One For the Books:
If you traded through today, Thursday May 6, 2011, you will have done so through a day that will go down in financial history: the biggest 1-day drop in the history of the Dow-Jones index; the day that the Euro zone truly started its future slow disintegration or at least transformation; the day that gold began its return from Keynes' "archaic relic of the past" to an active component of sovereign (and mainstream) wealth and a change in the underpinning of some currencies; and the day that disclosed the true impact - and the danger of that impact - of the rise of machine-driven "high frequency" trading if it is left totally uncontrolled.
Gold, Chinese Real Estate and the Renminbi:
Here are set of developments that I think have profound relationships. The US had been increasing public pressure on China for months to abandon the tie that has existed for the last couple of years between the USD and the Chinese yuan, or renminbi. A few weeks ago, the pressure suddenly relented as China announced a weakening in its latest trade figures and stated in effect that whatever changes might occur may be seen by June, the date of the US Treasury Department's decision to delay. Eventually we will see the actual figures.
Within that short span of time, the Greece crisis, the outcome of which had been visible for some time beforehand to those who looked carefully, caused its now well-known panic and and ongoing damage to the Euro as a prospective credible alternative to the USD as a reserve currrency. China has never been observed to be supportive of the Euro as a reserve concept.
Also in this time Enoch Fung, chief Asia economist for Goldman Sachs, held a conference outlining a vision to internationalise the RMB through allowing Hong Kong to initiate international financial transactions in RMB in addition to the Hong Kong dollar. This would be consistent with the way the former British colony has been the medium for other far-reaching changes in mainland Chinese economic policy. Hong Kong is an important center for, among other things, Asian IPO's. If this occurs, it will be the start of the RMB alternative. China has already established numerous non-USD bi-national trade deals with countries as distant as Brazil.
Many western analysts have lately been calling for a watch on the imminent collapse of the Chinese real estate market. Fundamental differences in land ownership (as distinct from the ownership of properties) which is an important peculiarity of the Chinese market, are rarely noted. This week the important Shanghai-based funds consultancy, Z-Ben Advisors, has written that the international global crisis actually had little effect on Chinese markets - they had already declined by 20% - and proposes the contrarian view they could begin a rebound within weeks. In the absence of comprehensive social security, most Chinese mainland individuals rely on stocks and property for their future income.
The bond market is as yet inadequately developed at the retail level. Investors have few alternative outlets. Chinese national stockpiling or source control of many key industrial materials such as copper - a standing policy - have long put pressure on international commodities pricing. To allow investable Chinese domestic funds to freely expand its trade in these markets would not be helpful in controlling internal inflation.
However, China has also become the largest gold producer in the world. Allowing, in fact encouraging stock investment in go;ld producers (which often produce other industrial metals in addition) would be an outlet for savings that would not have that particular negative effect. In fact, an individual savings aspect would be maintained while at the same time, since the government purchases all output, adds to the strength of the Chinese currency and minimizes the degree to which currency relationships need to be renegotiated, by allowing the marketplace itself to discover value.
In view of these powerful long-term forces, it would seem reasonable to expect that an internationally-traded, Chinese-controlled equity vehicle of this type would meet good reception by both international, as well as a potentially wider domestic Chinese participation. We could see the beginning of this process during 2010.
Thursday, May 6, 2010
Wednesday, May 5, 2010
May Trauma
Going away always seems to land me back directly into the midst of major market turmoil, and the week of May 3, 2010 is certainly no exception and very uncomfortable. The Greek sovereign debt problem was visible some time ago. The outcome seemed pretty obvious then (a debt bailout requiring Germany's agreement). That in itself has not changed. What is different is that it is clear that the German public does not want to agree to pay for Greek profligacy - although in the end, it may - coupled with investor realization that the Greek public is not willing to pay the price in taxes and clawbacks, regardless. That is what the riots are about. In fact - and this is the immovable rock - even if the bailout goes ahead, Greece will actually never be able to repay. The solution to their massive debt cannot be more debt.
