MEANING OF TEN BAGGER --Discussion
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whiteheron02-03-2006, 08:17 PM
The definition of a TEN BAGGER is "a stock whose value increases ten times"
The expression was originated by Peter Lynch , one of the greatest investors of all time
So far , so good --- but nowhere can I find any really meangingful reference to the time period allowed to score a ten bagger
A year would seem most unlikely , except in the most extreme of cases
A decade maybe --- this would seem pretty damm good
Fifty years --- one would probably expect any reasonable stock to be a ten bagger in this time , given good returns , compounding , inflation etc
So a simplistic statement does not , in my opinion , address the matter fully ( and I wont be around for another 50 years for that option anyway )
So far I have been investing ( and trading ) for under 4 years and have achieved less than a handful of 2 to 3+ baggers , and one real " bugger "
I would like to hear what others have to say on this subject
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Halebop02-03-2006, 08:47 PM
As you allude, I think the term is irrelevent without a timeframe.
I've enjoyed just 1 ten bagger in 20+ years of investing. It might have been something more like a 20 or 30 bagger but took around a decade to realize and several additional purchases along the way muddied the final return calculations.
Given an "Oustanding" long term investment might generate 20% per annum, it's quite a reach to achieve a 10 bagger over even a decade. So I suspect the term just resonates more with an individual than actually being any useful benchmark.
If someone can beat some meaningful benchmarks like an index they should be well satisfied. My targets include beating the All Ords and NZX year on year, beating inflation and an absolute (positive) return.
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Mick10004-03-2006, 09:07 PM
I had one last yr and have another couple getting close - all from 2003 investments
I'm expecting 10 baggers to become as common as mud over the next 5-10 yrs for those people invested in resources
,
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Lawso10-03-2006, 06:11 PM
GEN - bought @ an average of 350, sold for 35. Clearly a 10 bugger [V]
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duncan macgregor10-03-2006, 06:33 PM
ONLY SHARE THAT SPRINGS TO MIND IS POISIDEN. A fifty cent share that went to over $230-00 and back again in the late sixties in Australia.
macdunk.
Ps i was to bloody smart to buy in to it YUCK.
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Dazza13-03-2006, 03:27 PM
CAZ
10 bagger there :P
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Sideshow Bob13-03-2006, 04:22 PM
Think the hardest thing would be not to sell before getting 10x the buy-in price.
Know I would take the money & run well before that!
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kittydashwood19-03-2006, 02:49 PM
Selling down incrementally leaves you a small final slice that can easy get to ten bags.XSNX was my most recent.
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Mick10011-04-2006, 07:21 PM
Got another one today
BSG - accumulated on the dips in 03, 04 and 05
,
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whiteheron11-04-2006, 07:29 PM
Mick 100
I have had a history of getting out of winners far too early
eg BSG , purchased about 30c and cashed in at 90c
Now trying hard to overcome this tendency --- but I suppose better to get out at a healthy profit than hang on to a loser and suffer a heavy loss
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Mick10011-04-2006, 07:47 PM
Yeah, the idea is to get a balance WH
I'v hung on to a couple of losers far too long, TRO, CRS
I'm beginning to appreciate good stable managment more than ever with regards to my speculative shares.
BSG have had their share of problems in the early days while their main stay operations were in Georgia But they always seem to manage to turn a bad situation into a good situation - I put that down to, not good luck but rather, good managment.
,
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whiteheron11-04-2006, 08:10 PM
My worst experience was with GTM (now CME )
Cost me plenty , but in this game the best lessons often cost !
On the other hand I have/have had some real winners eg AWE , BHP sold too early , EXS .
MMN has been pretty good too --- have bought and sold since around 10c
Now have 15,000 shares worth about $6,600 , at a cost of negative $2,400
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OldRider15-04-2006, 08:17 AM
There are apparently various ideas about what the "10 bagger" tag means, can I toss in the idea that it could be as much a reflection of poor investment decisions as good ones.
If we try to be aboard winners we should be buying stocks on a steady climb, if this is done it is difficult to ever reach a 10 bagger, where the criteria is total gain is divided by total cost, for the percentage gain deteriorates on further purchases.
An example from my statistics, AVM from an initial purchase under 10c has reached 10 bagger status, however, several additional purchases leaves it well down at round four times cost.
So while feeling good over a 10 bagger, reality could be a missed opportunity.
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Mick10015-04-2006, 02:22 PM
quote:Originally posted by OldRider
There are apparently various ideas about what the "10 bagger" tag means, can I toss in the idea that it could be as much a reflection of poor investment decisions as good ones.
If we try to be aboard winners we should be buying stocks on a steady climb, if this is done it is difficult to ever reach a 10 bagger, where the criteria is total gain is divided by total cost, for the percentage gain deteriorates on further purchases.
An example from my statistics, AVM from an initial purchase under 10c has reached 10 bagger status, however, several additional purchases leaves it well down at round four times cost.
So while feeling good over a 10 bagger, reality could be a missed opportunity.
Not so Old rider
My definition of 10 bagger is 10 times your average buy price
I bought BSG in three parcles
2003, parcle 1 @ 19c
2004, parcle 2 @ 26.5c
2005, parcle 3 @ 47c ( this was a small parcle)
average price of 26.1c
The moral of the story - buy right and sit tight
PS, I have another one getting close - will keep you informed
,
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OldRider15-04-2006, 05:13 PM
Mick100:
I guess you would be happier had you purchased an even larger parcel at 47c or even another later at a higher price, to have not reached 10 bagger status yet, but be better off, and viewing the investment as even better choice.
You may well be correct about my definition, nonetheless you confirmed my real point, that averaging up on a sound stock delays reaching 10 bagger status, but this does not reflect badly on the decisions.
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whiteheron15-04-2006, 08:13 PM
There are many ways to look at this matter in my opinion
As I see it , just because you average up ( a good strategy on a top class stock ) does not take away from having a 10 bagger on your first or early parcels purchased , with lesser baggers on subsequent parcels purchased
Hard learned lessons have taught me that averaging up is much smarter than averaging down
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Lawso17-04-2006, 10:51 AM
quote:Hard learned lessons have taught me that averaging up is much smarter than averaging down
Words of wisdom from whiteheron. Unless you've done the homework and are convinced that the company concerned is still sound, averaging down is a way of chucking good money after bad.
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davidrob02-05-2006, 09:20 PM
Hi guys,
Four quick reflections / ideas .
(1) Ten Bagger seeking (in a 12 month framework) ....imo.... can be potentially dangerous to long term compounding results....
(2) Interesting to compare compounding say 120% increases over an average of say 12 shares, rolled over a few times, and statisticaly comparing the average median result -- to attempting to get 12 individual "10 baggers".
(3) Agree with Mick.... that "stable" management.... is as important as stock selection, in mnay respects.
(4) I think.... what Mick is probably saying -- ??--- ....... Do correct me if I am wrong.... is that what Mick is saying ....is that "money management"..... is as important a "key skill set" to wealth through shares ......as is "stock picking"....
Kindest Regards,
Robbo:)
quote:Originally posted by Mick100
Yeah, the idea is to get a balance WH
I'v hung on to a couple of losers far too long, TRO, CRS
I'm beginning to appreciate good stable managment more than ever with regards to my speculative shares.
BSG have had their share of problems in the early days while their main stay operations were in Georgia But they always seem to manage to turn a bad situation into a good situation - I put that down to, not good luck but rather, good managment.
,
--------------------------------------------------------------------------------
Bel03-05-2006, 02:34 PM
quote:Originally posted by davidrob
(4) I think.... what Mick is probably saying -- ??--- ....... Do correct me if I am wrong.... is that what Mick is saying ....is that "money management"..... is as important a "key skill set" to wealth through shares ......as is "stock picking"....
:)
Well considering the stories of other apes picking stocks just as well as fund managers then i would definately agree that knowing money management is as equal to or more important than the actual stocks that are picked.
quote:Originally posted by Mick100
Yeah, the idea is to get a balance WH
I'v hung on to a couple of losers far too long, TRO, CRS
I'm beginning to appreciate good stable managment more than ever with regards to my speculative shares.
BSG have had their share of problems in the early days while their main stay operations were in Georgia But they always seem to manage to turn a bad situation into a good situation - I put that down to, not good luck but rather, good managment.
,
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belgarion03-05-2006, 06:16 PM
10-baggers come most often in ....
1) recovery stocks where fear is so bad you can smell it
2) small non-mainboard companies (have excluded private companies)
3) start-ups where the business model/product is so new that people just don't get it (these can also be small non-mainboard companies too)
4) and, of course, penny-dreadfuls ...
I like 1 and 3.
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Dazza27-05-2006, 12:13 AM
my CAZ 10 bagger, turned out to be a 1 bagger ><
have cashed in now.
ARUO - from 1 bagger to 0 bagger ><
still holding ARUO though.
Potential 10 baggers for me at this moment:
ARUO
EXT
AEX
WMEO
UNX
TOX
BRO
just like belg said,
bro is #3
tox is #1
and the uranium are well number 4 i guess :P
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trackers22-08-2006, 04:57 PM
I'll never achieve a 10 bagger..
I will achieve 10 1 baggers :)
work out 10k doubled 7 times ;)
http://www.sharetrader.co.nz/archive/index.php?t-3344.html
Friday 4 September 2009
Hunting Lynch's 10-Baggers
Published January 26, 2006
by Jack Hough (Author Archive)
Hunting Lynch's 10-Baggers
PETER LYNCH SOUGHT and captured stock returns so large that he created a new terminology to discuss his winners. In his 1989 stock-picking primer "One Up On Wall Street," the former Fidelity Magellan fund manager used the word "10-bagger" to describe a stock that increased ten-fold in value. Dunkin' Donuts and Pep Boys (PBY: 8.70, +0.20, +2.35%) are examples of 10-baggers Lynch owned for Magellan. Magellan itself was a 28-bagger during his 13 years at the helm.
Lynch would seem a perfect inspiration, then, for a guru-style stock screen, one based on the investment strategies of a renowned investor. There's one hitch, though: Not all guru strategies lend themselves neatly to screening.
For example, aside from the term "10-bagger," Lynch is perhaps best known for the phrase "buy what you know." Many of his picks came from companies with products or services he used. A stock screener, of course, can't test for what you know. In fact, it does quite the opposite. A stock screener excels at judging companies based not on personal preferences, but on a cold calculus of their financial statements.
Fortunately, Lynch used plenty of hard metrics, too, and these give us some guidelines for how to build our screen. Rather than use a one-size-fits-all approach, he broke companies into six classes. These include slow growers, stalwarts, cyclicals, turnarounds, asset opportunities and fast growers. Of the last type, he wrote, "If you choose wisely, this is the land of the 10- to 40-baggers, and even the 200-baggers." Sounds like fast-growers are for us.
Spotlight Stock
Quality Systems (QSII)
Develops and markets health-care information systems that automate medical and dental practices, physician and hospital organizations, management service organizations and community health centers, among others.
Thursday's Close $79.86
Market Value $1.1 billion
Trailing 12-Month Sales $105 million
Forward P/E 47
Proj. Long-Term EPS Growth Rate 30%
Additional Data:
Earnings Financials Key Ratios Ratings Insiders
Fast growers are small, aggressive new enterprises growing at 20% to 25% a year, according to Lynch. We'll call "small" anything with a market value below $5 billion. And we'll look for companies that have boosted their sales and earnings by at least 20% apiece for the past three years, and which are projected to boost their earnings by at least 20% in their current fiscal year. Already, these demands reduce our database of more than 8,000 stocks to a mere 99.
Lynch called companies with little or no institutional ownership potential winners, and companies with scant analyst coverage double-winners. So we'll look for companies where institutions own no more than 40% of outstanding shares and are followed by no more than four analysts. That leaves 17 stocks.
Of course, our screen survivors should be affordable and financially stable. Since Lynch liked to compare companies' price/earnings ratios with their earnings growth rates, we'll do so by looking for price/earnings-to-growth, or PEG, ratios (P/E divided by long-term earnings growth projection) that are below 1.7. (The broad market's average PEG is about 1.5.) And we'll require that debt/capital ratios be no higher than 0.5.
That leaves us with a mere 11 stocks. Use our stock screener anytime to run the search for yourself. We've preloaded it into the pull-down menu of screen recipes.
Note that three of our screen survivors were 2005 picks. Pet Meds (PETS: 55.13, +0.94, +1.73%) is up a tail-thumping 56% since we called it "the most promising pick of the litter" in October (see "Such a Good Buy, Yes You Are"). Kitchen gadgeteer Lifetime Brands (LCUT), which we highlighted just last month ("The Chance of a Lifetime") is already up 8%, despite a flat performance for the market. And we really shouldn't tell you how far circuit-board maker MultiFineline Electronix (MFLX) has climbed since we described its valuation as "wafer thin" in March ("M-Flex Inside"). But if you must know: 168%, mocking the market's 8% increase.
Let's look now at another of the Lynch screen's survivors. Quality Systems (QSII) is the kind of company name that could just as easily describe a hydraulics outfit as it could a maker of hot-dog casings. In fact, it makes health-care information systems — software used by private-practice doctors and network participants to manage their patient care and billing. The company's NextGen suite tracks patient information, manages appointment scheduling and referrals, stores prescriptions and clinical images, prints bills and letters and goes after insurer reimbursements. It also prints educational materials for patients and efficiency reports for doctors.
NextGen brings in more than 85% of Quality Systems' sales — not exactly income-stream diversification. But one-product companies whose products are hot can produce stunning gains, both in their earnings and their share prices. In its second quarter, which ended Sept. 30, Quality Systems' sales and earnings jumped 39% and 56%, respectively, over the same quarter last year. Over the past year, the company has produced an operating margin of nearly 29% on sales of $105 million. The average operating margin for health-care information companies is below 5%.
Quality Systems' stock has already been a two-plus-bagger over the past year, a seven-bagger over the past three years and an 18-bagger over the past five. The trio of analysts who cover the stock expect the company to boost its earnings by 40% in its fiscal 2006, which ends March 31, and by 26% in fiscal 2007. Over the next five years, they're looking for annual earnings growth of 30%. That helps make the stock's 2006 P/E of 47 seem reasonable. Scalp the $5 a share Quality Systems holds in cash off of its $80 share price, and you end up with an even more reasonable P/E of 44. (The company is debt-free.)
Those numbers give Quality Systems shares a PEG ratio of 1.57 or 1.46, depending on whether you factor in the cash. The company's closest competitors, Cerner (CERN) and Amicas (AMCS), carry PEGs of 1.66 and 7.36, respectively. (Though in fairness, the latter number is skewed by the company's low earnings base, thanks to its recent swing to profitability.)
All told, the numbers we're seeing on Quality Systems say bag these shares before they head any higher.
