Tag Archives: Trading

looking at yesterday’s stock market movement

August 13, 2015 By in Analyzing performance, Current Market Thoughts, Portfolio management, Trading Tags: , , , , , , Leave a comment

on the wheel or off?

Japanese financial institutions have a reputation as being pretty awful stock market investors.  My experience is that this reputation is well-deserved.  Still, there’s an old-time Japanese stock market saying that I like a lot.

It’s that trying to trade based on the daily movement of stocks is like being on a wheel that’s spinning rapidly.  If you stay on the wheel, you won’t be hurt.  If you stay off the wheel, you’re safe, too.  It’s only when you try to be on the wheel sometimes and off the wheel at others, jumping back and forth between the two strategies, that you can do big damage to yourself.

Most of us are (I hope) off the wheel with the bulk of our savings.  We lay long-term plans that we review periodically and mostly own index-like products.  Some of us, though, myself included, like to have a small amount of our assets that we actively managed.  Even so, we don’t want to turn into day traders, who are totally consumed with life on the wheel.

studying the spin

Nevertheless, there are some days where price action can be highly revealing because trading is very emotionally charged.  Sometimes buying and selling are motivated by greed.   More often, fear is the driver.  In either case, however, traders show their most deep-seated beliefs.  Such days are also typically marked by wide swings in the prices of individual stocks, and often by sharp intraday momentum reversals for the market as a whole.

Yesterday was that kind of day, in my opinion.

I think anyone interested in actively managing part of his own holdings should look carefully at how each active position performed yesterday, both in morning trading, when the S&P fell by 1.5%, and in the afternoon, when the index rebounded to close up slightly for the day.

Of course, company fundamentals and price are the key long-term determinants of investment success.  But seeing what the market thinks can’t hurt, either.

what to look for

  1.  The ideal pattern to see in an individual stock would be outperformance during the decline, followed by outperformance during the rebound.

The worst would be underperformance during both phases.  I’d begin to think carefully about my rationale for keeping this latter kind of stock.

2.  Does a day like this signal a purging of market fears–and therefore the end of near-term downward market pressure?  I don’t think so (not enough pain, either in time or in depth of fall).  If it were, however, the strongest stocks during the rebound may well become the leaders during the next market up movement.

3.  At the very least, though, the stocks that led the afternoon rally are probably the ones the market will continue to feel the most comfortable with when it’s feeling bullish.  The ones that fell the least in the morning will likely continue to exhibit a defensive character (I was mildly surprised that Intel was one of these).

4.  Follow-through over the next few days can add more evidence to conclusions drawn from yesterday.

 

 

 

 

 

 

 

two types of orders: market and limit

June 19, 2015 By in buying and selling, fast death vs. slow death, Fixing mistakes, Trading Tags: , , , , , , Leave a comment

As a professional, I always believed that the key to success was to have a sound strategy and good stock selection.  I’m still convinced this is true.

At the same time, good execution of my plan through competent trading–buying and selling the stocks in my portfolio–while a secondary objective, could add or subtract a percentage point from my overall performance during a year.  Given that the typical active portfolio manager underperforms the S&P 500 by around one percentage point yearly, good trading can be worth its weight in gold.  Having been blessed with good traders most of my career, and cursed with one horrible trader I couldn’t get rid of for about a year, believe me I know the difference between the two.

The main tool we as individuals have to control the trades we do is our choice between limit and market orders.

types of orders

A market order is one where our instructions are to buy a certain amount of a stock at the market price, that is, the price at the time the human or computer that will transact for us receives the order.  Except in the most unusual circumstances–I can’t remember this ever happening with an order of mine–the transaction will always occur.  Sometimes, the price will differ a little from what we’ve seen on the screen a moment before entering the order, but in practical terms we’ll always buy/sell the stock.

A limit order, on the other hand, is one where we specify the exact price where we want the transaction to happen.  That may or may not occur on a given day.  Limit orders take two main forms, day  and GTC (Good Til Cancelled).  GTC orders are, technically speaking, really not exactly what the name says.  They most often are tagged with a time limit, say, three or six months, after which they expire if not renewed. When entering an order online, a message will typically pop up giving an expiration date.

choosing one

As regular readers will know, I’m a growth stock investor.  For people like me, I believe firmly in the cliché that the more important decision is how we sell, not how we buy (more about this on Monday).

buying

I tend to buy in two or three transactions.  I’ll almost always use a market order, for about a third of what I ultimately intend to own ,just to establish a new position.  I’ve found over the years that owning a small amount of a stock focuses my mind on it in a way that simply thinking about it, or having it in a paper portfolio, doesn’t. This also protects me a bit from the stock running away on the upside before I’ve finished buying.