The resultant Euro-zone induced turmoil - exacerbated by the possibility of no governing majority coming out of the UK elections, also this week - has spooked investors worldwide. Really good stocks unconnected to the problem (maybe the best single example is Apple (AAPL) which just announced blowout earnings and a dramatically good outlook) is among the many that were hit. Precious metals and related stocks were also - and even more dramatically pounded, despite the fact that in months ahead their performance is likely to do well.
Part of the reason for their hit may be that when people are in sudden trouble and get bank margin calls, the immediate reaction is to sell those shares that have a profit. Another aspect is the deflationary scenario put forward by those that hold the view that deficit reduction and fiscal restraint worldwide - for which the Greek problem is the current poster-child, is at hand.
However, I think we are way past that. If sovereign debt can't be forgiven (written off) and the debtor can't issue its own currency (as in Greece or California) and can't raise taxes enough to borrow on its own, the more likely eventual real-world response is an extension into Europe by the ECB of the massive monetary expansion ("quantitative easing") already having been used since late 2008 by the US Fed. France and Germany are against this on principle. It also holds interest rates below levels that would occur in an otherwise unmanipulated market.
One result will be apparent strength in the US dollar, but the strength will only be relative to weak currencies. Although tough on their exporters, harder asset-backed currencies such as the Canadian and Australian dollars will attract investment attention - and hard currency proxies like gold and gold ETFs are likely to resume their upward trends.
In the case of Exchange Traded Funds, the most well-known and largest precious metal ETF - it is not a gold mining stock fund - is the US Spider "GLD". However, while vast sums have been invested in it, its actual holdings of physical gold are secret and transactions are completely non-transparent - where have we heard this before? A new ETF by legendary Canadian manager Eric Sprott (US listed and quoted) holds all its physical gold in the Canadian mint, its holdings are reported and so avoids this questionable aspect of the GLD. The Sprott ETF is called PHYS.
I hold none of the above but continue with a position in the Canadian-Chinese gold miner JIN-T. This junior producer has more inherent leverage than an ETF, which can make it a less appropriate vehicle for conservative investors who wish lower volatility, or market participants (other than traders) with a shorter time horizon than 3 to 5 years. I have been a purchaser on declines, including the decline this week.
The resultant Euro-zone induced turmoil - exacerbated by the possibility of no governing majority coming out of the UK elections, also this week - has spooked investors worldwide. Really good stocks unconnected to the problem (maybe the best single example is Apple (AAPL) which just announced blowout earnings and a dramatically good outlook) is among the many that were hit. Precious metals and related stocks were also - and even more dramatically pounded, despite the fact that in months ahead their performance is likely to do well.
Part of the reason for their hit may be that when people are in sudden trouble and get bank margin calls, the immediate reaction is to sell those shares that have a profit. Another aspect is the deflationary scenario put forward by those that hold the view that deficit reduction and fiscal restraint worldwide - for which the Greek problem is the current poster-child, is at hand.
However, I think we are way past that. If sovereign debt can't be forgiven (written off) and the debtor can't issue its own currency (as in Greece or California) and can't raise taxes enough to borrow on its own, the more likely eventual real-world response is an extension into Europe by the ECB of the massive monetary expansion ("quantitative easing") already having been used since late 2008 by the US Fed. France and Germany are against this on principle. It also holds interest rates below levels that would occur in an otherwise unmanipulated market.
One result will be apparent strength in the US dollar, but the strength will only be relative to weak currencies. Although tough on their exporters, harder asset-backed currencies such as the Canadian and Australian dollars will attract investment attention - and hard currency proxies like gold and gold ETFs are likely to resume their upward trends.
In the case of Exchange Traded Funds, the most well-known and largest precious metal ETF - it is not a gold mining stock fund - is the US Spider "GLD". However, while vast sums have been invested in it, its actual holdings of physical gold are secret and transactions are completely non-transparent - where have we heard this before? A new ETF by legendary Canadian manager Eric Sprott (US listed and quoted) holds all its physical gold in the Canadian mint, its holdings are reported and so avoids this questionable aspect of the GLD. The Sprott ETF is called PHYS.
