Buying and Selling Shares. Session One A Strategy for the Times. Warning

Transcription

1 IMPORTANT NOTICE This copy of the presentation slides are copyright to Colin Nicholson They are provided for your own personal use only. Please do not copy the slides for anyone else. If you wish to copy any part of this file for another person, please obtain my permission before doing so. Thank you. Buying and Selling Shares AIA Conference July 7 Colin Nicholson colin@bwts.com.au Warning This views expressed in presentation are intended only for discussion and education. They are not intended to be, nor are they suitable to be, acted upon as investment advice. Session One A Strategy for the Times It is advisable to obtain investment advice from a licensed adviser before making any investment decisions based on the views expressed in this presentation. I am not a licensed investment adviser. XAO - ALL ORDINARIES INDEX > to Are you preparing to deal with the next bear market? -26% -32% -46% -33% -41% -35% -54% M 3101A %-23% -33% -23% % Loss in % Gain to Bear Market Recover

2 Dow Theory Phases of Bull & Bear Markets Reviving Confidence Increasing Earnings Rampant Speculation Primary Bull Market Abandonment of Hopes Decreasing Earnings Primary Bear Market Distress Selling Bull Market Phase 3 Rampant Speculation Increased price volatility Significant fundamental over valuation Full employment, rising interest rates & inflation Many takeovers including private equity Public enter market day traders emerge Trading systems promoted Media coverage increases front page stories New paradigm theories Market regulation relaxed Market driven by few stocks Many floats and new capital raisings*. * See following slide Floats XAO W D MOV AVS 12(0) day Dow Theory Phases of Bull & Bear Markets 20 Rampant Speculation Abandonment of Hopes New Floats 10 Increasing Earnings Decreasing Earnings Distress Selling All Ordinaries Index Reviving Confidence Primary Bull Market Primary Bear Market XAO - ALL ORDINARIES INDEX > to Example of my bull market entry strategy in practice D XAO - ALL ORDINARIES INDEX > -4.3 to 5895 Example of my bull market exit strategy in practice D % % 20% Coppock = % 2 Copp Pulled back to % on corrections *

3 Problem: Which peak is the last one? At the time they all look the same XAO - ALL ORDINARIES INDEX > -4.3 to 5895 Example of my bull market exit strategy in practice % D % Sell on any sell signal A View of Australian Market Charts XAO - ALL ORDINARIES INDEX > to LineLinreg 2 mnth 20 % below 35 % above Long Term Linear Regression Channel M 3101A XAO - ALL ORDINARIES INDEX > to D XAO - ALL ORDINARIES INDEX > to D Trend Channel Weekly Chart 0 Trend Channel Daily Chart This chart will be updated for the day 0 This chart will be updated for the day J J A S O N D 6 J F M A M J J A 7 3

4 Thoughts on Stock Selection Reducing Risk Through Stock Selection Margin of Safety Diversification Charting 101 Reducing Risk Through Stock Selection Margin of Safety Buy well-managed companies cheaply Relatively low Price Earnings (PE) ratio Relatively high Dividend Yield Conservative debt levels. Reducing Risk Through Stock Selection Diversification Spread of industries But focus Vs mediocrity Reducing Risk Through Stock Selection Charting 101 SGB - ST GEORGE BANK > +3 to 36 Ex Div c (%) Charting 101 This is an uptrend W

5 CFK - CFK CHILDCARE CENTRES LTD > -1 to 24.5 D Charting 101 This is a downtrend Reducing Risk Through Stock Selection Charting 101 Trending upward or Breakout from accumulation or consolidation zone (more later) M A M J J A S O N D 6 J F M A M 24 7 WWA - WRIDGWAYS AUSTRALIA LTD > -16 to 244 Ex Div 16 7c (%) MOV AVS 2(0) day An Example Buy Breakout PE ratio 7.7 times Div Yield 7.1% D Broad Strategies for 7 Reduce exposure to shares Focus on margin of safety Avoid speculative stocks Avoid debt-laden securities Know where your stops are Don't give too much back. 20 End of Session Value Model Distribution Session Two Finding Shares to Buy Mark Up Mark Down Accumulation 5