Jack Hough is an associate editor at SmartMoney.com and author of "Your Next Great Stock."
http://www.smartmoney.com/investing/stocks/Hunting-Lynchs-10-Baggers-18937/
by Jack Hough (Author Archive)
Hunting Lynch's 10-Baggers
PETER LYNCH SOUGHT and captured stock returns so large that he created a new terminology to discuss his winners. In his 1989 stock-picking primer "One Up On Wall Street," the former Fidelity Magellan fund manager used the word "10-bagger" to describe a stock that increased ten-fold in value. Dunkin' Donuts and Pep Boys (PBY: 8.70, +0.20, +2.35%) are examples of 10-baggers Lynch owned for Magellan. Magellan itself was a 28-bagger during his 13 years at the helm.
Lynch would seem a perfect inspiration, then, for a guru-style stock screen, one based on the investment strategies of a renowned investor. There's one hitch, though: Not all guru strategies lend themselves neatly to screening.
For example, aside from the term "10-bagger," Lynch is perhaps best known for the phrase "buy what you know." Many of his picks came from companies with products or services he used. A stock screener, of course, can't test for what you know. In fact, it does quite the opposite. A stock screener excels at judging companies based not on personal preferences, but on a cold calculus of their financial statements.
Fortunately, Lynch used plenty of hard metrics, too, and these give us some guidelines for how to build our screen. Rather than use a one-size-fits-all approach, he broke companies into six classes. These include slow growers, stalwarts, cyclicals, turnarounds, asset opportunities and fast growers. Of the last type, he wrote, "If you choose wisely, this is the land of the 10- to 40-baggers, and even the 200-baggers." Sounds like fast-growers are for us.
Spotlight Stock
Quality Systems (QSII)
Develops and markets health-care information systems that automate medical and dental practices, physician and hospital organizations, management service organizations and community health centers, among others.
Thursday's Close $79.86
Market Value $1.1 billion
Trailing 12-Month Sales $105 million
Forward P/E 47
Proj. Long-Term EPS Growth Rate 30%
Additional Data:
Earnings Financials Key Ratios Ratings Insiders
Fast growers are small, aggressive new enterprises growing at 20% to 25% a year, according to Lynch. We'll call "small" anything with a market value below $5 billion. And we'll look for companies that have boosted their sales and earnings by at least 20% apiece for the past three years, and which are projected to boost their earnings by at least 20% in their current fiscal year. Already, these demands reduce our database of more than 8,000 stocks to a mere 99.
Lynch called companies with little or no institutional ownership potential winners, and companies with scant analyst coverage double-winners. So we'll look for companies where institutions own no more than 40% of outstanding shares and are followed by no more than four analysts. That leaves 17 stocks.
Of course, our screen survivors should be affordable and financially stable. Since Lynch liked to compare companies' price/earnings ratios with their earnings growth rates, we'll do so by looking for price/earnings-to-growth, or PEG, ratios (P/E divided by long-term earnings growth projection) that are below 1.7. (The broad market's average PEG is about 1.5.) And we'll require that debt/capital ratios be no higher than 0.5.
That leaves us with a mere 11 stocks. Use our stock screener anytime to run the search for yourself. We've preloaded it into the pull-down menu of screen recipes.
Note that three of our screen survivors were 2005 picks. Pet Meds (PETS: 55.13, +0.94, +1.73%) is up a tail-thumping 56% since we called it "the most promising pick of the litter" in October (see "Such a Good Buy, Yes You Are"). Kitchen gadgeteer Lifetime Brands (LCUT), which we highlighted just last month ("The Chance of a Lifetime") is already up 8%, despite a flat performance for the market. And we really shouldn't tell you how far circuit-board maker MultiFineline Electronix (MFLX) has climbed since we described its valuation as "wafer thin" in March ("M-Flex Inside"). But if you must know: 168%, mocking the market's 8% increase.
Let's look now at another of the Lynch screen's survivors. Quality Systems (QSII) is the kind of company name that could just as easily describe a hydraulics outfit as it could a maker of hot-dog casings. In fact, it makes health-care information systems — software used by private-practice doctors and network participants to manage their patient care and billing. The company's NextGen suite tracks patient information, manages appointment scheduling and referrals, stores prescriptions and clinical images, prints bills and letters and goes after insurer reimbursements. It also prints educational materials for patients and efficiency reports for doctors.
NextGen brings in more than 85% of Quality Systems' sales — not exactly income-stream diversification. But one-product companies whose products are hot can produce stunning gains, both in their earnings and their share prices. In its second quarter, which ended Sept. 30, Quality Systems' sales and earnings jumped 39% and 56%, respectively, over the same quarter last year. Over the past year, the company has produced an operating margin of nearly 29% on sales of $105 million. The average operating margin for health-care information companies is below 5%.
Quality Systems' stock has already been a two-plus-bagger over the past year, a seven-bagger over the past three years and an 18-bagger over the past five. The trio of analysts who cover the stock expect the company to boost its earnings by 40% in its fiscal 2006, which ends March 31, and by 26% in fiscal 2007. Over the next five years, they're looking for annual earnings growth of 30%. That helps make the stock's 2006 P/E of 47 seem reasonable. Scalp the $5 a share Quality Systems holds in cash off of its $80 share price, and you end up with an even more reasonable P/E of 44. (The company is debt-free.)
Those numbers give Quality Systems shares a PEG ratio of 1.57 or 1.46, depending on whether you factor in the cash. The company's closest competitors, Cerner (CERN) and Amicas (AMCS), carry PEGs of 1.66 and 7.36, respectively. (Though in fairness, the latter number is skewed by the company's low earnings base, thanks to its recent swing to profitability.)
All told, the numbers we're seeing on Quality Systems say bag these shares before they head any higher.
Jack Hough is an associate editor at SmartMoney.com and author of "Your Next Great Stock."
http://www.smartmoney.com/investing/stocks/Hunting-Lynchs-10-Baggers-18937/
7 Stocks That Could Be 10-Baggers
In early October, 2002, I went to visit two guys who were running a small hedge fund of about $10 million. They had been short Ford (F) and GM (GM) and a number of other stocks.
I asked them what their view of the world was. I told them I was bullish, but they laughed and said, "That’s because you’re always bullish. When are you ever bearish?" They said, "It’s about to hit the fan. We are massively short everything. America is going down."
(As an aside, both of these guys are in jail now. One wouldn’t testify against the other, so he got the larger sentence. The other guy (who was actually the boss) will be out in a year or so. The crime had nothing to do with their hedge fund but with a currency brokerage firm they had been running for 20 years that turned out to be a massive scam. The incident above was the last time I ever spoke to them, and a few weeks later, I saw that the FBI had arrested them and about 30 others in a multiyear sting operation.)
The point is, the world was falling apart in October 2002. Criminals and sociopaths were slitting the throat of America in an attempt to make money on the short side. Back then, inflation wasn’t a worry but deflation. And "Helicopter Ben" was threatening to carpet bomb the economy with dollar bills.
How does one do that? By cutting rates. By backing debt at the esoteric parts of the yield curve. By bailing out failing banks. By opening the discount window to banks and lower beasts on the financial evolutionary curve. By even buying stock in a worst-case scenario.
At the time, there were about a dozen stocks trading for less than cash. In other words, they had, for example, $100 million in the bank and no debt, were profitable and had a market cap less than $100mm. A little company called TheStreet.com was an example of such a stock.
In December 2002, I wrote an article about these stocks for the now-deceased Street Insight, which was later folded into RealMoney Silver. People laughed at me. "They trade below cash for a reason. " I was mocked. Children at my kids’ schools spit in their faces.
Five years later, many of these stocks (for example, ValueClick (VCLK)) were up more than 1,000%.
Now it’s happening again. The same sickness that convinced people that our way of life was a life gone wayward has again spread its bacteria into our heads. So here are my five stocks that I think can double, and perhaps double after that.
None of these is Microsoft (MSFT) or Google (GOOG) or Research In Motion (RIMM). Those are the debutantes at the ball. What follows are the rejects that were never even invited to the party.
Adaptec (ADPT) makes storage products. It has a $383 million market cap and $400 million net cash. The company was GAAP break-even last quarter, and non-GAAP it made $5.7 million in income. So people can buy a profitable company right now and put $17 million in their pockets with the excess cash.
It may not be so simple, but it’s still dirt cheap with a margin of safety. Steel Partners
has been buying millions of dollars worth of stock in Adaptec.
HouseValues (SOLD) has $63 million cash, a $65 million market cap and a break-even to profitable business. Good play on any sort of housing snapback and zero chance it goes out of business. Uber-hedge fund Renaissance Technologies is one of its largest shareholders.
Forget Baidu.com (BIDU). Ninetowns (NINE) is the best B2B Internet play in China. It facilitates the online process of importing and exporting goods to and from China. It has a $69 million market cap and $115 million net cash. Again, Renaissance has been loading up on this stock.
Heelys (HLYS) makes those shoes with wheels. It has a $105 million market cap, $100 million cash and no debt. It’s growing huge in Europe and is about to introduce sneakers without wheels. If anyone knows where I can get a pair of those shoes with wheels, please tell me. Apparently the demographic that most wants the sneakers is men over thirty.
If you want a stock with cash flows, check out 4 P/E Crocs (CROX). But Heelys is interesting to me because of the cash levels. And once again, our best friends at Renaissance (a fund that was up 73% last year after fees) is long Heelys.
Premier Exhibitions (PRXI), with a $100 market cap, makes the Bodies exhibit. It also run the Titanic exhibits. There are $3 billion worth of Titanic artifacts sitting on the ocean floor. Premier happens to own the rights to all of those artifacts and has already excavated $100 million worth. There are issues with where the bodies are coming from for the Bodies exhibit, but Premier settled with the New York attorney general, and it may not affect the $17 million in cash flows Premier is generating from these exhibits.
Also check out Entertainment Distribution (EDCI). It has $40 million in net cash, and the company is yours for a meager $35 million. Three of my favorites -- activist investor Chapman Capital, Daniel Loeb’s Third Point and Renaissance -- have all been loading up on shares of this company, which is essentially trading for $0. And before I forget: It is EBITDA-positive.
Zapata (ZAP) has $154 million of cash in the bank and no debt, and you can buy the entire company for $135 million. Not only that, it had $2 million in operating cash flow last year, and Renaissance is a small shareholder.
Sure, all of these stocks are ugly. They look in the mirror, and all they see is scars from a lifetime of malnourishment and poor hygiene. Don’t put all your eggs in this basket. But all it takes is one 10-bagger, and all the rest can go to zero, and you’ve just made 45% on your money.
http://www.stockpickr.com/problog/733/
In early October, 2002, I went to visit two guys who were running a small hedge fund of about $10 million. They had been short Ford (F) and GM (GM) and a number of other stocks.
I asked them what their view of the world was. I told them I was bullish, but they laughed and said, "That’s because you’re always bullish. When are you ever bearish?" They said, "It’s about to hit the fan. We are massively short everything. America is going down."
(As an aside, both of these guys are in jail now. One wouldn’t testify against the other, so he got the larger sentence. The other guy (who was actually the boss) will be out in a year or so. The crime had nothing to do with their hedge fund but with a currency brokerage firm they had been running for 20 years that turned out to be a massive scam. The incident above was the last time I ever spoke to them, and a few weeks later, I saw that the FBI had arrested them and about 30 others in a multiyear sting operation.)
The point is, the world was falling apart in October 2002. Criminals and sociopaths were slitting the throat of America in an attempt to make money on the short side. Back then, inflation wasn’t a worry but deflation. And "Helicopter Ben" was threatening to carpet bomb the economy with dollar bills.
How does one do that? By cutting rates. By backing debt at the esoteric parts of the yield curve. By bailing out failing banks. By opening the discount window to banks and lower beasts on the financial evolutionary curve. By even buying stock in a worst-case scenario.
At the time, there were about a dozen stocks trading for less than cash. In other words, they had, for example, $100 million in the bank and no debt, were profitable and had a market cap less than $100mm. A little company called TheStreet.com was an example of such a stock.
In December 2002, I wrote an article about these stocks for the now-deceased Street Insight, which was later folded into RealMoney Silver. People laughed at me. "They trade below cash for a reason. " I was mocked. Children at my kids’ schools spit in their faces.
Five years later, many of these stocks (for example, ValueClick (VCLK)) were up more than 1,000%.
Now it’s happening again. The same sickness that convinced people that our way of life was a life gone wayward has again spread its bacteria into our heads. So here are my five stocks that I think can double, and perhaps double after that.
None of these is Microsoft (MSFT) or Google (GOOG) or Research In Motion (RIMM). Those are the debutantes at the ball. What follows are the rejects that were never even invited to the party.
Adaptec (ADPT) makes storage products. It has a $383 million market cap and $400 million net cash. The company was GAAP break-even last quarter, and non-GAAP it made $5.7 million in income. So people can buy a profitable company right now and put $17 million in their pockets with the excess cash.
It may not be so simple, but it’s still dirt cheap with a margin of safety. Steel Partners
has been buying millions of dollars worth of stock in Adaptec.
HouseValues (SOLD) has $63 million cash, a $65 million market cap and a break-even to profitable business. Good play on any sort of housing snapback and zero chance it goes out of business. Uber-hedge fund Renaissance Technologies is one of its largest shareholders.
Forget Baidu.com (BIDU). Ninetowns (NINE) is the best B2B Internet play in China. It facilitates the online process of importing and exporting goods to and from China. It has a $69 million market cap and $115 million net cash. Again, Renaissance has been loading up on this stock.
Heelys (HLYS) makes those shoes with wheels. It has a $105 million market cap, $100 million cash and no debt. It’s growing huge in Europe and is about to introduce sneakers without wheels. If anyone knows where I can get a pair of those shoes with wheels, please tell me. Apparently the demographic that most wants the sneakers is men over thirty.
If you want a stock with cash flows, check out 4 P/E Crocs (CROX). But Heelys is interesting to me because of the cash levels. And once again, our best friends at Renaissance (a fund that was up 73% last year after fees) is long Heelys.
Premier Exhibitions (PRXI), with a $100 market cap, makes the Bodies exhibit. It also run the Titanic exhibits. There are $3 billion worth of Titanic artifacts sitting on the ocean floor. Premier happens to own the rights to all of those artifacts and has already excavated $100 million worth. There are issues with where the bodies are coming from for the Bodies exhibit, but Premier settled with the New York attorney general, and it may not affect the $17 million in cash flows Premier is generating from these exhibits.
Also check out Entertainment Distribution (EDCI). It has $40 million in net cash, and the company is yours for a meager $35 million. Three of my favorites -- activist investor Chapman Capital, Daniel Loeb’s Third Point and Renaissance -- have all been loading up on shares of this company, which is essentially trading for $0. And before I forget: It is EBITDA-positive.
Zapata (ZAP) has $154 million of cash in the bank and no debt, and you can buy the entire company for $135 million. Not only that, it had $2 million in operating cash flow last year, and Renaissance is a small shareholder.
Sure, all of these stocks are ugly. They look in the mirror, and all they see is scars from a lifetime of malnourishment and poor hygiene. Don’t put all your eggs in this basket. But all it takes is one 10-bagger, and all the rest can go to zero, and you’ve just made 45% on your money.
http://www.stockpickr.com/problog/733/
Returns of up to 400% annually. Is this possible?