I hold none of the above but continue with a position in the Canadian-Chinese gold miner JIN-T. This junior producer has more inherent leverage than an ETF, which can make it a less appropriate vehicle for conservative investors who wish lower volatility, or market participants (other than traders) with a shorter time horizon than 3 to 5 years. I have been a purchaser on declines, including the decline this week.
Wednesday, April 7, 2010
Speculating on "injection" Candidates for JIN
A takeover candidate referred to me by reader Zhiwen Shen, and referenced in the Tibet huatarDragon Mining Development Chinese-language web site, is the A M mine, known as Jaima in Chinese. This is a Tibetan Chinese copper-moly mine, originally expected to ramp up to full production by the end of 1Q10. It has provided technical support to the Jinshan CSH mine site. A relationship already exists.
Acquisition concepts include something called "injection". An interesting link is to Ivanhoe Mines' massive Oyu Tolgoi copper-gold project in neighbouring Mongolia, where Jinshan has a significant Mongolian acquisition and development partner. As reported (see Toronto Star April 7/10), the Canadian company appears to be preparing for a possible takeover bid. The key share block that secured China Gold's control of Jinshan originally came from Ivanhoe and the proceeds were reported at the time to be importantly used to support Ivanhoe's Oyu Tolgoi development. It will be interesting to see if CNG could be involved in such a takeover bid and attempt to close the Oyu Tolgoi/Jinshan circle.
Further in the strategic background is the Pakistani gold property (referred to in an earlier blog) originally being prepared for development by Canadian giant Barrick Gold with a latin-American partner. In January, Barrick's rights to this property were reported to be reconsidered or suspended. Chinese sources already active in the area were believed to be discussing the matter with the Pakistani state officials involved. The partially-developed property, on which as much as US$200 million may have been spent, could be seen as a fit into CNG's (and therefore Jinshan's) international mandate.
At first glance, these large projects are of greater scale than a company like Jinshan might hope to achieve. But the future China International Gold & Metals (a guess at the upcoming new name) has an impressive board, management team and partners with deep pockets. Until more of the story unfolds, I would not automatically rule out any of the above.
Acquisition concepts include something called "injection". An interesting link is to Ivanhoe Mines' massive Oyu Tolgoi copper-gold project in neighbouring Mongolia, where Jinshan has a significant Mongolian acquisition and development partner. As reported (see Toronto Star April 7/10), the Canadian company appears to be preparing for a possible takeover bid. The key share block that secured China Gold's control of Jinshan originally came from Ivanhoe and the proceeds were reported at the time to be importantly used to support Ivanhoe's Oyu Tolgoi development. It will be interesting to see if CNG could be involved in such a takeover bid and attempt to close the Oyu Tolgoi/Jinshan circle.
Further in the strategic background is the Pakistani gold property (referred to in an earlier blog) originally being prepared for development by Canadian giant Barrick Gold with a latin-American partner. In January, Barrick's rights to this property were reported to be reconsidered or suspended. Chinese sources already active in the area were believed to be discussing the matter with the Pakistani state officials involved. The partially-developed property, on which as much as US$200 million may have been spent, could be seen as a fit into CNG's (and therefore Jinshan's) international mandate.
At first glance, these large projects are of greater scale than a company like Jinshan might hope to achieve. But the future China International Gold & Metals (a guess at the upcoming new name) has an impressive board, management team and partners with deep pockets. Until more of the story unfolds, I would not automatically rule out any of the above.
Monday, April 5, 2010
More on JIN
In the wake of the Khandaker list, the market moved up abruptly and may even have been helped by some short covering on today's Easter Monday AM spike. We scaled out modestly starting at $6.20 through to $6.50. At midday writing, it had left a new high of $6.60. We have since replaced the portion sold earlier in the day just over $6.00.
Because there are at least a couple of announcements in the pipeline, coupled with the renewed strength in gold that we expected but finally set up Saturday Apr 3 with the clever 2-step process to defuse the China-US dispute over pricing the yuan, we are not changing our present stategy. The US does not interfere with China policy on Taiwan and Tibet, China helps with Russia and Iran, so by June we will see a new currency policy in place that leaves both sides with face intact.