6 SKE - SKILLED GROUP LTD > +5 to 495 Ex Div 27 8c (%) Value Model Example D MCP - MCPHERSON'S > -8 to 327 Ex Div 07 9c (%) Value Model Example D Growth Model Mark-up WDC - WESTFIELD GROUP > -22 to 20 Ex Div 06 0c (0%) Growth Model Example D Mark-up Consolidation Mark-up Consolidation Consolidation SGB - ST GEORGE BANK > +1 to 38 Ex Div 17 82c (%) Growth Model Example D My Two Market Screens Technical Analysis 52-week new highs Fundamental Analysis Low PE ratios. 6

7 Technical Analysis Screen 52-week new highs Looking for Upward breakouts and Existing uptrends. Technical Analysis Screen Procedure Make list of three-letter ASX codes Set up filter screen Run screen Chart results Step through them looking for Value model or Growth model Upward breakouts and Uptrends. Technical Analysis Screen Set up filter screen (52-week new highs) MAX(20,D):>:MAX(2,D-21) AND PER(D):>:0 AND DIVYD(D):>:0 This will give us shares Making a 52-week new high, Which make a profit and Which pay a dividend. Some examples I found in this bull market using the technical analysis screen DJS - DAVID JONES LTD > +7 to 545 Ex Div 27 9c (%) MOV AVS 2(0) day D LEI - LEIGHTON HOLDINGS > -79 to 4111 Ex Div 07 45c (0%) MOV AVS 2(0) day D consolidation Mark down 1 1 Consolidation accumulation 7

8 LLC - LEND LEASE MOV AVS 2(0) day distribution STS - STRUCTURAL SYSTEMS MOV AVS 2(0) day distribution Mark down Mark down 0 0 accumulation accumulation AHD - AMALGAMATED HOLDINGS MOV AVS 2(0) day distribution Mark down Fundamental Analysis Screen Low PE ratios (see next slide) accumulation Looking for Upward breakouts and Existing uptrends. Fundamental Analysis Screen Low PE ratios 10-year bond yield = 6.23% Add % risk premium = 9.35% Equiv. PE ratio = 9.35 = 10.7 Fundamental Analysis Screen Procedure Make list of three-letter ASX codes Set up filter screen Run screen Chart results Step through them looking for Upward breakouts Existing uptrends. 8

9 Fundamental Analysis Screen Set up filter screen (Low PE ratios) PER(D):<=:10.7 AND PER(D):>:0 AND DIVYD(D):>:0 This will give us shares With a PE ratio of 10.7 or less, Which make a profit and Which pay a dividend. Two Important Points You can do this without charting software, using a newspaper and a free internet charting service Some (maybe many) of the charts will show downtrends Because the profits and dividends are expected to fall Cut these out without hesitation. There will not be time today to show and discuss examples of the fundamental analysis screen (see The Aggressive Investor) Session Three Where the Real Money Is End of Session 2 The vital investment skills How many shares we buy and How we manage our investments The first vital skill How Many Shares to Buy Estimate buy price Determine sell stop (stop loss) Calculate the risk Decide max. percentage of capital to risk Calculate max number we may buy Decide percentage of capital to invest Calculate how many shares that will buy Resolve number of shares to buy Now let s take it slowly 9

