that it would take a very successful trader indeed to have a positive 'expected value', relative to business returns, of 5% after costs, when you sum all their trades in aggregate over a long period of time.

Obviously if you look at a bunch of individual trades there will be times when the underlying economics is outperformed many times over. But that's as useful as trying to distinguish a line between long and short term traders.

Active traders, even those who don't participate in shorting, face many more opportunities for profit than those who trade less frequently (though, granted, they also incur more costs in brokerage and potentially tax).

Yes. They face many more opportunities for profit AND LOSS - and they have to beat the costs just to break even. If you agree it's a zero sum game (before costs), then you agree that in aggregate they face equal chance of an economic loss or gain. It's only more skill or an informational advantage that changes an individual's odds to give a positive expectation.

No argument about the brokers being onto a good thing - no such thing as a losing trade for them! - but again I point you to the fact that in a long-term uptrend (any uptrend in fact) there may not be "real" losers. It is theoretically possible for every participant to have made money on their transactions - not as much as they might have made had they timed perfectly their entry and exit at the beginning and end of the uptrend, but a profit nonetheless.

Yes. It's simply the transfer of economic value I am talking about. That's a very real loss or gain. And the reality is there will be plenty of players who experience real monetary loss in the same manner and plenty that benefit from that.

There's an old argument here about whether the "underlying business economics" are usefully measured by any metrics other than the share price. I'll avoid that argument but I think the evidence is that many buy & hold investors do exit positions on the basis of fear. You want to argue that that is contrary to the doctrine of the noble flag they have signed up for. Perhaps, but it might well be rational behaviour nevertheless (I'm not going to hang around to argue the wisdom of mass hysteria if the hysterical crowd is heading in our direction!)

Personally speaking, my best financial decisions have been doing exactly the opposite of the hysterical crowd. While it's no walk in the park, quantifying value and price disparity is, at the least, equally as possible as becoming a winning trader of trends.

However.. Overall, and in aggregate, owning businesses for the long term will always be a positive sum game, but generating bonus returns above that, by trading short term trends, will always be a negative sum game. (negative rather than zero due to brokerage & tax). That's different from saying it's impossible to trade profitably or to buy undervalued companies, which it is clearly not.

A last point - you talk a lot of managing the emotions as being critical to success. I think at least as much comes down to time and inclination - many people fall victim to risk/loss on the sharemarket because they simply aren't able to monitor the markets in real-time. It's not that they lack the requisite strength of character it's just that they're too busy doing actual useful stuff in the real world to be able to respond in a timely fashion to opportunity and risk.

This is a great point. Direct investment in the sharemarket, of any kind, is not for everyone that's for sure. A fanatical obsession is, in my opinion, critical.

Thanks again Voltaire. Your debating skills are well honed.

Sauce

[percy]

Roger, they listened to you.Howick for a new village.
Went to the very well attended AGM this afternoon at Ngiao Marsh Village.All well,everyone happy,onward and upward.
What I found nice to hear from the chairman;"my mother is a resident here, and it is with a sense of pride,I enjoy coming here."