In our view risk remains to the upside which explains why we are trading around a position, but not changing the position itself at this stage. The stock is now set for very strong support action as announcements arrive on name change, property acquistion, production success and wider stock listing. These are among the early preparations for a pricing level when a secondary offering is made in conjunction with that listing.
Since what I write is merely my analysis, not knowledge, the sequence and timing of events remains unknown. However, the course has been set, the wind is filling the sail and the ship is now moving forward.
Because there are at least a couple of announcements in the pipeline, coupled with the renewed strength in gold that we expected but finally set up Saturday Apr 3 with the clever 2-step process to defuse the China-US dispute over pricing the yuan, we are not changing our present stategy. The US does not interfere with China policy on Taiwan and Tibet, China helps with Russia and Iran, so by June we will see a new currency policy in place that leaves both sides with face intact.
In our view risk remains to the upside which explains why we are trading around a position, but not changing the position itself at this stage. The stock is now set for very strong support action as announcements arrive on name change, property acquistion, production success and wider stock listing. These are among the early preparations for a pricing level when a secondary offering is made in conjunction with that listing.
Since what I write is merely my analysis, not knowledge, the sequence and timing of events remains unknown. However, the course has been set, the wind is filling the sail and the ship is now moving forward.
Tuesday, March 30, 2010
The End of Q1 2010
I didn't realize quite how fast the last few weeks were going by. Markets generally have been following a rather uncommon "melt up" - in which judging by low ETF, mutual fund and retirement contributions on the equity side indicates the public and no doubt many professional investors have missed out on a major rise, to their great dismay.
This tenacious negative sentiment seems mainly due to having concentrated overly on how much the market had gone up from its March 9, 2009 lows rather than considering just how overdone and wildly end-of-the-world that bottom was. Not to say that serious corrections won't happen again, but the principal error of most investors through 2009 and into 2010 was paralysis through fear. Add in the mass of liquidity pumped into the system for those that could take advantage of it - a serious qualification for a lot of people - and you have the makings of a major reverse surprise: a melt-up.
We are now right at the start of a long-term price decline in the fixed-income portion of the same portfolios, just when the majority had moved there for stability and yield (ugh). This kind of position provides scant wherewithal for opportunities ahead and is likely the foretaste of further investment damage. Sheer unprecedented volume of new government financings will push others borrowers aside and there will be only one way for existing debt prices to go: down, with a chance of major whiplash for group followers. Strong earnings coupled with good dividend policy will make stocks having such characteristics, including some preferreds, better performers. Otherwise it will continue to be a stock-picker's or strategic investor's market.
JIN moved to a new all-time high today (March 30) with follow-up on its moves to change early from GAAP accounting to international IFRS, the method for all public companies in future and especially for all new issuers in China. I now consider the prospect of listing in China beyond speculation. This will probably be accompanied or followed shortly by a secondary stock offering to broaden the trading liquidity in the stock. Trading is too thin (low in volume) for many professional managers yet, but is rising rapidly to over a million shares a day. A similar time scenario will occur for changing the present name to something like China International Gold and Metals.
All of these factors will bring additional interest in the shares, just as moving through the $5.00 barrier makes the stock investable for some institutions which are barred from putting money into the "penny" (under $5.00) market. Concurrently, gold price action has been in a low consolidation phase for some months. The longer this continues, those waiting for the widely trumpeted collapse in the price are running the risk of the opposite happening. Structural weakness in the Euro is often spoken of to account for the recent relative strength of the the USD. A different view and set of events could emerge when, rather than if, the US dollar resumes its decline. Its strength looks best when compared to the weakest.
We were able to sell 85% of our JIN position close to its recent initial breakthrough high. We repurchased the entire position at lower levels and as a result have an aggressive stance plus significantly more cash on hand (without any external contribution) available to be deployed when a tactical opportunity presents itself. Before the last peak we were flat of cash, so did not have that additional flexibility.
This tenacious negative sentiment seems mainly due to having concentrated overly on how much the market had gone up from its March 9, 2009 lows rather than considering just how overdone and wildly end-of-the-world that bottom was. Not to say that serious corrections won't happen again, but the principal error of most investors through 2009 and into 2010 was paralysis through fear. Add in the mass of liquidity pumped into the system for those that could take advantage of it - a serious qualification for a lot of people - and you have the makings of a major reverse surprise: a melt-up.