10 WWA - WRIDGWAYS AUSTRALIA LTD > +5 to 255 Ex Div 07 5c (%) MOV AVS 2(0) day D WWA - WRIDGWAYS AUSTRALIA LTD > +5 to 255 Ex Div 07 5c (%) MOV AVS 2(0) day D Sell stop Step 1: Estimate buy price Step 2: Determine sell stop Use last sale price which was $1.05. Under 5 low = 84c Step 3: Calculate the risk Buy price = 1.05 Sell-stop = 0.84 Risk = Step 4: Decide max. percentage of capital to risk Capital = Holdings + cash Assume total is $,000 If my plan allows me to risk 1% 1% of $,000 = $1,000. Step 5: Calculate max. number of shares to buy Step 6: Decide percentage of capital to invest 1% of capital = $1,000 Max number of shares we can buy = 1, = 4,762 shares. Capital = Holdings + cash Assume total is $,000 If my plan allows me to risk 6% 6% of $,000 = $6,

11 Step 7: Calculate how many shares that will buy 6% of capital = $6,000 No of shares that will buy = 6, = 5,714 shares. Step 8: Resolve number of Shares to buy Max can buy = 4,762 6% of capital buys = 5,714 Number to buy = 4,762. The second vital skill How we manage the investment Buying points Position building Setting sell stops Three sell signals Now let s take it slowly Buying points (breakout) Value Model Buy breakout Accumulation Growth Model Buy breakout Consolidation Buying points (existing trend) Position building (breakout) Buy above last peak First buy Third buy Second buy Buy above a potential higher trough Accumulation or consolidation 11

12 Position building (existing trend) Setting sell stops (breakout) When price exceeds next peak, move the sell stop level to B Third buy When price exceeds next peak, move the sell stop level to A First buy B Third buy A Second buy First buy Second buy Sell stop level after Third buy Accumulation or Consolidation Sell stop level after First buy and Second buy Setting sell stops (existing trend) Three sell signals sell stop When price exceeds next peak, move the sell stop level to B When price exceeds next peak, move the sell stop level to A B Latest sell stop level Sell signal (sell stop hit) Third Buy A Earlier sell stop level First Buy Second Buy Sell stop level after third buy Sell stop level after first and second buys Earlier sell stop level Earlier sell stop level Three sell signals trend change Three sell signals reversal pattern Present sell stop level Earlier sell stop level Sell signal (LP then below last trough) Present sell stop level Earlier sell stop level Sell signal (breakout from pattern) Earlier sell stop level Earlier sell stop level 12

13 Blackmores Case Study BKL - BLACKMORES > -15 to 2110 Ex Div 07 35c (%) MOV AVS 12(0) mnth Growth model chart near breakout? M Div Yield 5.2% PE Ratio BKL - BLACKMORES > -15 to 2110 Ex Div 07 35c (%) MOV AVS 12(0) week W BKL - BLACKMORES > -15 to 2110 Ex Div 07 35c (%) MOV AVS 12(0) week W Breakout to $ Set sell stop under this low = $ J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D Position Size Calculator Total Capital,000 Buy Price Sell-Stop 12. Risk 3.65 % Capital to Risk 1 Max position 13 % Capital to Invest 2 Shares it buys 619 Shares to buy 619 Already held 0 Buy now 619 BKL - BLACKMORES > -15 to 2110 Ex Div 07 35c (%) MOV AVS 12(0) day Bought Sell stop D OCT 6 JUL AUG SEP 13

14 BKL - BLACKMORES > -15 to 2110 Ex Div 07 35c (%) MOV AVS 12(0) day New high D BKL - BLACKMORES > -15 to 2110 Ex Div 07 35c (%) MOV AVS 12(0) day New high D Move sell stop up to here 1 Move sell stop up to here JUL AUG SEP OCT NOV DEC JUL AUG SEP OCT NOV DEC JAN FEB MAR BKL - BLACKMORES > -15 to 2110 Ex Div 07 35c (%) MOV AVS 12(0) day D BKL - BLACKMORES > -15 to 2110 Ex Div 07 35c (%) MOV AVS 12(0) day D Sell signal 10 Sell signal JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY BKL - BLACKMORES > -15 to 2110 Ex Div 07 35c (%) MOV AVS 12(0) day D $29.95 Should have been able to sell in next two days End of Session 3 JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY $49.95 Available for sale at the Educated Investor Bookshop Stand $