-
Mr Market, You say you would prefer to hold stocks forever. So would I! We both know that this is not a good idea though. The bluest blue-chip does not keep going up for ever. I have a lot of sympathy and understanding for your approach. In fact, I used a very similar system for over 10 years when I first started out. I was happy enough with the "buy" side, but gradually became increasingly dissatisfied with the fact that I was giving a lot of my profits back to the market by holding stocks too long. The crash of '87 was the last straw. I lost an awful lot of money and it took me over 2 years to recover. The lesson that I had to be a lot more active in order to protect my capital and profits was rammed home. Never, ever again, would I pursue a "buy and hold" type of system.
Look at the charts of RBD, BGR, CAV, HBY, TLS, SCT, TEL etc etc etc. Every single one of these stocks was in a really good uptrend for literally years. Each and every uptrend ended. I have held all of these stocks, selling each one when it became clear that the uptrend was over. Anyone that continued to hold such stocks ended up giving the lion's share of their profits back to the market. I won't mention Snoopy because Duncan thinks I am picking on him.
It's almost as though truly staunch Buffett followers have determined to emulate his mistakes too - take a look at this Coke chart. I haven't bothered to apply any technical indicators such as moving averages or trendlines etc because blind Freddy could see when the uptrend suddenly ran out of steam. Maybe Buffett has such a large holding of KO that he is stuck with it but he has certainly given a lot of his profits back to the market and would have been better off selling years ago. Sound vaguely familiar?
-
Dont be to hard on yourself PHAEDRUS. I feel a bit guilty picking on SNOOPY myself, when in fact he taught me more than anyone. I see where he and his FA BUFFET type followers are blinded to reality. He saved me a lot of money by not making similar mistakes. It put me off reading any BUFFET style books. Buy and hold with your eyes closed to the market is plain stupid.
My investment methods require people like that to make the market work for me. macdunk
-
Member
Phaedrus,
What time period do you use in calculating the trailing stops and is the period the same for each percentage.
I have been using periods as short as 5 days for tight stops (95%)and up to 60 days for looser stops (80%) but now wonder if there is any value in doing this.
Thanks,
TerryA
-
I was under the impression that a trailing stop was generally based on the highest single [closing] price.
eg a 10% stop.
Previous high is $1.00 the stop is $0.90.
Then next day the SP moves to $1.10 and the trailing stop moves to $0.99.
PS take a look at Phaedrus' chart at the start of this thread.
-
Thanks Mr. Market. Maybe it is my weak maths, or that I simply haven't twigged yet, but I still can't see $4 FPH valuation from your system. Thanks in anticipation
-
Terry, The actual construction of a trailing stop is as simple as PT's post suggests. No specific period is involved at all. The thing is to be clear as to which trend you are trading. For example, with FBU you would be using a trailing stop of about 24% if you were a long-term holder, but if you wanted to trade the secondary "medium-term" trends, a figure of around 9% is required. These figures are derived by looking back over the previous 5 years or so.
The secondary trends of FPH are insufficiently well defined for this to be a good trading stock. In any case, a 5% trailing stop such as you describe would be way too tight to trade FPH medium term trends and too loose to trade the short term trends.
Wait! The penny has just dropped! Charting programs like MetaStock need to be told how far to look back to find the "highest high" and you are enquiring as to how to select this lookback period. Yes? Answer :- It should be as short as possible. Make it too short though, and your trailing stop will sometimes fall in the middle of an uptrend - something it should not do.
-
quote: Originally posted by beacon
Thanks Mr. Market. Maybe it is my weak maths, or that I simply haven't twigged yet, but I still can't see $4 FPH valuation from your system. Thanks in anticipation
A discount cash flow valuation of $4.00 is very easy to hit if you use Buffett's interpretation of the risk free rate of return. In NZ the 10 Year bond rate was 5.79% the last time I looked. DCF allows for many permuations but a simple $4.00 permutation for FPH would be...
EPS 13.76c
Discount Rate 5.79%
Growth Rate 12% for 5 Years
Termination Growth Rate 0%
In my opinion the risk free rate of return is far too low for any company. By its nature, equity investing is not risk free and requires higher long term returns. In times of low rates it relies upon continued low rates for long periods of time. While the boomer savings glut has assisted this thinking, particularly over the last 10 years, inflation in part fueled by those savings risk shifting the equilibrium. A 5.79% discount rate will quickly be blown away by a lift in inflation to say 5%. The margin of error at low discount rates is an illusion quickly swallowed by changes in inflation and interest rates.
Quite obviously though, in FPH's case, a PE of 32 is not justified by a 5 year 12% growth assumption. So either growth rates or the discount rate need to be changed. I think it's a bit more of one and a bit less of the other. A discount rate below 10% is asking for trouble. Who would invest in equities for results below historical equity returns? Because I like the business and the demographic trends it is riding my DCF assumption would be along the lines of...
EPS 13.76c
Discount Rate 10%
Growth Rate 15% for 7 Years
Termination Rate 3%
Value $3.92
Not exactly an obvious long term fundamental buy on those assumptions, particuarly if you are looking for a margin of error as well.
-
Member
PT & Phaedrus,
Thanks for your responses.
If as PT suggests the Trailing Stop (TS) changes each time the closing price changes the TS would replicate the closing price line at the percentage set. This is does not do.
The flat portions of Phaedrus's TS indicate, to me at least, that some form of averaging or, as he suggests, a look back for the previous high is being used.
My programme is Metastock and it does require a "days" function to be included in the TS formula.
Looking at Phaedrus's TS's shown above it appears that your the period is at least 35 days. The best example is the period April - May which has that flat TS until a new ( higher) high is achieved. The TS is then adjusted upwards. Earlier flat periods would suggest that the time period is open ended
I now realise that I may be wrong to shorten the time period for a tighter TS, as this would allow for a gradually falling closing price to never hit the trigger point.
I obviously need to do some more testing but any further comments from you both would be welcomed.
Regards and thanks,
Terry
-
-
Member
PT,
Thanks again. I think we are almost on the same wavelength and I will work on getting metastock to do what I want it too.
I empythise with your comment on self technical support. My equivalent is anyone who works for himself has a b'd for a boss.
Best wishes,
Terry
Tags for this Thread
Posting Permissions
- You may not post new threads
- You may not post replies
- You may not post attachments
- You may not edit your posts
-
Forum Rules
|
|
Bookmarks