We are now right at the start of a long-term price decline in the fixed-income portion of the same portfolios, just when the majority had moved there for stability and yield (ugh). This kind of position provides scant wherewithal for opportunities ahead and is likely the foretaste of further investment damage. Sheer unprecedented volume of new government financings will push others borrowers aside and there will be only one way for existing debt prices to go: down, with a chance of major whiplash for group followers. Strong earnings coupled with good dividend policy will make stocks having such characteristics, including some preferreds, better performers. Otherwise it will continue to be a stock-picker's or strategic investor's market.
JIN moved to a new all-time high today (March 30) with follow-up on its moves to change early from GAAP accounting to international IFRS, the method for all public companies in future and especially for all new issuers in China. I now consider the prospect of listing in China beyond speculation. This will probably be accompanied or followed shortly by a secondary stock offering to broaden the trading liquidity in the stock. Trading is too thin (low in volume) for many professional managers yet, but is rising rapidly to over a million shares a day. A similar time scenario will occur for changing the present name to something like China International Gold and Metals.
All of these factors will bring additional interest in the shares, just as moving through the $5.00 barrier makes the stock investable for some institutions which are barred from putting money into the "penny" (under $5.00) market. Concurrently, gold price action has been in a low consolidation phase for some months. The longer this continues, those waiting for the widely trumpeted collapse in the price are running the risk of the opposite happening. Structural weakness in the Euro is often spoken of to account for the recent relative strength of the the USD. A different view and set of events could emerge when, rather than if, the US dollar resumes its decline. Its strength looks best when compared to the weakest.
We were able to sell 85% of our JIN position close to its recent initial breakthrough high. We repurchased the entire position at lower levels and as a result have an aggressive stance plus significantly more cash on hand (without any external contribution) available to be deployed when a tactical opportunity presents itself. Before the last peak we were flat of cash, so did not have that additional flexibility.
Tuesday, March 9, 2010
after the meeting
Tues March 9, 2010
The invitation-only reception by JIN Beijing-based management at the Intercontinental Hotel in Toronto Sunday evening was interesting. It was held prior to the commencement of the annual Prospectors & Developers Mining Conference, which is the biggest in the world. No announcements were made in light of the formal release last Thursday, but questioning executives provided some insights. In the press release I had been especially taken aback by by the 5-year gold price projections (which would absolutely impact earnings per share, based on actual production in those future years at actual prices, vs those projections). I stated that I found the figures surprising, as being too low, and asked if they were provided by themselves or China National Gold as government expectations. The answer: the figures were primarily an average provided by US banks. I commented that the figures could then be considered partly as political statements, to which he replied "we would prefer always to be conservative in our estimates." (Xinhua News Agency was taking notes.) This is an important future guideline as the entire 5 years of projections are below the current international market price for gold.
There was also an indirect confirmation that at or after the planned company name change - expected shortly - a listing on the Hong Kong market is likely. This will likely take the form of a secondary offering from the treasury and probably from management options as well (my words). According to the Toronto Star, on Monday (yesterday) a presentation was made at the conference by KC Chan, Hong Kong's secretary for financial services. It described his audience as consisting of Canadian executives considering listing on the HKSE. Such an event would be a significant stimulus to the stock by increasing the depth of the market due to the greatly increased number of investor participants. I would expect that at higher prices, the stock could attract some new institutional and fund investors whose rules prevent them from participating in the stock at present.
The stock performed very well in the current new week, actually stronger than my expectations and set new portfolio records. I lightened my position slightly, rebalancing towards the more conservative and revenue-generating Vermilion Energy Trust (VET.UN). In our seconday account, I had recently sold most VET, using the proceeds to buy JIN. Monday afternoon I reversed the process, sold all JIN, and replaced the proceeds with a larger position in VET on a dip than had just been sold. This was be accomplished with no net addition of cash. VET has continued to move up today, magnified by the larger position than was held last week.