Investment Question:
I've heard some "market gurus" claim returns of up to 400% annually. Is this possible?
--------------------------------------------------------------------------------
To answer your question in a word: No! Although we wish such a phenomenal investment system were real, the claims you speak of are preposterous. Most "gurus" are nothing more than salespeople trying to push a product that, despite what they say, does not work.
Anyone promising annual returns of more than 400% is one of two things: dishonest or extremely dumb. If these people truly had such a great system, do you think they would waste their time trying to sell it for four measly payments of $24.99?
Let's do some quick math. Say you had this secret formula and invested $1,000 into it. If it returned 400% for five years in a row, you would have $1,024,000 (through the magic of compounding). Before long, you'd be on Forbes' billionaire list, along with true market guru Warren Buffett. Clearly, anyone with a foolproof system providing such astronomical returns would not need to put on seminars or sell books for what would be pocket change.
The truth is that many systems out there base their historical performance on backtesting. In other words, they test obscure strategies on historical data, and then use the theoretical returns in their marketing copy. Other swindlers trying to sell you something may report short-term gains as annualized gains. For example, they may have made 25% in a stock over four weeks which, sustained over a whole year, is an annualized gain of roughly 325%. But the chances of anyone being able to maintain 25% returns every four weeks over several years are pretty much nil.
Like anything we try to learn, investing doesn't work by cutting corners. Remember that the power of compounding is most effective over the long term. And, as the old saying goes, if something sounds too good to be true, chances are, it is.
http://www.investopedia.com/terms/t/tenbagger.asp
http://www.investopedia.com/ask/answers/04/030404.asp?viewed=1
I've heard some "market gurus" claim returns of up to 400% annually. Is this possible?
--------------------------------------------------------------------------------
To answer your question in a word: No! Although we wish such a phenomenal investment system were real, the claims you speak of are preposterous. Most "gurus" are nothing more than salespeople trying to push a product that, despite what they say, does not work.
Anyone promising annual returns of more than 400% is one of two things: dishonest or extremely dumb. If these people truly had such a great system, do you think they would waste their time trying to sell it for four measly payments of $24.99?
Let's do some quick math. Say you had this secret formula and invested $1,000 into it. If it returned 400% for five years in a row, you would have $1,024,000 (through the magic of compounding). Before long, you'd be on Forbes' billionaire list, along with true market guru Warren Buffett. Clearly, anyone with a foolproof system providing such astronomical returns would not need to put on seminars or sell books for what would be pocket change.
The truth is that many systems out there base their historical performance on backtesting. In other words, they test obscure strategies on historical data, and then use the theoretical returns in their marketing copy. Other swindlers trying to sell you something may report short-term gains as annualized gains. For example, they may have made 25% in a stock over four weeks which, sustained over a whole year, is an annualized gain of roughly 325%. But the chances of anyone being able to maintain 25% returns every four weeks over several years are pretty much nil.
Like anything we try to learn, investing doesn't work by cutting corners. Remember that the power of compounding is most effective over the long term. And, as the old saying goes, if something sounds too good to be true, chances are, it is.
http://www.investopedia.com/terms/t/tenbagger.asp
http://www.investopedia.com/ask/answers/04/030404.asp?viewed=1
What Does Tenbagger Mean?
Tenbagger: A stock whose value increases ten times its purchase price. This expression was coined by Peter Lynch, one of the greatest investors of all time, in his book "One Up On Wall Street" (1989).
Investopedia explains Tenbagger
These types of returns are considered once-in-a-lifetime investments. Some of the most famous examples of tenbaggers include now blue-chip stocks like Wal-Mart, Hewlett-Packard and General Electric.
Many investors are constantly in search of the elusive tenbagger, but there isn't an exact science to discover tenbagger stocks.
Generally, these explosive companies are smaller companies (market cap under $1 billion) with large potential markets.
Over time, these companies grow into their potential markets, providing patient investors with handsome returns.
Investopedia explains Tenbagger
These types of returns are considered once-in-a-lifetime investments. Some of the most famous examples of tenbaggers include now blue-chip stocks like Wal-Mart, Hewlett-Packard and General Electric.
Many investors are constantly in search of the elusive tenbagger, but there isn't an exact science to discover tenbagger stocks.
Generally, these explosive companies are smaller companies (market cap under $1 billion) with large potential markets.
Over time, these companies grow into their potential markets, providing patient investors with handsome returns.
A China Penny Stock With Ten-Bagger Potential
A China Penny Stock With Ten-Bagger Potential
August 13, 2009
By Jamie Dlugosch, Editor, Penny Stock Winners
Feeding China's billions is Job #1 for Beijing, make no mistake. China is always, always, one typhoon away from utter social collapse.
China cheerleaders won't tell you this, of course. Last year's horrible earthquake revealed the ugly truth: Beijing's hold on power is very conditional.
Rice and pork, not cars and phones, are what motivate 1,530,000,000 Chinese.
Following this theme led me at first to a fertilizer company, China Green (CGA), but the stock's run from $2 to $13 happened too quickly for my taste.
Nevertheless, a seed company I discovered in Beijing is perfectly poised to jump from $4.50 to $15 quickly, and even $45 down the road.
Rice Price Jumps 50%
Rice, the staple crop of Asia, is racing for a 34-year high, and the reason is: Supply cannot meet demand.
India is unofficially in a drought. Australia is officially so.
Prices have jumped 50% recently. Hardest hit: the Philippines, by far the world's largest rice importer.
Worldwide famine and massive civil unrest are real possibilities at this point.
This China Seed Company Is at the Forefront
Origin Agritech (SEED) designs rice that is drought-resistant, flood-resistant, bug-resistant. One blight in particular, known as Xoo, can destroy a rice paddy in a matter of days.
Origin Agritech holds the key to combating Xoo and has all the advantages that spell a 10-to-1 return:
It's small — a few hundred employees, $103 million market cap.
It has no analyst coverage.
Deferred revenues are up 57% for the first 3 months.
Earnings, which were released on Tuesday, show an income increase of 21%. The stock jumped 16%.
What to Do Now
Buy SEED up to $5.00 with a stop at $3.88
http://www.investorplace.com/experts/james_dlugosch/articles/china-penny-stock-origin-agritech-seed.html
August 13, 2009
By Jamie Dlugosch, Editor, Penny Stock Winners
Feeding China's billions is Job #1 for Beijing, make no mistake. China is always, always, one typhoon away from utter social collapse.
China cheerleaders won't tell you this, of course. Last year's horrible earthquake revealed the ugly truth: Beijing's hold on power is very conditional.
Rice and pork, not cars and phones, are what motivate 1,530,000,000 Chinese.
Following this theme led me at first to a fertilizer company, China Green (CGA), but the stock's run from $2 to $13 happened too quickly for my taste.
Nevertheless, a seed company I discovered in Beijing is perfectly poised to jump from $4.50 to $15 quickly, and even $45 down the road.
Rice Price Jumps 50%
Rice, the staple crop of Asia, is racing for a 34-year high, and the reason is: Supply cannot meet demand.
India is unofficially in a drought. Australia is officially so.
Prices have jumped 50% recently. Hardest hit: the Philippines, by far the world's largest rice importer.
Worldwide famine and massive civil unrest are real possibilities at this point.
This China Seed Company Is at the Forefront
Origin Agritech (SEED) designs rice that is drought-resistant, flood-resistant, bug-resistant. One blight in particular, known as Xoo, can destroy a rice paddy in a matter of days.
Origin Agritech holds the key to combating Xoo and has all the advantages that spell a 10-to-1 return:
It's small — a few hundred employees, $103 million market cap.
It has no analyst coverage.
Deferred revenues are up 57% for the first 3 months.
Earnings, which were released on Tuesday, show an income increase of 21%. The stock jumped 16%.
What to Do Now
Buy SEED up to $5.00 with a stop at $3.88
http://www.investorplace.com/experts/james_dlugosch/articles/china-penny-stock-origin-agritech-seed.html
10 Bagger Anyone?
08-05-2009
10 Bagger Anyone?
Interesting Stuff from the Bespoke Investment Group
Reply
With the current rally now at five months and ticking, there are a number of stocks that have really taken off, and they continue to gain momentum. In the last bull market from '02-'07, many new momentum names emerged from the prior bear -- TASR, ISRG, GOOG, TZOO, NTRI, BOOM, HANS, etc. Now some new stars are being born, and if the market continues its run for another few months, these names will be even more present on trader's screens. The fact that 332 stocks in the Russell 3,000 are up more than 100% year to date (more than 10% of the index) shows just how strong this rally has been. Investors lucky enough to own any of these 332 stocks have at least doubled their money in seven months. Below we highlight the top 40 performing stocks in the index year to date. Every single one is up more than 400% already! Talk about winners.
As we mentioned earlier, DDRX is up the most with a gain of 6,738.89%. DDRX is followed by VNDA (2,954%), ATSG (1,783%), DTG (1,486%), and CAR (1,161%). The top five have all gone up tenfold. That's called a Ten Bagger.
http://www.fpstockchallenge.com/CS/forums/p/31845/294106.aspx
10 Bagger Anyone?
Interesting Stuff from the Bespoke Investment Group
Reply
With the current rally now at five months and ticking, there are a number of stocks that have really taken off, and they continue to gain momentum. In the last bull market from '02-'07, many new momentum names emerged from the prior bear -- TASR, ISRG, GOOG, TZOO, NTRI, BOOM, HANS, etc. Now some new stars are being born, and if the market continues its run for another few months, these names will be even more present on trader's screens. The fact that 332 stocks in the Russell 3,000 are up more than 100% year to date (more than 10% of the index) shows just how strong this rally has been. Investors lucky enough to own any of these 332 stocks have at least doubled their money in seven months. Below we highlight the top 40 performing stocks in the index year to date. Every single one is up more than 400% already! Talk about winners.
As we mentioned earlier, DDRX is up the most with a gain of 6,738.89%. DDRX is followed by VNDA (2,954%), ATSG (1,783%), DTG (1,486%), and CAR (1,161%). The top five have all gone up tenfold. That's called a Ten Bagger.
http://www.fpstockchallenge.com/CS/forums/p/31845/294106.aspx
Canadian Stock Alerts - The 10 Bagger
Canadian Stock Alerts - The 10 Bagger
by Mike Perras
Just for reference I might as well qualify just what a 10 bagger is. Essentially it's a stock who's share price goes up 10 fold or 1000%.
Now since the BreX scandal days most might assume that this never happens anymore. And frankly I must admit it still surprises me when I see it, but yes it still happens to this day.
Let me share two Canadian 10 bagger stories:
Back on December 11, 2008, Ventana Gold (VEN.TO) was still just a teenager as I like to call it. Meaning it was trading at just .20 . Now move the clock forward to June 2009, just six months later and that .20 stock is now trading at $5.00 . So 50,000 shares that you bought just 6 months ago for $10,000.00 would today be worth $250,000.00
So in fact Ventana is not a 10 bagger at all, but more like a 25 bagger. 10 baggers are rare at best these days, but 25 baggers, it's like winning the lottery! But you had to wait a full six months to collect and you would have likely sold out long ago. I mean if you're honest here, you'll have to admit, hanging in from .20 to past $2.00 would be really stretching it.
But what if I told you it could happen in just two days. Well things seem to be going that way this week for Blackwatch Energy (BWT.TO) . On Wednesday June 9, 2009 it traded at just .10 and today Friday June 12, 2009 it closed at .98
In this case your 50,000 shares cost $5,000.00 on Wednesday and two days later are worth $50,000.00 Here's a kicker, you could have actually done all that in your TFSA! Yeah I know, just imagine it .. in just two days!
Now let me share two Canadian 10 bagger hopefuls:
There are a few juniors I like so far this year that I believe have great "bagger" potential. When you do your reseach on (TYE.V) TROYMET Exploration or (NET.V) Network Exploration you'll see what I see. NET and TYE are both great candidates!
But only the stock Gods know for sure.
Mike Perras manages the Canadian Stock Alerts blog. While these alerts are never meant as a recommendation to buy a particular stock, they are nonetheless a heads up or an alert to a certain potential positive trend.
Canadian Stock Alerts follows one major rule, follow the volume! When trading volume in any stock is higher than usual, a trend has been established. While the stock may go higher or lower is in fact irrelevant. Stocks that go higher, always pull back. Stocks that go lower are often oversold. In both cases alerts may be issued.
Mr. Perras always recommends trading on paper first before following any new investing strategy. Try it out, without using real money. When you can see first hand that this style of investing works and satisfies your own risk tolerance level, only then should you consider it a strategy you want to work with.
Canadian Stock Alerts does not receive any compensation whatsoever by any of the companies it issues alerts for. Alerts are issued in real time during market hours and follow the "higher than usual volume" rule always. One's own due diligence is always recommended when it comes to any kind of investing.
His system Best Stocks For Easy Profits is also available online. Take a look and see some real life examples.
About the Author
Mike Perras is a former media executive and faculty of business professor. Today he is a freelance writer and also manages several blogs including, Canadian Stock Alerts. He is a media specialist, as it relates to Organic Marketing, Article Marketing and New Age SEO.
You can find him on Twitter @ http://twitter.com/mikeperras
http://www.goarticles.com/cgi-bin/showa.cgi?C=1683053
by Mike Perras
Just for reference I might as well qualify just what a 10 bagger is. Essentially it's a stock who's share price goes up 10 fold or 1000%.
Now since the BreX scandal days most might assume that this never happens anymore. And frankly I must admit it still surprises me when I see it, but yes it still happens to this day.
Let me share two Canadian 10 bagger stories:
Back on December 11, 2008, Ventana Gold (VEN.TO) was still just a teenager as I like to call it. Meaning it was trading at just .20 . Now move the clock forward to June 2009, just six months later and that .20 stock is now trading at $5.00 . So 50,000 shares that you bought just 6 months ago for $10,000.00 would today be worth $250,000.00
So in fact Ventana is not a 10 bagger at all, but more like a 25 bagger. 10 baggers are rare at best these days, but 25 baggers, it's like winning the lottery! But you had to wait a full six months to collect and you would have likely sold out long ago. I mean if you're honest here, you'll have to admit, hanging in from .20 to past $2.00 would be really stretching it.
But what if I told you it could happen in just two days. Well things seem to be going that way this week for Blackwatch Energy (BWT.TO) . On Wednesday June 9, 2009 it traded at just .10 and today Friday June 12, 2009 it closed at .98
In this case your 50,000 shares cost $5,000.00 on Wednesday and two days later are worth $50,000.00 Here's a kicker, you could have actually done all that in your TFSA! Yeah I know, just imagine it .. in just two days!
Now let me share two Canadian 10 bagger hopefuls:
There are a few juniors I like so far this year that I believe have great "bagger" potential. When you do your reseach on (TYE.V) TROYMET Exploration or (NET.V) Network Exploration you'll see what I see. NET and TYE are both great candidates!
But only the stock Gods know for sure.