My intention will be to buy the rest in one or two more transactions, hopefully at progressively lower prices.  If the market allows me, I’ll use limit orders to acquire the rest. I may decide, however, that I don’t have enough time to do so before others discover the stock.  If so, I’ll buy the rest at market.

selling

If I change my mind about a stock, that is, if I realize that my favorable view is probably wrong, I’ll sell all I own at market–and relatively quickly.  On the other hand, if the stock has gone up a lot, and my sale is motivated by price, I’ll usually use limit orders.

For example, one of my sons and I own both own Tesla (TSLA), at his suggestion.  We decided to sell half of our holding at $260 (I’m thinking the rest should go at $275, but I haven’t broached the subject with him yet).  We placed a limit order about a week ago.  It hit yesterday.  (For what it’s worth, I think a large convertible bond offering is imminent and that, like last year, it will mark a near-term top in the stock.  And, of course, we can’t forget that this is a highly speculative, if intriguing, issue.)

More on Monday.

 

 

trading: buying in thirds

May 7, 2015 By in buying and selling, Trading, trading: how valuable? Tags: , , , , Leave a comment

coming late to the party

I’ve found that the situation arises more often than one might think where I find a stock I think it interesting but where I’m very clearly not the first one at the party.  In other words, the company has potentially attractive long-term prospects but the stock is not cheap enough that I can justify buying a full position right away–and I don’t have a practical feel for how it trades.  My instinct is that the price is a bit too high, but I’m not sure.

how to get involved?

What I’ll typically do is buy a third of the position I ultimately want to have.

I’ll then continue to find out more about the company and watch the stock’s trading carefully (my experience is that people, myself included, never look hard enough if the name is only in a paper portfolio–a kind of portfolio I find psychologically pretty useless, anyway).

My intention will be to buy another third on a decline of, say, 5% – 10%, assuming I don;t turn up new information, positive or negative, that overturns my whole thesis.

If I I buy the second third, I’ll wait for a further decline to buy the final portion.

What does this method get me?  I have immediate exposure, in case I’m correct on the stock but too pessimistic on valuation.  At the same time, I still have a chance to lower my average cost by buying the bulk of the position at a lower price.

an example

My California son and I have been talking about the Elon Musk empire for a long time.  Following its weak  4Q14 results, our conversation turned to Tesla (TSLA).  It’s a stock I’ve owned off and on, but my son hasn’t.  (My view, (too) simply put, is that TSLA is a lot like a gold mining issue whose assets consist solely/predominantly in ownership of a reportedly fabulous orebody now under development.  Such stocks typically peak the day the mine opens–when investors have to deal with facts, not dreams.  Before then, the dreams are more important. )

My reading of the TSLA chart–hopefully more useful than parsing nocturnal visions with a dream book–made me think the stock continues to trade in a range between $180 and $260-ish.  I was also willing to believe that TSLA’s 4Q14 failure to sell enough cars was mostly due to bad weather and port difficulties.

Anyway, I decided to buy my first third at $200.  My son said he would wait for $190.

I bought his first third at around $191, where I bought my second third.

I bought his second third at $186? …and another (less than) one-third for myself there. as well.

Then the stock began to move up quickly and we haven’t bought any more.

The result:  my son has a somewhat smaller position, relative to his total portfolio size, with an average cost of $188?.  I have a larger relative position, with a higher relative cost, $194?.  So we both have exposure, and at a lower cost than if we’d bought all at once.

Another point: We’re dealing with a discount broker where our total commission costs are around $20.  Paying for two or three trades instead of one makes little difference.  For a traditional “full service” broker, this probably won’t be the case.

 

 

 

 

Tiffany (TIF) vs. Nike (NKE)–US multinationals in a strong dollar world

March 20, 2015 By in Current Market Thoughts, Recent Market Action Tags: , , , , , Leave a comment

TIF and NKE are two iconic US retail names.  Both have large international exposure.  As a result, results of both have been dented by the fall in the US$ value of their foreign sales.

Both stock charts also look virtually identical   …until the euro started falling in mid-2104.  Since then, NKE has continued to motor ahead, while TIF has fallen by the wayside.  From last June until now, NKE is up about 35%, while TIF has fallen by around 15%.  The S&P 500 has risen by  7% over the same span.

Both reported overnight.  As I’m writing this, NKE is up strongly, in a market that’s up; TIF is down.

Yes, I know the two brands stand for much different things, the products are very different and the business structures are, too.

Still,  NKE shows that foreign currency exposure in a rising dollar world need not be lethal if the underlying business is growing fast enough.

I’ve also been thinking a lot lately about the possibility that relative currency values can’t continue to diverge at the current rate forever.  More important, at some point–far ahead of the facts–Wall Street will have fully discounted likely potential changes in currency values.  At that point, even though weak foreign currencies may still be carving a chunk out of corporate results the stocks will no longer react badly when the ugly earnings are announced.

To my mind, that’s when it will be safe to de-emphasize domestic-oriented firms and pick through bombed out multinationals.

We’re apparently not there yet.

But TIF may well be a good indicator to gauge when investors have fully played out their desire to sell foreign currency earners.