I am now referring to the investment technique I am developing during this experiment as "Focused Wave". Today, March 9, is the first anniversary of the financial panic low of 2009. The combined portfolio has grown 634% in that time.
The invitation-only reception by JIN Beijing-based management at the Intercontinental Hotel in Toronto Sunday evening was interesting. It was held prior to the commencement of the annual Prospectors & Developers Mining Conference, which is the biggest in the world. No announcements were made in light of the formal release last Thursday, but questioning executives provided some insights. In the press release I had been especially taken aback by by the 5-year gold price projections (which would absolutely impact earnings per share, based on actual production in those future years at actual prices, vs those projections). I stated that I found the figures surprising, as being too low, and asked if they were provided by themselves or China National Gold as government expectations. The answer: the figures were primarily an average provided by US banks. I commented that the figures could then be considered partly as political statements, to which he replied "we would prefer always to be conservative in our estimates." (Xinhua News Agency was taking notes.) This is an important future guideline as the entire 5 years of projections are below the current international market price for gold.
There was also an indirect confirmation that at or after the planned company name change - expected shortly - a listing on the Hong Kong market is likely. This will likely take the form of a secondary offering from the treasury and probably from management options as well (my words). According to the Toronto Star, on Monday (yesterday) a presentation was made at the conference by KC Chan, Hong Kong's secretary for financial services. It described his audience as consisting of Canadian executives considering listing on the HKSE. Such an event would be a significant stimulus to the stock by increasing the depth of the market due to the greatly increased number of investor participants. I would expect that at higher prices, the stock could attract some new institutional and fund investors whose rules prevent them from participating in the stock at present.
The stock performed very well in the current new week, actually stronger than my expectations and set new portfolio records. I lightened my position slightly, rebalancing towards the more conservative and revenue-generating Vermilion Energy Trust (VET.UN). In our seconday account, I had recently sold most VET, using the proceeds to buy JIN. Monday afternoon I reversed the process, sold all JIN, and replaced the proceeds with a larger position in VET on a dip than had just been sold. This was be accomplished with no net addition of cash. VET has continued to move up today, magnified by the larger position than was held last week.
I am now referring to the investment technique I am developing during this experiment as "Focused Wave". Today, March 9, is the first anniversary of the financial panic low of 2009. The combined portfolio has grown 634% in that time.
Thursday, March 4, 2010
market data vs market scenarios
March 4, 2010
For the moment sticking with stocks as the investment concept (as distinct from bonds or stock derivatives, etc) for the investor of course at first, basic decisions have to be made. These basics would include, especially for a Canadian, what currency to use - typically Cdn or US depending on the relative outlook between the two - and from that, which market and what individual company from among those thousands you choose - which sector, what characteristics it has that you have been looking for. Where to look and what to look for, we can touch on another time. There are lots of important subset characterisitics here. In the end, you narrow it to a few and make your choice. Now you consider an entry point, begin to act and ultimately develop your position. OK, so here we are.
If it wasn't thought out beforehand, at least at this point we might need to do more than hope it goes up, remembering that hope is never to be mistaken for a plan. We need to develop a scenario for the destination it needs to reach in order to fulfil your requirements. Lets say that the research that led to the choice suggested that over the next 3 to 4 years if things worked out reasonably for the company, for its industry or the economic sector that it depends upon or works within tp succeed -for instance, consumers for retail; transportation and industry for energy; housing, credit cards and autos for finance; sovereign debt, currencies and savings for gold) doubling looks achievable.
This presupposes you have now become pretty familiar with the analytical tools, charts and how to read them (I prefer the Japanese candlestick type), that are currently available to D0-It-Yourself investors. Even if it turns out to actually reach your goal, you can't see an actionable path in detail from here. What's happening in your life and what are you prepared or interested in enough to do? Do you sit like Warren Buffet back when he was 40? Do you have some investable funds coming in every month to buy with on dips along the way? Maybe you don't have decades to coast. Worst would be no long-term horizon together with no further money coming in.
These differences all change how you will look at that imaginary trend line (OK, you can draw it in so its a real line, but its still not a reality). What you DO know for sure is, it will not get there in a straight line. And within that certainty lies both opportunity and danger.