Mike Perras manages the Canadian Stock Alerts blog. While these alerts are never meant as a recommendation to buy a particular stock, they are nonetheless a heads up or an alert to a certain potential positive trend.
Canadian Stock Alerts follows one major rule, follow the volume! When trading volume in any stock is higher than usual, a trend has been established. While the stock may go higher or lower is in fact irrelevant. Stocks that go higher, always pull back. Stocks that go lower are often oversold. In both cases alerts may be issued.
Mr. Perras always recommends trading on paper first before following any new investing strategy. Try it out, without using real money. When you can see first hand that this style of investing works and satisfies your own risk tolerance level, only then should you consider it a strategy you want to work with.
Canadian Stock Alerts does not receive any compensation whatsoever by any of the companies it issues alerts for. Alerts are issued in real time during market hours and follow the "higher than usual volume" rule always. One's own due diligence is always recommended when it comes to any kind of investing.
His system Best Stocks For Easy Profits is also available online. Take a look and see some real life examples.
About the Author
Mike Perras is a former media executive and faculty of business professor. Today he is a freelance writer and also manages several blogs including, Canadian Stock Alerts. He is a media specialist, as it relates to Organic Marketing, Article Marketing and New Age SEO.
You can find him on Twitter @ http://twitter.com/mikeperras
http://www.goarticles.com/cgi-bin/showa.cgi?C=1683053
Get back in the game
Dec 26, 2008, 12:33 p.m. EST
Get back in the game
Don't let woes disguise 10-bagger prospects
By John C. Dvorak
BERKELEY, Calif. (MarketWatch) -- So, what do we have to deal with as we enter 2009?
•An expensive war in Iraq, with no end in sight and no real exit strategy.
•A new president who wants to expand the war in Afghanistan.
•A financial crisis that will take what some estimate at $8 trillion to resolve.
•Falling home prices and a dead real-estate market.
•Money flow and credit to actual borrowers at a standstill as banks hoard bailout funds.
•The beginning of an all-Democrat, tax-happy government with control of both houses and the executive branch.
•Financial crises looming for major cities such as New York and states including California.
•Unemployment increasing every quarter.
•Decreasing U.S. productivity.
•Stock market generally depressed.
•All the American auto manufacturers are suffering and close to bankruptcy.
I suppose I could make this list longer, but it raises a question: Exactly how can it get worse than this? I suppose you could have a complete economic collapse, with every business going broke and unemployment reaching depression levels of over 25%.
No, let's face it. While 2009 could continue to be rocky, it can't get much worse than this, especially if Obama and the Democrats work some magic with a smoke and mirrors act to get people thinking positively.
Right now everyone is thinking negatively, and none of it is helped by our panicky government and its talk of economic meltdowns, food riots, martial law and other comments to freak out the citizenry.
Personally, I think the smart investor needs to get back into the game by looking for the rare, but obtainable 10-bagger -- as it is affectionately called. Yes, this is that normally rare stock that goes up by a factor of 10 within a short period of time.
Ideally a 10-bagger will go 10X within 24 months, but it can happen faster than that, too.
In a moment like this, when many major companies with good earnings, profits and growth are underpriced by all indications, the 10-baggers lurk.
And this is the time investors have to go to their scorecards and take a hard look at the reality of the numbers. Let's take a few of the best indicators and ratios and try to identify a stock with 10-bagger potential.
I'd like to find a stock with a high beta so it moves faster than the market so when the market turns around (and it always does) this stock will move fast.
Next, I want a stock selling within close range of its book value and with an enterprise value higher than its market cap. This would mean the company is intrinsically valuable and not deeply in debt.
In fact, using this criteria and confirming that the stock has been priced 10X in the past, you'll find dozens of matches, many to an extreme. The one that stands out in the tech sector is Advanced Micro Devices (AMD 4.53, +0.25, +5.84%) . The stock is now selling below book value and has been as high as $40, with its $20 (10-bagger) price having been reached within the past two years.
The downside risk is minimal. AMD is not going out of business anytime soon. It could be a buyout candidate at some price north of $8 perhaps. But it has 10-bagger written all over it until then.
While the market has mostly drifted since the dot-com collapse of 2000, this recent drop-off is the final exclamation point.
So it's time to go hunting for 10-baggers. I personally cannot see waiting much longer for even better prices.
As a disclaimer: I do not own any AMD. But I am drooling over the idea.
http://www.marketwatch.com/story/amd-is-the-10-bagger-pick-for-2009
Get back in the game
Don't let woes disguise 10-bagger prospects
By John C. Dvorak
BERKELEY, Calif. (MarketWatch) -- So, what do we have to deal with as we enter 2009?
•An expensive war in Iraq, with no end in sight and no real exit strategy.
•A new president who wants to expand the war in Afghanistan.
•A financial crisis that will take what some estimate at $8 trillion to resolve.
•Falling home prices and a dead real-estate market.
•Money flow and credit to actual borrowers at a standstill as banks hoard bailout funds.
•The beginning of an all-Democrat, tax-happy government with control of both houses and the executive branch.
•Financial crises looming for major cities such as New York and states including California.
•Unemployment increasing every quarter.
•Decreasing U.S. productivity.
•Stock market generally depressed.
•All the American auto manufacturers are suffering and close to bankruptcy.
I suppose I could make this list longer, but it raises a question: Exactly how can it get worse than this? I suppose you could have a complete economic collapse, with every business going broke and unemployment reaching depression levels of over 25%.
No, let's face it. While 2009 could continue to be rocky, it can't get much worse than this, especially if Obama and the Democrats work some magic with a smoke and mirrors act to get people thinking positively.
Right now everyone is thinking negatively, and none of it is helped by our panicky government and its talk of economic meltdowns, food riots, martial law and other comments to freak out the citizenry.
Personally, I think the smart investor needs to get back into the game by looking for the rare, but obtainable 10-bagger -- as it is affectionately called. Yes, this is that normally rare stock that goes up by a factor of 10 within a short period of time.
Ideally a 10-bagger will go 10X within 24 months, but it can happen faster than that, too.
In a moment like this, when many major companies with good earnings, profits and growth are underpriced by all indications, the 10-baggers lurk.
And this is the time investors have to go to their scorecards and take a hard look at the reality of the numbers. Let's take a few of the best indicators and ratios and try to identify a stock with 10-bagger potential.
I'd like to find a stock with a high beta so it moves faster than the market so when the market turns around (and it always does) this stock will move fast.
Next, I want a stock selling within close range of its book value and with an enterprise value higher than its market cap. This would mean the company is intrinsically valuable and not deeply in debt.
In fact, using this criteria and confirming that the stock has been priced 10X in the past, you'll find dozens of matches, many to an extreme. The one that stands out in the tech sector is Advanced Micro Devices (AMD 4.53, +0.25, +5.84%) . The stock is now selling below book value and has been as high as $40, with its $20 (10-bagger) price having been reached within the past two years.
The downside risk is minimal. AMD is not going out of business anytime soon. It could be a buyout candidate at some price north of $8 perhaps. But it has 10-bagger written all over it until then.
While the market has mostly drifted since the dot-com collapse of 2000, this recent drop-off is the final exclamation point.
So it's time to go hunting for 10-baggers. I personally cannot see waiting much longer for even better prices.
As a disclaimer: I do not own any AMD. But I am drooling over the idea.
http://www.marketwatch.com/story/amd-is-the-10-bagger-pick-for-2009
Which Stocks Will Be 2020's 10-Baggers?
Which Stocks Will Be 2020's 10-Baggers?
August 20, 2009 3:00 AM ET advertisement
Name the company that's most likely to be a 10-bagger by 2020.
It's a hard question. There isn't just one correct answer -- you can find three candidates here -- but it's easy to weed out some popular incorrect answers.
If you named Microsoft (Nasdaq: MSFT), Deere (NYSE: DE), McDonald’s (NYSE:MCD), or any other large-cap company, you're probably wrong. They're simply too big to grow tenfold in the next decade. My Foolish colleague Tim Hanson has shown year in and year out that a decade's biggest winners are small-cap stocks.
He found that the largest grower of the last 10 years, beverage company Hansen Natural, was almost a 50-bagger. Even at 50 times its original market capitalization, Hansen is a $3 billion company -- one-sixth the size of Deere, a twentieth the size of McDonald’s, and a seventieth the size of Microsoft.
It gets better
Besides having room to grow, small caps have another hidden feature. They are more volatile than their large-cap brethren. This can lead to fluctuations that are absolutely heartbreaking for investors with low risk tolerances. But for those of us with higher risk tolerance, the volatility provides opportunity.
As we've seen recently, large-cap stocks can be quite volatile, too. When their price losses significantly outstrip the market's, though, there's usually something terribly amiss.
Familiar examples abound:
SunTrust Banks (NYSE: STI) -- BankingGannett (NYSE: GCI) -- NewspapersDish Network (Nasdaq: DISH) -- Satellite broadcastingSprint (NYSE: S) -- Telecom
The list of investors who profit from these 10-baggers will be dominated by people who can be described as:
If you have these two qualities, I invite you to join our analysts at the Motley Fool Hidden Gems newsletter. They are putting the Fool's money where its mouth is by building a real-money portfolio of small-cap stocks.
http://news.moneycentral.msn.com/ticker/article.aspx?Feed=FOOL&Date=20090820&ID=9908221&Symbol=DISH
August 20, 2009 3:00 AM ET advertisement
Name the company that's most likely to be a 10-bagger by 2020.
It's a hard question. There isn't just one correct answer -- you can find three candidates here -- but it's easy to weed out some popular incorrect answers.
If you named Microsoft (Nasdaq: MSFT), Deere (NYSE: DE), McDonald’s (NYSE:MCD), or any other large-cap company, you're probably wrong. They're simply too big to grow tenfold in the next decade. My Foolish colleague Tim Hanson has shown year in and year out that a decade's biggest winners are small-cap stocks.
He found that the largest grower of the last 10 years, beverage company Hansen Natural, was almost a 50-bagger. Even at 50 times its original market capitalization, Hansen is a $3 billion company -- one-sixth the size of Deere, a twentieth the size of McDonald’s, and a seventieth the size of Microsoft.
It gets better
Besides having room to grow, small caps have another hidden feature. They are more volatile than their large-cap brethren. This can lead to fluctuations that are absolutely heartbreaking for investors with low risk tolerances. But for those of us with higher risk tolerance, the volatility provides opportunity.
As we've seen recently, large-cap stocks can be quite volatile, too. When their price losses significantly outstrip the market's, though, there's usually something terribly amiss.
Familiar examples abound:
SunTrust Banks (NYSE: STI) -- BankingGannett (NYSE: GCI) -- NewspapersDish Network (Nasdaq: DISH) -- Satellite broadcastingSprint (NYSE: S) -- Telecom
All of the above are down for good reason, be it an ailing industry or a lagging competitive position. That’s not always the case for small caps, though.
A quick example
Take the recent case of restaurant company Buffalo Wild Wings. Back in late October, it reported quarterly earnings that were disappointing. But given the state of the economy in general and the restaurant sector specifically, the results were downright robust: positive earnings-per-share growth and impressive same-store sales growth (6.8% at company-owned stores).
In response, shares were sliced in half in the month following the earnings release ... only to gain it all back and then some after the company beat analyst expectations in the subsequent quarter. Over the past few months, it's been the same company with the same long-term prospects. There have been no huge company-related events, and its price is about the same now as it was a year ago.
But somewhere in the middle, the market threw a half-off sale for investors patient enough to wait for a discounted entry point. Since they took advantage of volatility, those investors need only a five-bagger from here to reach the vaunted 10-bagger status.
The 10-bagger club
In 2020, when we look back at the decade's list of 10-baggers, the list will be dominated by stocks that can be described as:
- Small
- Volatile
The list of investors who profit from these 10-baggers will be dominated by people who can be described as:
- Patient
- Risk-tolerant
If you have these two qualities, I invite you to join our analysts at the Motley Fool Hidden Gems newsletter. They are putting the Fool's money where its mouth is by building a real-money portfolio of small-cap stocks.
http://news.moneycentral.msn.com/ticker/article.aspx?Feed=FOOL&Date=20090820&ID=9908221&Symbol=DISH
Peter Lynch's Stock Picking Strategy
Peter Lynch's Stock Picking Strategy:
Peter Lynch loved story stocks. He once told a reporter for PBS' Frontline about his impetus for buying the stock of Hanes. Turns out the company was test-marketing a new product called L'Eggs in Boston. His wife brought home a sample and after wearing them raved about how great they were.
L'Eggs stole market share from cheap drugstore competitors, and Lynch eventually made it one of Magellan's biggest holdings. Eventually L'Eggs was bought by Consolidated Foods, which is now called Sara Lee (nyse: SLE - news - people ). Magellan fund-holders benefited from a 30-fold appreciation in Hane's stock.
In order to find stocks that Peter Lynch might buy today, Forbes used stock screening software available from American Association Individual Investors Stock Investor Pro service. Below is a list of the criteria used. You will note that Lynch avoided any stocks growing earnings per share faster than 50% because he liked to avoid hot companies with unsustainable earnings growth rates. He reasoned that they would attract too much attention, which would bid up the price and attract competitors.
--Companies in the financial sector or in real estate operations industry were excluded.
--A price-to-earnings ratio (P/E) less than the industry mean.
--A P/E less than the five-year average.
--The ratio of the P/E to the sum of the five-year growth rate in earnings per share and the five-year dividend yield (dividend adjusted PEG ratio) is less than or equal to 0.5%.
--The five-year growth rate in eps from continuing operations is less than 50%.
--The percentage of common stock held by institutions is less than the median percentage of institution ownership.
--The total liabilities to total assets ratio for the last fiscal quarter (Q1) is less than the industry's median total liabilities to total assets ratio for the same time period.
http://www.forbes.com/2009/02/23/lynch-fidelity-magellan-personal-finance_peter_lynch.html
Peter Lynch loved story stocks. He once told a reporter for PBS' Frontline about his impetus for buying the stock of Hanes. Turns out the company was test-marketing a new product called L'Eggs in Boston. His wife brought home a sample and after wearing them raved about how great they were.
L'Eggs stole market share from cheap drugstore competitors, and Lynch eventually made it one of Magellan's biggest holdings. Eventually L'Eggs was bought by Consolidated Foods, which is now called Sara Lee (nyse: SLE - news - people ). Magellan fund-holders benefited from a 30-fold appreciation in Hane's stock.
In order to find stocks that Peter Lynch might buy today, Forbes used stock screening software available from American Association Individual Investors Stock Investor Pro service. Below is a list of the criteria used. You will note that Lynch avoided any stocks growing earnings per share faster than 50% because he liked to avoid hot companies with unsustainable earnings growth rates. He reasoned that they would attract too much attention, which would bid up the price and attract competitors.
--Companies in the financial sector or in real estate operations industry were excluded.
--A price-to-earnings ratio (P/E) less than the industry mean.
--A P/E less than the five-year average.
--The ratio of the P/E to the sum of the five-year growth rate in earnings per share and the five-year dividend yield (dividend adjusted PEG ratio) is less than or equal to 0.5%.
--The five-year growth rate in eps from continuing operations is less than 50%.
--The percentage of common stock held by institutions is less than the median percentage of institution ownership.
--The total liabilities to total assets ratio for the last fiscal quarter (Q1) is less than the industry's median total liabilities to total assets ratio for the same time period.
http://www.forbes.com/2009/02/23/lynch-fidelity-magellan-personal-finance_peter_lynch.html
Peter Lynch: 10-Bagger Tales
Peter Lynch: 10-Bagger Tales
Matthew Schifrin, 02.23.09, 06:00 PM EST
How do you stay one up on Wall Street?
Buy smart and quit, while the going is good.
Who Is Peter Lynch?
If ever a legendary investor benefited from good timing it was Peter Lynch. Lynch was born in 1944 and first became interested in stocks while caddying for executives at a country club in Newton, Mass. His caddying landed him an internship at Fidelity Investments in 1966 and eventually a scholarship to Boston College.
After serving in the army for two years, Lynch eventually graduated with an MBA from the Wharton School of Business at the University of Pennsylvania in 1968. Upon graduation, Lynch returned to Fidelity as a research analyst. At age 25 he was earning $16,000 per year.
Lynch covered a variety of industries from textiles and chemicals to mining. Lynch eventually took over as director of research for the small investment mutual fund company and in 1977 took over portfolio management of Fidelity's Magellan mutual fund. The fund had only $18 million in assets when Lynch began running it.
Lynch ran Magellan from 1977 until 1990, and by the time he stepped down the fund had grown to $19 billion in assets with more than 1,000 stock holdings. Peter Lynch's compounded average annual investment return during the 13 years was 29.2%. A thousand dollars invested the day Lynch took over Magellan would have been worth $28,000 when he quit. Not to be understated is the fact that during Lynch's tenure the S&P 500's bull run was nearly continuous, rising from less than 100 to more than 320. The most severe market reversal Lynch faced was the crash of 1987 when stocks declined more than 30%. By the time Lynch retired a few years later, stocks had recovered most of their losses.
At the end of Lynch's career as a portfolio manager he teamed up with journalist John Rothchild to write his now famous bestseller One Up on Wall Street: How to Use What You Already Know to Make Money in the Market. This cemented Lynch as the everyman's hero because the book convinced millions of investors that you didn't need to be a quant or investing savant to find so-called "10 bagger" stocks (stocks that go up tenfold.) Just use common sense and invest in things you see everyday and understand.
During his tenure at Magellan, Lynch bought more than a hundred "10 bagger" stocks, including Fannie Mae (nyse: FNM - news - people ), Ford Motor (nyse: F - news - people ), Philip Morris International (nyse: PM - news - people ), Taco Bell, Dunkin' Donuts and General Electric (nyse: GE - news - people ).
Since Lynch retired in 1990, he has remained as a director of Fidelity Investments, written several more books and devoted his time to philanthropy.
http://www.forbes.com/2009/02/23/lynch-fidelity-magellan-personal-finance_peter_lynch.html
Matthew Schifrin, 02.23.09, 06:00 PM EST
How do you stay one up on Wall Street?
Buy smart and quit, while the going is good.
Who Is Peter Lynch?
If ever a legendary investor benefited from good timing it was Peter Lynch. Lynch was born in 1944 and first became interested in stocks while caddying for executives at a country club in Newton, Mass. His caddying landed him an internship at Fidelity Investments in 1966 and eventually a scholarship to Boston College.
After serving in the army for two years, Lynch eventually graduated with an MBA from the Wharton School of Business at the University of Pennsylvania in 1968. Upon graduation, Lynch returned to Fidelity as a research analyst. At age 25 he was earning $16,000 per year.
Lynch covered a variety of industries from textiles and chemicals to mining. Lynch eventually took over as director of research for the small investment mutual fund company and in 1977 took over portfolio management of Fidelity's Magellan mutual fund. The fund had only $18 million in assets when Lynch began running it.
Lynch ran Magellan from 1977 until 1990, and by the time he stepped down the fund had grown to $19 billion in assets with more than 1,000 stock holdings. Peter Lynch's compounded average annual investment return during the 13 years was 29.2%. A thousand dollars invested the day Lynch took over Magellan would have been worth $28,000 when he quit. Not to be understated is the fact that during Lynch's tenure the S&P 500's bull run was nearly continuous, rising from less than 100 to more than 320. The most severe market reversal Lynch faced was the crash of 1987 when stocks declined more than 30%. By the time Lynch retired a few years later, stocks had recovered most of their losses.
At the end of Lynch's career as a portfolio manager he teamed up with journalist John Rothchild to write his now famous bestseller One Up on Wall Street: How to Use What You Already Know to Make Money in the Market. This cemented Lynch as the everyman's hero because the book convinced millions of investors that you didn't need to be a quant or investing savant to find so-called "10 bagger" stocks (stocks that go up tenfold.) Just use common sense and invest in things you see everyday and understand.
During his tenure at Magellan, Lynch bought more than a hundred "10 bagger" stocks, including Fannie Mae (nyse: FNM - news - people ), Ford Motor (nyse: F - news - people ), Philip Morris International (nyse: PM - news - people ), Taco Bell, Dunkin' Donuts and General Electric (nyse: GE - news - people ).
Since Lynch retired in 1990, he has remained as a director of Fidelity Investments, written several more books and devoted his time to philanthropy.
http://www.forbes.com/2009/02/23/lynch-fidelity-magellan-personal-finance_peter_lynch.html
10 Tips For The Successful Long-Term Investor
10 Tips For The Successful Long-Term Investor
by Investopedia Staff, (Investopedia.com) (Contact Author Biography)
While it may be true that in the stock market there is no rule without an exception, there are some principles that are tough to dispute. Let's review 10 general principles to help investors get a better grasp of how to approach the market from a long-term view. Every point embodies some fundamental concept every investor should know.
1. Sell the losers and let the winners ride!
Time and time again, investors take profits by selling their appreciated investments, but they hold onto stocks that have declined in the hope of a rebound. If an investor doesn't know when it's time to let go of hopeless stocks, he or she can, in the worst-case scenario, see the stock sink to the point where it is almost worthless. Of course, the idea of holding onto high-quality investments while selling the poor ones is great in theory, but hard to put into practice. The following information might help:
* Riding a Winner - Peter Lynch was famous for talking about "tenbaggers", or investments that increased tenfold in value. The theory is that much of his overall success was due to a small number of stocks in his portfolio that returned big. If you have a personal policy to sell after a stock has increased by a certain multiple - say three, for instance - you may never fully ride out a winner. No one in the history of investing with a "sell-after-I-have-tripled-my-money" mentality has ever had a tenbagger. Don't underestimate a stock that is performing well by sticking to some rigid personal rule - if you don't have a good understanding of the potential of your investments, your personal rules may end up being arbitrary and too limiting. (For more insight, see Pick Stocks Like Peter Lynch.)
* Selling a Loser - There is no guarantee that a stock will bounce back after a protracted decline. While it's important not to underestimate good stocks, it's equally important to be realistic about investments that are performing badly. Recognizing your losers is hard because it's also an acknowledgment of your mistake. But it's important to be honest when you realize that a stock is not performing as well as you expected it to. Don't be afraid to swallow your pride and move on before your losses become even greater.
In both cases, the point is to judge companies on their merits according to your research. In each situation, you still have to decide whether a price justifies future potential. Just remember not to let your fears limit your returns or inflate your losses. (For related reading, check out To Sell Or Not To Sell.)
2. Don't chase a "hot tip".
Whether the tip comes from your brother, your cousin, your neighbor or even your broker, you shouldn't accept it as law. When you make an investment, it's important you know the reasons for doing so: do your own research and analysis of any company before you even consider investing your hard-earned money. Relying on a tidbit of information from someone else is not only an attempt at taking the easy way out, it's also a type of gambling. Sure, with some luck, tips sometimes pan out. But they will never make you an informed investor, which is what you need to be to be successful in the long run. (Find what you should pay attention to - and what you should ignore in Listen To The Markets, Not Its Pundits.)
3. Don't sweat the small stuff.
As a long-term investor, you shouldn't panic when your investments experience short-term movements. When tracking the activities of your investments, you should look at the big picture. Remember to be confident in the quality of your investments rather than nervous about the inevitable volatility of the short term. Also, don't overemphasize the few cents difference you might save from using a limit versus market order.
Granted, active traders will use these day-to-day and even minute-to-minute fluctuations as a way to make gains. But the gains of a long-term investor come from a completely different market movement - the one that occurs over many years - so keep your focus on developing your overall investment philosophy by educating yourself. (Learn the difference between passive investing and apathy in Ostrich Approach To Investing A Bird-Brained Idea.)
4. Don't overemphasize the P/E ratio.
Investors often place too much importance on the price-earnings ratio (P/E ratio). Because it is one key tool among many, using only this ratio to make buy or sell decisions is dangerous and ill-advised. The P/E ratio must be interpreted within a context, and it should be used in conjunction with other analytical processes. So, a low P/E ratio doesn't necessarily mean a security is undervalued, nor does a high P/E ratio necessarily mean a company is overvalued. (For further reading, see our tutorial Understanding the P/E Ratio.)
5. Resist the lure of penny stocks.
A common misconception is that there is less to lose in buying a low-priced stock. But whether you buy a $5 stock that plunges to $0 or a $75 stock that does the same, either way you've lost 100% of your initial investment. A lousy $5 company has just as much downside risk as a lousy $75 company. In fact, a penny stock is probably riskier than a company with a higher share price, which would have more regulations placed on it. (For further reading, see The Lowdown on Penny Stocks.)
6. Pick a strategy and stick with it.
Different people use different methods to pick stocks and fulfill investing goals. There are many ways to be successful and no one strategy is inherently better than any other. However, once you find your style, stick with it. An investor who flounders between different stock-picking strategies will probably experience the worst, rather than the best, of each. Constantly switching strategies effectively makes you a market timer, and this is definitely territory most investors should avoid. Take Warren Buffett's actions during the dotcom boom of the late '90s as an example. Buffett's value-oriented strategy had worked for him for decades, and - despite criticism from the media - it prevented him from getting sucked into tech startups that had no earnings and eventually crashed. (Want to adopt the Oracle of Omaha's investing style? See Think Like Warren Buffett.)
7. Focus on the future.
The tough part about investing is that we are trying to make informed decisions based on things that are yet to happen. It's important to keep in mind that even though we use past data as an indication of things to come, it's what happens in the future that matters most.
A quote from Peter Lynch's book "One Up on Wall Street" (1990) about his experience with Subaru demonstrates this: "If I'd bothered to ask myself, 'How can this stock go any higher?' I would have never bought Subaru after it already went up twentyfold. But I checked the fundamentals, realized that Subaru was still cheap, bought the stock, and made sevenfold after that." The point is to base a decision on future potential rather than on what has already happened in the past. (For more insight, see The Value Investor's Handbook.)
8. Adopt a long-term perspective.
Large short-term profits can often entice those who are new to the market. But adopting a long-term horizon and dismissing the "get in, get out and make a killing" mentality is a must for any investor. This doesn't mean that it's impossible to make money by actively trading in the short term. But, as we already mentioned, investing and trading are very different ways of making gains from the market. Trading involves very different risks that buy-and-hold investors don't experience. As such, active trading requires certain specialized skills.
Neither investing style is necessarily better than the other - both have their pros and cons. But active trading can be wrong for someone without the appropriate time, financial resources, education and desire. (For further reading, see Defining Active Trading.) Most people don't fit into this category.
9. Be open-minded.
Many great companies are household names, but many good investments are not household names. Thousands of smaller companies have the potential to turn into the large blue chips of tomorrow. In fact, historically, small-caps have had greater returns than large-caps: over the decades from 1926-2001, small-cap stocks in the U.S. returned an average of 12.27% while the Standard & Poor's 500 Index (S&P 500) returned 10.53%.
This is not to suggest that you should devote your entire portfolio to small-cap stocks. Rather, understand that there are many great companies beyond those in the Dow Jones Industrial Average (DJIA), and that by neglecting all these lesser-known companies, you could also be neglecting some of the biggest gains. (For more on investing in small caps, see Small Caps Boast Big Advantages.)
10. Be concerned about taxes, but don't worry.
Putting taxes above all else is a dangerous strategy, as it can often cause investors to make poor, misguided decisions. Yes, tax implications are important, but they are a secondary concern. The primary goals in investing are to grow and secure your money. You should always attempt to minimize the amount of tax you pay and maximize your after-tax return, but the situations are rare where you'll want to put tax considerations above all else when making an investment decision (see Basic Investment Objectives).
Conclusion
In this article, we've covered 10 solid tips for long-term investors. There is are exceptions to every rule, but we hope that the common-sense principles we've discussed benefit you overall and provide some insight into how you should think about investing.
by Investopedia Staff, (Contact Author Biography)
Investopedia.com believes that individuals can excel at managing their financial affairs. As such, we strive to provide free educational content and tools to empower individual investors, including thousands of original and objective articles and tutorials on a wide variety of financial topics.
** This article and more are available at Investopedia.com - Your Source for Investing Education **
http://www.investopedia.com/articles/00/082100.asp
by Investopedia Staff, (Investopedia.com) (Contact Author Biography)
While it may be true that in the stock market there is no rule without an exception, there are some principles that are tough to dispute. Let's review 10 general principles to help investors get a better grasp of how to approach the market from a long-term view. Every point embodies some fundamental concept every investor should know.
1. Sell the losers and let the winners ride!
Time and time again, investors take profits by selling their appreciated investments, but they hold onto stocks that have declined in the hope of a rebound. If an investor doesn't know when it's time to let go of hopeless stocks, he or she can, in the worst-case scenario, see the stock sink to the point where it is almost worthless. Of course, the idea of holding onto high-quality investments while selling the poor ones is great in theory, but hard to put into practice. The following information might help:
* Riding a Winner - Peter Lynch was famous for talking about "tenbaggers", or investments that increased tenfold in value. The theory is that much of his overall success was due to a small number of stocks in his portfolio that returned big. If you have a personal policy to sell after a stock has increased by a certain multiple - say three, for instance - you may never fully ride out a winner. No one in the history of investing with a "sell-after-I-have-tripled-my-money" mentality has ever had a tenbagger. Don't underestimate a stock that is performing well by sticking to some rigid personal rule - if you don't have a good understanding of the potential of your investments, your personal rules may end up being arbitrary and too limiting. (For more insight, see Pick Stocks Like Peter Lynch.)
* Selling a Loser - There is no guarantee that a stock will bounce back after a protracted decline. While it's important not to underestimate good stocks, it's equally important to be realistic about investments that are performing badly. Recognizing your losers is hard because it's also an acknowledgment of your mistake. But it's important to be honest when you realize that a stock is not performing as well as you expected it to. Don't be afraid to swallow your pride and move on before your losses become even greater.
In both cases, the point is to judge companies on their merits according to your research. In each situation, you still have to decide whether a price justifies future potential. Just remember not to let your fears limit your returns or inflate your losses. (For related reading, check out To Sell Or Not To Sell.)