So lets call that "macro" line an initial price scenario. Again, there should be some concept as to why it ends where it does both in price and the date. At this point, the more aggressive (needy?) of our investors will start to think about how they could optimize the returns along the way - and in the process help achieve the overall target if not improve on it. Recognize that starting up this micro or short-term management path working around a core position, will also mean putting in more time to do the work. In a period of activity this could resemble day-trading, but is not. A true day trader will always close out and be flat at the end of the day and picks stocks using different primary or initiating criteria than those above (usually a momentum player).
OK so now our charts, plus real corporate news cycle expectations, may call for a trading exit from some part of our holding at a certain calculated price point (time to event is less distinct or important unless you're expert in market cycles). What percent should be sold will depend on your judgement of how much time the stock will spend at the price (are you shooting for the maximum expected or a reasonable average close to that expectation?), the liquidity of the stock (is the amount you will want to sell significant in terms of the number of shares typically traded in a few minutes, hours or need to be spread over a longer time frame) and are you looking for a specific sum. Typically the amount will be related to the expected cost of buying back a larger position at a lower cost than where it was sold. If it works out that getting more stock becomes risky, settle for the same number of shares plus an improved cash balance. How great is the volatility in a typical trading day? The more the volatility the faster execution you may need and the price of accuracy will be really important. Do you think the pullback will be adequate in price and time to realistically be worth the round-trip risk?
For our purposes here, we are ignoring the concept of stop-loss positions below the market. That needs some blog space of its own. However, in this scenario I have often used several orders, scaled progressively up in price and share size placed ahead of the market. Even if modifying the price of an existing order while in play, a faster execution will often occur compared with a new order placed at the same time. The same technique can be used below the market, particularly during the buy-back of a vacated position when speed at reversals can be really important.
Having this kind of stuff in your head can help when new information comes unexpectedly. Yesterday, a stock already up but still a definite core hold, slipped more noticably on its watch chart than normal for the time the change took. I went directly to my newslines and found a 2-hour old quarterly results notice I had not been expecting yet, released just after the open. The news was rather neutral for the strength of the previous price action. That enabled me to judge that although the stock was sharply off from its high of the previous close, the price range I could execute in would provide a very satisfactory return above the mean trend and my cost. I immediately sold 60% of the core position, an amount I had previously decided. The market clearly reacted poorly to the news - largely due to a generally weak attitude in the natural gas sector - and the stock continued to slide afterwards. With 2/3 now in cash, a high base level had been protected. From a well-purchased position, selling on good news is often - but not always - a temporary good move.
This morning the reverse happened. I had been expecting some kind of constructive announcement by this company before the open next Monday, but not beforehand. However, while checking as usual for late-breaking news on my holdings, moments before the open I found 2 identical wire service briefs that were quite positive. Within seconds I moved cash and placed a buy just as the market opened. I could see seconds later that it had not executed. I had underpriced my bid by 1c. I immediately adjusted and re-sent. The order executed at the revised price during the moment it took to bring up the results screen. In mid-afternoon an official e-mail announcement arrived from the company that was fuller and even more constructive. The stock closed at a new high 15 minutes ago. This positive result would not have happened had there not been a plan of what to do already in place. Actual data modifies action and always trumps the plan.
For the moment sticking with stocks as the investment concept (as distinct from bonds or stock derivatives, etc) for the investor of course at first, basic decisions have to be made. These basics would include, especially for a Canadian, what currency to use - typically Cdn or US depending on the relative outlook between the two - and from that, which market and what individual company from among those thousands you choose - which sector, what characteristics it has that you have been looking for. Where to look and what to look for, we can touch on another time. There are lots of important subset characterisitics here. In the end, you narrow it to a few and make your choice. Now you consider an entry point, begin to act and ultimately develop your position. OK, so here we are.
If it wasn't thought out beforehand, at least at this point we might need to do more than hope it goes up, remembering that hope is never to be mistaken for a plan. We need to develop a scenario for the destination it needs to reach in order to fulfil your requirements. Lets say that the research that led to the choice suggested that over the next 3 to 4 years if things worked out reasonably for the company, for its industry or the economic sector that it depends upon or works within tp succeed -for instance, consumers for retail; transportation and industry for energy; housing, credit cards and autos for finance; sovereign debt, currencies and savings for gold) doubling looks achievable.