2. Don't chase a "hot tip".
Whether the tip comes from your brother, your cousin, your neighbor or even your broker, you shouldn't accept it as law. When you make an investment, it's important you know the reasons for doing so: do your own research and analysis of any company before you even consider investing your hard-earned money. Relying on a tidbit of information from someone else is not only an attempt at taking the easy way out, it's also a type of gambling. Sure, with some luck, tips sometimes pan out. But they will never make you an informed investor, which is what you need to be to be successful in the long run. (Find what you should pay attention to - and what you should ignore in Listen To The Markets, Not Its Pundits.)
3. Don't sweat the small stuff.
As a long-term investor, you shouldn't panic when your investments experience short-term movements. When tracking the activities of your investments, you should look at the big picture. Remember to be confident in the quality of your investments rather than nervous about the inevitable volatility of the short term. Also, don't overemphasize the few cents difference you might save from using a limit versus market order.
Granted, active traders will use these day-to-day and even minute-to-minute fluctuations as a way to make gains. But the gains of a long-term investor come from a completely different market movement - the one that occurs over many years - so keep your focus on developing your overall investment philosophy by educating yourself. (Learn the difference between passive investing and apathy in Ostrich Approach To Investing A Bird-Brained Idea.)
4. Don't overemphasize the P/E ratio.
Investors often place too much importance on the price-earnings ratio (P/E ratio). Because it is one key tool among many, using only this ratio to make buy or sell decisions is dangerous and ill-advised. The P/E ratio must be interpreted within a context, and it should be used in conjunction with other analytical processes. So, a low P/E ratio doesn't necessarily mean a security is undervalued, nor does a high P/E ratio necessarily mean a company is overvalued. (For further reading, see our tutorial Understanding the P/E Ratio.)
5. Resist the lure of penny stocks.
A common misconception is that there is less to lose in buying a low-priced stock. But whether you buy a $5 stock that plunges to $0 or a $75 stock that does the same, either way you've lost 100% of your initial investment. A lousy $5 company has just as much downside risk as a lousy $75 company. In fact, a penny stock is probably riskier than a company with a higher share price, which would have more regulations placed on it. (For further reading, see The Lowdown on Penny Stocks.)
6. Pick a strategy and stick with it.
Different people use different methods to pick stocks and fulfill investing goals. There are many ways to be successful and no one strategy is inherently better than any other. However, once you find your style, stick with it. An investor who flounders between different stock-picking strategies will probably experience the worst, rather than the best, of each. Constantly switching strategies effectively makes you a market timer, and this is definitely territory most investors should avoid. Take Warren Buffett's actions during the dotcom boom of the late '90s as an example. Buffett's value-oriented strategy had worked for him for decades, and - despite criticism from the media - it prevented him from getting sucked into tech startups that had no earnings and eventually crashed. (Want to adopt the Oracle of Omaha's investing style? See Think Like Warren Buffett.)
7. Focus on the future.
The tough part about investing is that we are trying to make informed decisions based on things that are yet to happen. It's important to keep in mind that even though we use past data as an indication of things to come, it's what happens in the future that matters most.
A quote from Peter Lynch's book "One Up on Wall Street" (1990) about his experience with Subaru demonstrates this: "If I'd bothered to ask myself, 'How can this stock go any higher?' I would have never bought Subaru after it already went up twentyfold. But I checked the fundamentals, realized that Subaru was still cheap, bought the stock, and made sevenfold after that." The point is to base a decision on future potential rather than on what has already happened in the past. (For more insight, see The Value Investor's Handbook.)
8. Adopt a long-term perspective.
Large short-term profits can often entice those who are new to the market. But adopting a long-term horizon and dismissing the "get in, get out and make a killing" mentality is a must for any investor. This doesn't mean that it's impossible to make money by actively trading in the short term. But, as we already mentioned, investing and trading are very different ways of making gains from the market. Trading involves very different risks that buy-and-hold investors don't experience. As such, active trading requires certain specialized skills.
Neither investing style is necessarily better than the other - both have their pros and cons. But active trading can be wrong for someone without the appropriate time, financial resources, education and desire. (For further reading, see Defining Active Trading.) Most people don't fit into this category.
9. Be open-minded.
Many great companies are household names, but many good investments are not household names. Thousands of smaller companies have the potential to turn into the large blue chips of tomorrow. In fact, historically, small-caps have had greater returns than large-caps: over the decades from 1926-2001, small-cap stocks in the U.S. returned an average of 12.27% while the Standard & Poor's 500 Index (S&P 500) returned 10.53%.
This is not to suggest that you should devote your entire portfolio to small-cap stocks. Rather, understand that there are many great companies beyond those in the Dow Jones Industrial Average (DJIA), and that by neglecting all these lesser-known companies, you could also be neglecting some of the biggest gains. (For more on investing in small caps, see Small Caps Boast Big Advantages.)
10. Be concerned about taxes, but don't worry.
Putting taxes above all else is a dangerous strategy, as it can often cause investors to make poor, misguided decisions. Yes, tax implications are important, but they are a secondary concern. The primary goals in investing are to grow and secure your money. You should always attempt to minimize the amount of tax you pay and maximize your after-tax return, but the situations are rare where you'll want to put tax considerations above all else when making an investment decision (see Basic Investment Objectives).
Conclusion
In this article, we've covered 10 solid tips for long-term investors. There is are exceptions to every rule, but we hope that the common-sense principles we've discussed benefit you overall and provide some insight into how you should think about investing.
by Investopedia Staff, (Contact Author Biography)
Investopedia.com believes that individuals can excel at managing their financial affairs. As such, we strive to provide free educational content and tools to empower individual investors, including thousands of original and objective articles and tutorials on a wide variety of financial topics.
** This article and more are available at Investopedia.com - Your Source for Investing Education **
http://www.investopedia.com/articles/00/082100.asp
Thursday 3 September 2009
Analab
3.9.09
NAV 1.94
No of Shares 60.02 m
Equity 115.1 m
Cash and Cash Equivalent 32.27 m ( 0.538/share)
Investment in Equity 15.83 m (0.263/share)
Earnings (after tax) 9.37 m (0.156/share)
Dividend 0.045/share (gross)
ROE 8.13%
Today's share price 1.02/share
DY 4.4% (gross) 3.1% (net)
PE 6.53
Market cap 61.22 m
Last 5 years (2005 - 2009)
Total EPS 0.571
Dividend 0.1205
DPO 21%
So many questions to ask of the management?
1. Why is the management of this company hoarding so much cash?
2. Will this cash be employed more productively in the future?
3. Why is the management investing 15.83m into equity?
4. Why not return the surplus cash to the shareholders?
5. Why is the company paying such miserable dividends when it can well afford to be more generous? A reasonable company should pay around 30 to 70% of earnings as dividend.
6. The present ROE of 8.13% isn't great and does not lend support to the management retaining so much earnings each year.
7. Why is the management not taking heed of the investors of this stock?
This is a company with reasonable business revenues and earnings. However, the management has erred in its role as the steward of the company on behalf of the shareholders. The minority shareholders are not adequately rewarded. The return is not decent enough, therefore its share price is trading at a huge discount to its NAV.
A value investor maybe tempted to buy this stock. Moreover, it gives a dividend yield of 3% and if one can wait (BIG IF) for the value of the shares to realise its fair value, that's fine.
The risk is that this company will continues to be managed thus, giving miserable dividends, and hoarding cash which are employed at a low ROE for many years until one fine day, the majority shareholders decide the market price should be higher. Without being able to persuade or influence these important decisions, should you put your money into this stock?
NAV 1.94
No of Shares 60.02 m
Equity 115.1 m
Cash and Cash Equivalent 32.27 m ( 0.538/share)
Investment in Equity 15.83 m (0.263/share)
Earnings (after tax) 9.37 m (0.156/share)
Dividend 0.045/share (gross)
ROE 8.13%
Today's share price 1.02/share
DY 4.4% (gross) 3.1% (net)
PE 6.53
Market cap 61.22 m
Last 5 years (2005 - 2009)
Total EPS 0.571
Dividend 0.1205
DPO 21%
So many questions to ask of the management?
1. Why is the management of this company hoarding so much cash?
2. Will this cash be employed more productively in the future?
3. Why is the management investing 15.83m into equity?
4. Why not return the surplus cash to the shareholders?
5. Why is the company paying such miserable dividends when it can well afford to be more generous? A reasonable company should pay around 30 to 70% of earnings as dividend.
6. The present ROE of 8.13% isn't great and does not lend support to the management retaining so much earnings each year.
7. Why is the management not taking heed of the investors of this stock?
This is a company with reasonable business revenues and earnings. However, the management has erred in its role as the steward of the company on behalf of the shareholders. The minority shareholders are not adequately rewarded. The return is not decent enough, therefore its share price is trading at a huge discount to its NAV.
A value investor maybe tempted to buy this stock. Moreover, it gives a dividend yield of 3% and if one can wait (BIG IF) for the value of the shares to realise its fair value, that's fine.
The risk is that this company will continues to be managed thus, giving miserable dividends, and hoarding cash which are employed at a low ROE for many years until one fine day, the majority shareholders decide the market price should be higher. Without being able to persuade or influence these important decisions, should you put your money into this stock?
The difference between the buy and sell transactions is profit.
I. BUY LOW, SELL HIGH
The idea of "buy low, sell high" is as old as trading ownership of properties. It is the basis of all business. Buy a property at one price and sell it at a higher price. The difference between the buy and sell transactions is profit. To make a profit is the reason to buy and sell stock.
When the investor first heard about the takeover, it was already late in the game to make a play. Thinking for a day or two about buying or selling can sometimes be disastrous. The investor sold out the position without learning the details.
Once a strategy is put in play, an investor should not be so quick to change. The investor should have checked the background on the two companies. The 10 percent loss strategy is just that, a 10 percent loss. It has nothing to do with how a price will perform in the next few days. Some professional investors look for stocks that are down 10 to 15 percent and consider them buying opportunities. They know the 10 percent will be bailing out and the stock prices can become even better bargains. These investors will allow a 10, 15 or even 20 percent drop because the majority of buyers did not buy at the top.
If an investor is going to speculate on takeovers, it is important that he or she realize that the prices will tend to be volatile until the actual takeover occurs.
The axiom "buy low, sell high" should not be followed in reverse by the investor.
II. BUY HIGH, SELL HIGHER
Many individuals are attempting to "buy high and sell higher" when they buy a stock that is on the move. In fact, professional traders frequently use the strategy. Soaring prices are attractive to investors, who believe the prices will keep moving. As long as the momentum of the price swing attracts new buyers, the soaring stock price will continue to climb. It might run up for a couple of days, weeks or even months. Eventually, however, there is a hesitation, followed by a turn as the profit taking begins. The last buyers not only have the smallest gains from the run up, they will obviously also have the biggest losses. It is somewhat like a pyramid scheme where the losers are the last to join.
A severe market decline creates lower prices and large cash positions even though the earnings of stocks can remain unchanged. The bargains can be resisted for only a limited time. In a severe market decline, the climb back to former levels could take a few months or longer, but the recovery will come in time.
Where are the plays?
Individual investors can seek out stocks that are either in play by the institutions or are likely to come into play. Often they are stocks with strong fundamentals in earnings and revenues, found in industries with good growth potential. Medical products and devices can be exciting fast growth companies. Sometimes older products companies with strong growth records do well.
Enhancements
The strategy of buy high, sell higher can be enhanced by anticipated increases in earnings or by corporate takeover situations. Although anticipation of higher earnings creates unusually high ratios, when the earnings do increase, the ratios return to normal levels. If the earnings do not cause a return to normal levels, sellers will eventually force the return.
Takeovers
Corporate takeovers create a different situation. Professional arbitrageurs go on search missions in which they look specifically for companies likely to be bought out by some other company. The large leveraged buyout takeover can become a classic buy high, sell higher situation. For those companies who could arrange the deals, there was less risk with greater profits.
Long-term intention
Buying high and selling higher can be a visible way to make money in the stock market, but it is not without risk. The strategy usually calls for the intention of a longer term hold for example, when the earnings cannot catch up with the price or in a takeover, when the deal is finalized. Although it is possible to trade in and out during volatile times, the whip-saw effects of being on the wrong side can be devastating.
Corporate takeovers that fail to materialize are a different story. If a buyout does not occur, the stock price will probably fall to previous levels or below. Most often, investors would be prudent to sell and take the loss quickly, rather than hang on and hope for a recovery. A prudent play after selling out can be to attempt bottom fishing once the price gets hammered. Such activity should be based on the individual's belief that the stock can weather the storm and that the company is still capable of generating good earnings.
It would not be unusual for institutional or other experienced stock traders to play these stocks for small profits. They might sell short at the peaks and attempt to buy long at the lows. Such actions often end up to be momentum oriented. They watch the trades minute by minute to see if there is any strength as shown by volume. If strength is indicated by larger volume, they hold their position. If the volume declines, they close out their positions and plan their next strategy. Obviously, timing is everything in these speculative strategies.
Long or short term
Buy high, sell higher can work for either the conservative long-term or speculative short-term, strategy. But what either strategy needs is a stock that has a solid reason to go higher in price. Two of the main reasons for a stock price to go higher are anticipated higher earnings or a takeover plan.
III. SELL HIGH, BUY LOW
Sell short at a high price and buy back at a lower price. Wonderful, an investor can make money in a falling market.
Limited gain
A short position can profit only to the amount that a price drops. But in a short position, there is virtually unlimited risk because there is no limit to how high a stock price can go. Eventually, the shares must be bought back or if the investor currently owns the shares, delivered to cover the short position. The potential problem is that if the price does not fall, it might rise higher than the investor can afford to pay.
IV. SELL THE LOSERS AND LET THE WINNERS RUN
It is one of the most important understandings an investor can have about the stock market. It is prudent for an investor to sell stocks that are losing money, stocks that could continue to drop in price and value. It makes equally good sense to stay with stocks that show significant gains, as long as they remain fundamentally strong.
Any price drop is a losing situation. Price drops cost the investor money. They are a loss of profits. In some circumstances the investor should sell, but in other situations the investor should take a closer look before reaching a sell decision.
The determination of whether a stock is still a winner depends on the cause of the price correction. If a price drop occurs because of a weakness in the overall market situation or is the result of a normal daily fluctuation of the stock price, the stock can still be a winner.
If, however, the cause of the drop has long term implications, it could be time to take the loss and move on to another stock. Long term implications could be any of the following:
1 Declining sales
2 Tax difficulties
3 Legal problems
4 An emerging bear market
5 Higher interest rates
6 Negative impacts on future earnings
Any event that has a negative impact on the long term picture of earnings or earnings growth can quickly turn a stock into a loser. Many long and short term investors will sell out their positions and move on to a potential winner.
http://www.omniglot.com/info-articles/dallas/buy_market_price_sell_stock.html
The idea of "buy low, sell high" is as old as trading ownership of properties. It is the basis of all business. Buy a property at one price and sell it at a higher price. The difference between the buy and sell transactions is profit. To make a profit is the reason to buy and sell stock.