This presupposes you have now become pretty familiar with the analytical tools, charts and how to read them (I prefer the Japanese candlestick type), that are currently available to D0-It-Yourself investors. Even if it turns out to actually reach your goal, you can't see an actionable path in detail from here. What's happening in your life and what are you prepared or interested in enough to do? Do you sit like Warren Buffet back when he was 40? Do you have some investable funds coming in every month to buy with on dips along the way? Maybe you don't have decades to coast. Worst would be no long-term horizon together with no further money coming in.
These differences all change how you will look at that imaginary trend line (OK, you can draw it in so its a real line, but its still not a reality). What you DO know for sure is, it will not get there in a straight line. And within that certainty lies both opportunity and danger.
So lets call that "macro" line an initial price scenario. Again, there should be some concept as to why it ends where it does both in price and the date. At this point, the more aggressive (needy?) of our investors will start to think about how they could optimize the returns along the way - and in the process help achieve the overall target if not improve on it. Recognize that starting up this micro or short-term management path working around a core position, will also mean putting in more time to do the work. In a period of activity this could resemble day-trading, but is not. A true day trader will always close out and be flat at the end of the day and picks stocks using different primary or initiating criteria than those above (usually a momentum player).
OK so now our charts, plus real corporate news cycle expectations, may call for a trading exit from some part of our holding at a certain calculated price point (time to event is less distinct or important unless you're expert in market cycles). What percent should be sold will depend on your judgement of how much time the stock will spend at the price (are you shooting for the maximum expected or a reasonable average close to that expectation?), the liquidity of the stock (is the amount you will want to sell significant in terms of the number of shares typically traded in a few minutes, hours or need to be spread over a longer time frame) and are you looking for a specific sum. Typically the amount will be related to the expected cost of buying back a larger position at a lower cost than where it was sold. If it works out that getting more stock becomes risky, settle for the same number of shares plus an improved cash balance. How great is the volatility in a typical trading day? The more the volatility the faster execution you may need and the price of accuracy will be really important. Do you think the pullback will be adequate in price and time to realistically be worth the round-trip risk?
For our purposes here, we are ignoring the concept of stop-loss positions below the market. That needs some blog space of its own. However, in this scenario I have often used several orders, scaled progressively up in price and share size placed ahead of the market. Even if modifying the price of an existing order while in play, a faster execution will often occur compared with a new order placed at the same time. The same technique can be used below the market, particularly during the buy-back of a vacated position when speed at reversals can be really important.
Having this kind of stuff in your head can help when new information comes unexpectedly. Yesterday, a stock already up but still a definite core hold, slipped more noticably on its watch chart than normal for the time the change took. I went directly to my newslines and found a 2-hour old quarterly results notice I had not been expecting yet, released just after the open. The news was rather neutral for the strength of the previous price action. That enabled me to judge that although the stock was sharply off from its high of the previous close, the price range I could execute in would provide a very satisfactory return above the mean trend and my cost. I immediately sold 60% of the core position, an amount I had previously decided. The market clearly reacted poorly to the news - largely due to a generally weak attitude in the natural gas sector - and the stock continued to slide afterwards. With 2/3 now in cash, a high base level had been protected. From a well-purchased position, selling on good news is often - but not always - a temporary good move.
This morning the reverse happened. I had been expecting some kind of constructive announcement by this company before the open next Monday, but not beforehand. However, while checking as usual for late-breaking news on my holdings, moments before the open I found 2 identical wire service briefs that were quite positive. Within seconds I moved cash and placed a buy just as the market opened. I could see seconds later that it had not executed. I had underpriced my bid by 1c. I immediately adjusted and re-sent. The order executed at the revised price during the moment it took to bring up the results screen. In mid-afternoon an official e-mail announcement arrived from the company that was fuller and even more constructive. The stock closed at a new high 15 minutes ago. This positive result would not have happened had there not been a plan of what to do already in place. Actual data modifies action and always trumps the plan.
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