When the investor first heard about the takeover, it was already late in the game to make a play. Thinking for a day or two about buying or selling can sometimes be disastrous. The investor sold out the position without learning the details.
Once a strategy is put in play, an investor should not be so quick to change. The investor should have checked the background on the two companies. The 10 percent loss strategy is just that, a 10 percent loss. It has nothing to do with how a price will perform in the next few days. Some professional investors look for stocks that are down 10 to 15 percent and consider them buying opportunities. They know the 10 percent will be bailing out and the stock prices can become even better bargains. These investors will allow a 10, 15 or even 20 percent drop because the majority of buyers did not buy at the top.
If an investor is going to speculate on takeovers, it is important that he or she realize that the prices will tend to be volatile until the actual takeover occurs.
The axiom "buy low, sell high" should not be followed in reverse by the investor.
II. BUY HIGH, SELL HIGHER
Many individuals are attempting to "buy high and sell higher" when they buy a stock that is on the move. In fact, professional traders frequently use the strategy. Soaring prices are attractive to investors, who believe the prices will keep moving. As long as the momentum of the price swing attracts new buyers, the soaring stock price will continue to climb. It might run up for a couple of days, weeks or even months. Eventually, however, there is a hesitation, followed by a turn as the profit taking begins. The last buyers not only have the smallest gains from the run up, they will obviously also have the biggest losses. It is somewhat like a pyramid scheme where the losers are the last to join.
A severe market decline creates lower prices and large cash positions even though the earnings of stocks can remain unchanged. The bargains can be resisted for only a limited time. In a severe market decline, the climb back to former levels could take a few months or longer, but the recovery will come in time.
Where are the plays?
Individual investors can seek out stocks that are either in play by the institutions or are likely to come into play. Often they are stocks with strong fundamentals in earnings and revenues, found in industries with good growth potential. Medical products and devices can be exciting fast growth companies. Sometimes older products companies with strong growth records do well.
Enhancements
The strategy of buy high, sell higher can be enhanced by anticipated increases in earnings or by corporate takeover situations. Although anticipation of higher earnings creates unusually high ratios, when the earnings do increase, the ratios return to normal levels. If the earnings do not cause a return to normal levels, sellers will eventually force the return.
Takeovers
Corporate takeovers create a different situation. Professional arbitrageurs go on search missions in which they look specifically for companies likely to be bought out by some other company. The large leveraged buyout takeover can become a classic buy high, sell higher situation. For those companies who could arrange the deals, there was less risk with greater profits.
Long-term intention
Buying high and selling higher can be a visible way to make money in the stock market, but it is not without risk. The strategy usually calls for the intention of a longer term hold for example, when the earnings cannot catch up with the price or in a takeover, when the deal is finalized. Although it is possible to trade in and out during volatile times, the whip-saw effects of being on the wrong side can be devastating.
Corporate takeovers that fail to materialize are a different story. If a buyout does not occur, the stock price will probably fall to previous levels or below. Most often, investors would be prudent to sell and take the loss quickly, rather than hang on and hope for a recovery. A prudent play after selling out can be to attempt bottom fishing once the price gets hammered. Such activity should be based on the individual's belief that the stock can weather the storm and that the company is still capable of generating good earnings.
It would not be unusual for institutional or other experienced stock traders to play these stocks for small profits. They might sell short at the peaks and attempt to buy long at the lows. Such actions often end up to be momentum oriented. They watch the trades minute by minute to see if there is any strength as shown by volume. If strength is indicated by larger volume, they hold their position. If the volume declines, they close out their positions and plan their next strategy. Obviously, timing is everything in these speculative strategies.
Long or short term
Buy high, sell higher can work for either the conservative long-term or speculative short-term, strategy. But what either strategy needs is a stock that has a solid reason to go higher in price. Two of the main reasons for a stock price to go higher are anticipated higher earnings or a takeover plan.
III. SELL HIGH, BUY LOW
Sell short at a high price and buy back at a lower price. Wonderful, an investor can make money in a falling market.
Limited gain
A short position can profit only to the amount that a price drops. But in a short position, there is virtually unlimited risk because there is no limit to how high a stock price can go. Eventually, the shares must be bought back or if the investor currently owns the shares, delivered to cover the short position. The potential problem is that if the price does not fall, it might rise higher than the investor can afford to pay.
IV. SELL THE LOSERS AND LET THE WINNERS RUN
It is one of the most important understandings an investor can have about the stock market. It is prudent for an investor to sell stocks that are losing money, stocks that could continue to drop in price and value. It makes equally good sense to stay with stocks that show significant gains, as long as they remain fundamentally strong.
Any price drop is a losing situation. Price drops cost the investor money. They are a loss of profits. In some circumstances the investor should sell, but in other situations the investor should take a closer look before reaching a sell decision.
The determination of whether a stock is still a winner depends on the cause of the price correction. If a price drop occurs because of a weakness in the overall market situation or is the result of a normal daily fluctuation of the stock price, the stock can still be a winner.
If, however, the cause of the drop has long term implications, it could be time to take the loss and move on to another stock. Long term implications could be any of the following:
1 Declining sales
2 Tax difficulties
3 Legal problems
4 An emerging bear market
5 Higher interest rates
6 Negative impacts on future earnings
Any event that has a negative impact on the long term picture of earnings or earnings growth can quickly turn a stock into a loser. Many long and short term investors will sell out their positions and move on to a potential winner.
http://www.omniglot.com/info-articles/dallas/buy_market_price_sell_stock.html
Five sure-fire ways to lose lots of money in the stock market.
How to Lose in the Stock Market
This might seem a strange title for me to use in a newsletter. However, it is often just as instructive to look at why people lose, as it is to identify the traits of winners. I have found that if you control losses when trading, the profits will tend to look after themselves. In a similar way, it seems to me that if I could only tell beginners what the destructive behaviours are before they start, they might be spared much financial pain. Here is a list of ways people set about losing money in the stock market:
1. Buy a Computerised Trading System
The more expensive it is, the better it will be. Quality costs in this area as in any other. Be impressed with the simulated profit results, which the promoter will assure you are a far better guide to future results than actual audited trading results. Why spend time developing yourself as a trader if you can just buy all the experience on a CD and run it on your computer? Continue to be amazed that professional fund managers don’t use these systems when the simulated results give results ten times better than mutual fund returns. When you say your prayers, don’t forget to give thanks to the generosity of the system promoter in giving you the tools to become rich quickly without risk or hard work.
2. Do It Now! Don’t Waste Time Developing a Plan of Action
After all, everyone knows that he who hesitates is lost. If only you had bought Cochlear, Flight Centre, Westfield Holdings and CSL when they listed you would be very rich now. Anyone can look at these charts and see how easy it was. The problem with most people is that they know too much about it and confuse themselves. Yes, you know that most small businesses fail and that the key reason is the lack of a sound business plan. And yes, most traders fail for the same reason – lack of a sound trading plan. But you are not like those people, you are special and would not make those silly mistakes. Plans only inhibit you. It is better for an intelligent person like you to form your plans as you go along.
3. Learn to Pick the Tops and Bottoms
Trading with the trend is for wimps. No wonder they don’t become rich, they leave too much on the table. You can capture it all – buy the low of the trend and sell the high. Look at the charts they show you at the expensive seminars run by trading gurus. Yes, buying a new low is trading against the trend, but you know when the trend is going to change – it always worked in the seminar examples. So, give thanks in your prayers for the guru who took time out from spending his or her fabulous wealth gained from trading to tell you the secret.
4. Take Profits quickly and hold on to the Losers
It is no wonder traders lose. They keep leaving their winnings on the table where the market can grab them back. They are just greedy. Better to take them straight away. Little fish are sweet and you can always catch lots more. But not the losers - after all, a loss is not real until you sell. Besides, the experts tell you stocks always go higher after a fall. Of course, you would not be silly enough to buy HIH, One.Tel or Harris Scarfe.
5. Look to Trading to Provide the Action you Crave
The trouble with most jobs and occupations is that they are boring. Bosses and clients keep wanting to impose discipline on you. But discipline breeds mediocrity. To succeed, you only need get free of all those irksome restrictions. Who needs plans? Who needs to study and learn dreary details? Who needs to have to keep good records – make money and it looks after itself. No, the market is a way to get free of all the things that have always held you back. Go for it and the devil take the hindmost.
So, there you have it – five sure-fire ways to lose lots of money in the stock market.
http://www.bwts.com.au/download/redir/015-229cbe1fa45d50d9186c7357e9edddc4.pdf
This might seem a strange title for me to use in a newsletter. However, it is often just as instructive to look at why people lose, as it is to identify the traits of winners. I have found that if you control losses when trading, the profits will tend to look after themselves. In a similar way, it seems to me that if I could only tell beginners what the destructive behaviours are before they start, they might be spared much financial pain. Here is a list of ways people set about losing money in the stock market:
1. Buy a Computerised Trading System
The more expensive it is, the better it will be. Quality costs in this area as in any other. Be impressed with the simulated profit results, which the promoter will assure you are a far better guide to future results than actual audited trading results. Why spend time developing yourself as a trader if you can just buy all the experience on a CD and run it on your computer? Continue to be amazed that professional fund managers don’t use these systems when the simulated results give results ten times better than mutual fund returns. When you say your prayers, don’t forget to give thanks to the generosity of the system promoter in giving you the tools to become rich quickly without risk or hard work.
2. Do It Now! Don’t Waste Time Developing a Plan of Action
After all, everyone knows that he who hesitates is lost. If only you had bought Cochlear, Flight Centre, Westfield Holdings and CSL when they listed you would be very rich now. Anyone can look at these charts and see how easy it was. The problem with most people is that they know too much about it and confuse themselves. Yes, you know that most small businesses fail and that the key reason is the lack of a sound business plan. And yes, most traders fail for the same reason – lack of a sound trading plan. But you are not like those people, you are special and would not make those silly mistakes. Plans only inhibit you. It is better for an intelligent person like you to form your plans as you go along.
3. Learn to Pick the Tops and Bottoms
Trading with the trend is for wimps. No wonder they don’t become rich, they leave too much on the table. You can capture it all – buy the low of the trend and sell the high. Look at the charts they show you at the expensive seminars run by trading gurus. Yes, buying a new low is trading against the trend, but you know when the trend is going to change – it always worked in the seminar examples. So, give thanks in your prayers for the guru who took time out from spending his or her fabulous wealth gained from trading to tell you the secret.
4. Take Profits quickly and hold on to the Losers
It is no wonder traders lose. They keep leaving their winnings on the table where the market can grab them back. They are just greedy. Better to take them straight away. Little fish are sweet and you can always catch lots more. But not the losers - after all, a loss is not real until you sell. Besides, the experts tell you stocks always go higher after a fall. Of course, you would not be silly enough to buy HIH, One.Tel or Harris Scarfe.
5. Look to Trading to Provide the Action you Crave
The trouble with most jobs and occupations is that they are boring. Bosses and clients keep wanting to impose discipline on you. But discipline breeds mediocrity. To succeed, you only need get free of all those irksome restrictions. Who needs plans? Who needs to study and learn dreary details? Who needs to have to keep good records – make money and it looks after itself. No, the market is a way to get free of all the things that have always held you back. Go for it and the devil take the hindmost.
So, there you have it – five sure-fire ways to lose lots of money in the stock market.
http://www.bwts.com.au/download/redir/015-229cbe1fa45d50d9186c7357e9edddc4.pdf
The ways successful traders and investors think
The Twelve Commandments
I found that they are of general application to either trading or investing. Here are my renditions of his commandments:
1. It is important to be diversified as a trader or an investor. Never put more than 10% of your funds into one stock and no more that 20% into the one industry sector.
2. Regularly check how your investments are performing. Look at each one separately, ignoring the overall results for the last period. Be ruthless rather than hopeful.
3. Keep at least 50% of your funds in stocks that pay dividends.
4. Dividend yield is much less important that capital gain for investors as well as traders.
5. Close out losing trades and investments quickly. Be very reluctant to realise profits.
6. Never exceed 25% of you funds in speculative stocks, illiquid stocks or a stock about which information is not published regularly.
7. Never, ever invest on the basis of “inside information”. You can be sure you are the last to hear it.
8. Never ask advice about what stocks to buy or sell. Do your own work, based on facts, not the opinions of others.
9. Mechanical formulas and methods for trading, investing or analysing investments should be avoided. Thinking is hard work, but these things make you intellectually lazy.
10. In boom conditions, half your funds should be moved into short-term bonds.
11. Never borrow heavily to invest and only when stocks are depressed.
12. Consider putting a small proportion of your funds into long-term options (if available) in promising companies.
Finally, a direct quotation from Phil Carret’s The Art of Speculation, which contains one of the most important of the ways successful traders and investors think that is the exact opposite to the way losing traders and investors look at the problem:
If (the speculator) has 100 shares of a given stock, for example, which is selling at 90, he should disregard entirely the price that he paid for it and ask himself this question: “If I had $9,000 cash today and wished to purchase some security, would I choose that stock in preference to every one of the thousands of other securities available to me?” If the answer is strongly negative, he should sell the stock. It should not make the slightest difference in this connection whether the stock cost 50 or 130. That is a fact which is entirely beside the point, though the average individual will give it considerable weight.
http://www.bwts.com.au/download/redir/015-229cbe1fa45d50d9186c7357e9edddc4.pdf
I found that they are of general application to either trading or investing. Here are my renditions of his commandments:
1. It is important to be diversified as a trader or an investor. Never put more than 10% of your funds into one stock and no more that 20% into the one industry sector.
2. Regularly check how your investments are performing. Look at each one separately, ignoring the overall results for the last period. Be ruthless rather than hopeful.
3. Keep at least 50% of your funds in stocks that pay dividends.
4. Dividend yield is much less important that capital gain for investors as well as traders.
5. Close out losing trades and investments quickly. Be very reluctant to realise profits.
6. Never exceed 25% of you funds in speculative stocks, illiquid stocks or a stock about which information is not published regularly.
7. Never, ever invest on the basis of “inside information”. You can be sure you are the last to hear it.
8. Never ask advice about what stocks to buy or sell. Do your own work, based on facts, not the opinions of others.
9. Mechanical formulas and methods for trading, investing or analysing investments should be avoided. Thinking is hard work, but these things make you intellectually lazy.
10. In boom conditions, half your funds should be moved into short-term bonds.
11. Never borrow heavily to invest and only when stocks are depressed.
12. Consider putting a small proportion of your funds into long-term options (if available) in promising companies.
Finally, a direct quotation from Phil Carret’s The Art of Speculation, which contains one of the most important of the ways successful traders and investors think that is the exact opposite to the way losing traders and investors look at the problem:
If (the speculator) has 100 shares of a given stock, for example, which is selling at 90, he should disregard entirely the price that he paid for it and ask himself this question: “If I had $9,000 cash today and wished to purchase some security, would I choose that stock in preference to every one of the thousands of other securities available to me?” If the answer is strongly negative, he should sell the stock. It should not make the slightest difference in this connection whether the stock cost 50 or 130. That is a fact which is entirely beside the point, though the average individual will give it considerable weight.
http://www.bwts.com.au/download/redir/015-229cbe1fa45d50d9186c7357e9edddc4.pdf
Why do people hold on to losing stocks?
Revisiting a behavioral economics classic: Why do people hold on to losing stocks?
By nudgeblog
Tyler Cowen poses the following question about stocks, and what he says used to be the conventional behavioral economics answer.
Let’s say you bought two stocks last year. One has tanked and looks likely to fall further. One has gone up and you expect it to keep rising. (Hey, it’s not completely impossible.) Which are you more apt to sell?
Behavioral economists used to think they knew the answer: neither. Studies have shown that people tend to value things more – whether shirts, stereos or stocks – once they own them, no matter what has happened to their actual worth. This phenomenon is called the endowment effect. If it were the only psychological factor at work, you’d be reluctant to sell both losers and winners simply because they’re already tucked into your portfolio.
Cowen’s story is incomplete, and therefore unfair, even to old behavioral economists. In the scenario Cowen describes, two biases, each reinforcing the other, would be in effect: The endowment effect and loss aversion. The endowment effects for both stocks (assuming you bought them at the same price) would cancel each other out, but this would not necessarily mean investor paralysis. For more than twenty years, behavioral economists have been citing something called the disposition effect, which is an implication of prospect theory and the component of loss aversion). The status quo purchase price serves a reference point. Gains and losses are perceived relative to some other aspirational level different from the status quo – say, what you thought the stock would rise to. As the winner is closer to this aspiration, you, as the investor, become more risk-averse and therefore more likely to sell it, while holding on to the loser in the hopes of a roaring comeback, even one with a small probability.
But this isn’t the only explanation for identical behavior. An alternative is a commonly mistaken belief among average investors that stocks will revert to their mean. Stocks that have risen will fall; stocks that have fallen will rise. This story also predicts the selling of winners on the expectation that it will fall. Yes, Cowen’s scenarios says you, the ordinary investor, would expect the winning stock to keep rising. Old behavioral economics says you’d be quite extraordinary for believing this. Both of these potential explanations are laid out in Terrance Odean’s classic paper “Are Investors Reluctant to Realize Their Losses?” His data does allow him to distinguish which of the two stories makes more sense.
Addendum: Cowen’s column is actually an appreciation of a paper by Nicholas C. Barberis and Wei Xiong with yet another explanation for why investors sell winners and hold onto losers: That it’s the pleasure of actual (or what stock traders would called realized) gains – the good feeling you get from making a seemingly smart decision – and the pain of actual losses that leads to selling winners. Read the full paper.
http://nudges.wordpress.com/2009/01/29/revisiting-a-behavioral-economics-classic-why-do-people-hold-on-to-losing-stocks/
By nudgeblog
Tyler Cowen poses the following question about stocks, and what he says used to be the conventional behavioral economics answer.
Let’s say you bought two stocks last year. One has tanked and looks likely to fall further. One has gone up and you expect it to keep rising. (Hey, it’s not completely impossible.) Which are you more apt to sell?
Behavioral economists used to think they knew the answer: neither. Studies have shown that people tend to value things more – whether shirts, stereos or stocks – once they own them, no matter what has happened to their actual worth. This phenomenon is called the endowment effect. If it were the only psychological factor at work, you’d be reluctant to sell both losers and winners simply because they’re already tucked into your portfolio.
Cowen’s story is incomplete, and therefore unfair, even to old behavioral economists. In the scenario Cowen describes, two biases, each reinforcing the other, would be in effect: The endowment effect and loss aversion. The endowment effects for both stocks (assuming you bought them at the same price) would cancel each other out, but this would not necessarily mean investor paralysis. For more than twenty years, behavioral economists have been citing something called the disposition effect, which is an implication of prospect theory and the component of loss aversion). The status quo purchase price serves a reference point. Gains and losses are perceived relative to some other aspirational level different from the status quo – say, what you thought the stock would rise to. As the winner is closer to this aspiration, you, as the investor, become more risk-averse and therefore more likely to sell it, while holding on to the loser in the hopes of a roaring comeback, even one with a small probability.
But this isn’t the only explanation for identical behavior. An alternative is a commonly mistaken belief among average investors that stocks will revert to their mean. Stocks that have risen will fall; stocks that have fallen will rise. This story also predicts the selling of winners on the expectation that it will fall. Yes, Cowen’s scenarios says you, the ordinary investor, would expect the winning stock to keep rising. Old behavioral economics says you’d be quite extraordinary for believing this. Both of these potential explanations are laid out in Terrance Odean’s classic paper “Are Investors Reluctant to Realize Their Losses?” His data does allow him to distinguish which of the two stories makes more sense.
Addendum: Cowen’s column is actually an appreciation of a paper by Nicholas C. Barberis and Wei Xiong with yet another explanation for why investors sell winners and hold onto losers: That it’s the pleasure of actual (or what stock traders would called realized) gains – the good feeling you get from making a seemingly smart decision – and the pain of actual losses that leads to selling winners. Read the full paper.
http://nudges.wordpress.com/2009/01/29/revisiting-a-behavioral-economics-classic-why-do-people-hold-on-to-losing-stocks/
When to Sell Your Stock for the traders
Jul 15 2005
A Discussion Of The Most Difficult Part of Trading - When to Sell Your Stock
Posted By Tate Dwinnell
Question:
I am struggling a bit with my profit taking sell rules. I do pretty
well selling positions that aren’t working to keep my losses small.
However, I have trouble holding on to my winners. I either sell too
early wanting to bank that profit (especially after a few losses in a
row) or watch a winner turn into a breakeven or small loser (I try to
limit my winners from becoming big losers). I am trying to do the
O’Neil 3 to 1 thing but find many of my purchases never quite make it to
the ~20% level before they correct.
Do you have specific sell rules?
Any ideas in this area would be much appreciated.
My Response:
It’s a good question - selling to take a profit is the most difficult part
of investing because there are so many if’s, and or buts.
Honestly, I don’t have specific sell rules but do follow certain guidelines
you’ll want to consider:
1. I almost always sell before an earnings announcement
2. Typically, you’ll want to lock in profits around 20 - 25% in a strong
market, but towards the end of a bull run or in an iffy market, consider
taking profits at 15%. So instead of a (20% - 25% to 7%-8% ratio) use a
(15% to 5% ratio). If you look at my model portfolio, you’ll notice that
the average gain is around 15.5% and the average loss around 5.5%. Maybe
consider taking profits at 15% while keeping losses small. You can be right
less than half the time and still do very well.
3. Did the the stock break out with force and run up quickly then
consolidate quietly? Is it still exhibiting good price and volume action
(heavy buying, light volume selling). If so, this could be a big winner for
you and you may want to hold out for profits more than 20 - 25% in a
strong bull market.
4. Look for a change in trend of price and volume as a signal to lock in
gains. A good example is CBG, a current Model P. holding. Beginning July
5th, buy volume began to subside as it edged higher. Of course in hindsight
I should have locked in that 20% profit right then and there. At the time I
was thinking that post holiday trade was skewing the volume a bit and high
volume selling hadn’t yet appeared. Now that they have appeared I am
looking for an exit point, preferably around 45, if it can get that far. I
still have a decent chance of locking in 15% profits before earnings.
5. Don’t forget to pay attention to upward trend lines as well as prior
resistance points as well. They can provide good predeterminded sell
points. A good example of this is DCAI, another current holding in the M.P.
This is a stock that has carved out a deep base, with resistance at the high
in the left side around 35. Would I continue holding if it hits that high?
No, I’m taking very nice profits off the table. Deep bases have a much
higher failure rate, so it’s unlikely that DCAI gets to 35, carves a nice
handle and shoots to the moon. I’m just looking for a nice run in the right
side and unloading.
Selling is somewhat of an art form and you will never be perfect. If you
can keep losses small and maybe move your profit target closer in a bit, you
will be successful.
I have certainly had my share of blunders. In 2003, I took a quick 50% gain
in TASR, that cost me 10’s of thousands in the long run. At the beginning
of this year, I let large gains in DHB, XXIA and TASR slip away in the Model
Portfolio and have been chipping away all year to recover those losses. It
is important to track your trades and learn from mistakes. Be flexible and
adjust.
I think you’re on the right track, just a few minor adjustments.
Member Response:
Thanks. I agree selling is the most difficult but probably the most
important as well. I have tried to adhere to the 3 to 1 mantra but most
of my stocks purchased have corrected before they hit the 20% range and
then I hold on too long for either a small loss or gain. I have more
recently been willing to take 12 - 15% gains but then feel my stops
become a little too tight and get stopped out of good trades.
I have since widen my stops a bit but try to keep losses to 4 - 5% and
then take 10 - 15% gains, especially in a less than raging bull.
Do you see value in a 1st level profit target where you would sell 75%
of your position and a 2nd profit target to sell the remaining 25%? I
have always talked myself out of this type of selling but know
evaluating the merits again. What are your thoughts?
My Response:
If you’re buying at the correct time, cutting your losses at 5% should keep
you in the majority of trades, provided you have good entry points. Maybe
take a look at your entry points and the quality of the base? I’d be happy
to take a look at a few if you’d like.
I do see some value in taking partial profits depending on the situation,
but I’m more of an all or nothing trader. This keeps the number of
positions to a minimum and keeps commission costs lower. It really depends
on the company. I think that the solid, established companies like an
Apple, Starbux, Google ,etc this method can be a good one for locking in
profits ahead of earnings. For example, I will most likely take 50% profit
on Google before earnings are released (on the 21st) and let the other half
ride. If the stock drops to support maybe I add back that other half. If
the stock soars on the earnings, you still gain on the other half. However,
with more volatile, unestablished companies, the best option is to usually
sell ALL before an earnings report.
Generally speaking, I think it’s best to avoid getting too cute with
selling. If you have the solid 20% gain, take it… ALL of it. Just
remember the signs of what to look for with the potential big winners, which
might provide larger gains.
http://selfinvestors.com/tradingstocks/mail-bag/the-most-difficult-part-of-trading-when-to-sell-your-stock/
A Discussion Of The Most Difficult Part of Trading - When to Sell Your Stock
Posted By Tate Dwinnell
Question:
I am struggling a bit with my profit taking sell rules. I do pretty
well selling positions that aren’t working to keep my losses small.
However, I have trouble holding on to my winners. I either sell too
early wanting to bank that profit (especially after a few losses in a
row) or watch a winner turn into a breakeven or small loser (I try to
limit my winners from becoming big losers). I am trying to do the
O’Neil 3 to 1 thing but find many of my purchases never quite make it to
the ~20% level before they correct.
Do you have specific sell rules?
Any ideas in this area would be much appreciated.
My Response:
It’s a good question - selling to take a profit is the most difficult part
of investing because there are so many if’s, and or buts.
Honestly, I don’t have specific sell rules but do follow certain guidelines
you’ll want to consider:
1. I almost always sell before an earnings announcement
2. Typically, you’ll want to lock in profits around 20 - 25% in a strong
market, but towards the end of a bull run or in an iffy market, consider
taking profits at 15%. So instead of a (20% - 25% to 7%-8% ratio) use a
(15% to 5% ratio). If you look at my model portfolio, you’ll notice that
the average gain is around 15.5% and the average loss around 5.5%. Maybe
consider taking profits at 15% while keeping losses small. You can be right
less than half the time and still do very well.
3. Did the the stock break out with force and run up quickly then
consolidate quietly? Is it still exhibiting good price and volume action
(heavy buying, light volume selling). If so, this could be a big winner for
you and you may want to hold out for profits more than 20 - 25% in a
strong bull market.
4. Look for a change in trend of price and volume as a signal to lock in
gains. A good example is CBG, a current Model P. holding. Beginning July
5th, buy volume began to subside as it edged higher. Of course in hindsight
I should have locked in that 20% profit right then and there. At the time I
was thinking that post holiday trade was skewing the volume a bit and high
volume selling hadn’t yet appeared. Now that they have appeared I am
looking for an exit point, preferably around 45, if it can get that far. I
still have a decent chance of locking in 15% profits before earnings.
5. Don’t forget to pay attention to upward trend lines as well as prior
resistance points as well. They can provide good predeterminded sell
points. A good example of this is DCAI, another current holding in the M.P.
This is a stock that has carved out a deep base, with resistance at the high
in the left side around 35. Would I continue holding if it hits that high?
No, I’m taking very nice profits off the table. Deep bases have a much
higher failure rate, so it’s unlikely that DCAI gets to 35, carves a nice
handle and shoots to the moon. I’m just looking for a nice run in the right
side and unloading.
Selling is somewhat of an art form and you will never be perfect. If you
can keep losses small and maybe move your profit target closer in a bit, you
will be successful.
I have certainly had my share of blunders. In 2003, I took a quick 50% gain
in TASR, that cost me 10’s of thousands in the long run. At the beginning
of this year, I let large gains in DHB, XXIA and TASR slip away in the Model
Portfolio and have been chipping away all year to recover those losses. It
is important to track your trades and learn from mistakes. Be flexible and
adjust.
I think you’re on the right track, just a few minor adjustments.
Member Response:
Thanks. I agree selling is the most difficult but probably the most
important as well. I have tried to adhere to the 3 to 1 mantra but most
of my stocks purchased have corrected before they hit the 20% range and
then I hold on too long for either a small loss or gain. I have more
recently been willing to take 12 - 15% gains but then feel my stops
become a little too tight and get stopped out of good trades.
I have since widen my stops a bit but try to keep losses to 4 - 5% and
then take 10 - 15% gains, especially in a less than raging bull.
Do you see value in a 1st level profit target where you would sell 75%
of your position and a 2nd profit target to sell the remaining 25%? I
have always talked myself out of this type of selling but know
evaluating the merits again. What are your thoughts?
My Response:
If you’re buying at the correct time, cutting your losses at 5% should keep
you in the majority of trades, provided you have good entry points. Maybe
take a look at your entry points and the quality of the base? I’d be happy
to take a look at a few if you’d like.
I do see some value in taking partial profits depending on the situation,
but I’m more of an all or nothing trader. This keeps the number of
positions to a minimum and keeps commission costs lower. It really depends
on the company. I think that the solid, established companies like an
Apple, Starbux, Google ,etc this method can be a good one for locking in
profits ahead of earnings. For example, I will most likely take 50% profit
on Google before earnings are released (on the 21st) and let the other half
ride. If the stock drops to support maybe I add back that other half. If
the stock soars on the earnings, you still gain on the other half. However,
with more volatile, unestablished companies, the best option is to usually
sell ALL before an earnings report.
Generally speaking, I think it’s best to avoid getting too cute with
selling. If you have the solid 20% gain, take it… ALL of it. Just
remember the signs of what to look for with the potential big winners, which
might provide larger gains.
http://selfinvestors.com/tradingstocks/mail-bag/the-most-difficult-part-of-trading-when-to-sell-your-stock/
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