Charting frequency

Saul,
How often do you make new entries to your charts? I assume it is quarterly. Is that correct?

Thanks for all you do.

Jeb

You can see my holdings here: http://my.fool.com/profile/TMFJebbo/info.aspx

Hi Jeb, On my trailing earnings graphs that we’ve been talking about, I put in the monthly vertical bars at the end of each month.

I also have a separate weekly chart for each stock on which I do the verticals and the close weekly, and mark any buys or sells that I have made.

Both of these I only do for stocks I’m in or am considering buying (15 total or so), so it’s not a lot of work (30 minutes a week on the outside and extra at the end of the month).

Saul

On my trailing earnings graphs that we’ve been talking about, I put in the monthly vertical bars at the end of each month.

I also have a separate weekly chart for each stock on which I do the verticals and the close weekly, and mark any buys or sells that I have made.

OK. So the monthly and weekly numbers you are plotting only have to do with the stock price. And the earnings number is a quarterly entry. Am I correct about that?

Jeb

You can see all my holdings here: http://my.fool.com/profile/TMFJebbo/info.aspx

Yes

Saul,

Does information in the weekly stock price charts factor in to your buy and sell decisions? If yes, how?

Thanks.

Chris

Saul, Does information in the weekly stock price charts factor in to your buy and sell decisions? If yes, how?

Hi Chris, Well it adds to my piece of mind. For example, four weeks ago, the price of EPAM hit $69.50 and finished the week at $66.50. I could look back and see that one week previously, the price rose from $61.70 to $68.80, so this was just catching its breath and nothing to worry about.

It also gives me a quick visual look at where I’ve made recent purchases, as for every X dollars of purchase I put a little B, and a little S for the same amount of dollars of sales. So if I’m considering adding toy position I can quickly look at my graph and see that I just added 3X’x worth two weeks ago at a dollar less. That may or may not influence my decision. (I do prefer to buy stocks that are going up rather than down, but if a stock is going down for absolutely no reason, I may add considerable amounts).

I can look at the graph and see immediately what its price action has been in the past several weeks or months. It’s a lot bigger scale than the little trailing earnings graphs.

etc.

Saul

Saul,

I do prefer to buy stocks that are going up rather than down

Can you explain why you prefer to buy on the way up?

Thanks,
A.J.

Can you explain why you prefer to buy on the way up?

Good question, AJ

If the stock is going up, it generally means the hypothesis upon which I bought the stock is working out the way I hoped. Business is doing well, revenue, earnings, FCF, and all are going up. I’m glad to add to an idea that is working out. If it’s going up wildly on just hype I won’t add.

There are others who like to add “at a better value point”, which sounds good, but often means buying an idea that isn’t working out (watering the weeds, making excuses for bad news). Oh, sure, if my original purchase was at $73, and a week later it’s at $71 because the market is down a little, sure I’ll add a little. That’s just random noise. But if I bought at $73 and they come out with bad news or a bad report and it’s down at $62, I’m not one to say, “Oh, Management will get it figured out, I’ll buy at this cheaper value.”

There are exceptions: I wrote about EPAM, after reporting excellent earnings they fell from $66.50 and I bought more at $62. But I knew what the news was, and knew there was nothing wrong (that I could see). However, they had briefly been as low as $57, and I said if I had seen them there I would have hesitated to buy, figuring there was something wrong that I hadn’t recognized. (They are now at $64.10). (I now think some hedge fund got a margin call on another stock and had to raise cash in a hurry and had to liquidate EPAM at whatever price they could get. Sold it all at market).

One and a half years ago, BOFI was up to $105, way ahead of itself. Over six months it fell gradually to a low of $65. All the news was great. I bought from $90 to $65, and back up too. It’s now at $92 and it’s PE is now only 19 or so. But every earnings report was better than great.

But I’ve added to SKX, SWKS, EPAM, etc on their way up.

Hope this helps.

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There are others who like to add “at a better value point”, which sounds good, but often means buying an idea that isn’t working out (watering the weeds, making excuses for bad news). Oh, sure, if my original purchase was at $73, and a week later it’s at $71 because the market is down a little, sure I’ll add a little.

I don’t think that is what adding at better value points is suppose to mean but maybe people use that term when they are really averaging down.

I thought adding at better value points would be similar to starting a position at $50 with a PE of 30 and maybe 6 months later it is 60 but with a PE of 25. So reasonable to add due to the better value point.

Unless I am missing something, I didn’t think better value point was tied just to the stock price

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Unless I am missing something, I didn’t think better value point was tied just to the stock price

People often confuse price and value because they are not thinking about it. In Spanish it happens more often than in English because of the way we speak. You ask someone how much something costs (¿cuanto cuesta?) and they are liable to reply “vale $100” (two words) instead of “cuesta $100” (also two words). In English “it is a $100 value” takes five words vs. “it costs $100” which only takes three.

The way I see it, one has to decide on the value of a company and to match that with the price of the stock and not just for the present but also going forward. That way you can play the price, take advantage of the volatility of prices. The trick, as Saul well described, is to know when the price is an indictor of value and when it is just random volatility.

Denny Schlesinger

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Denny,

In Spain we have an old saying “Solo un necio confunde valor y precio” that means “Only a fool confuses value and price”.

Price is what you pay and value is what you get for it.

Best regards

Maria

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I don’t think that is what adding at better value points is suppose to mean but maybe people use that term when they are really averaging down.

I thought adding at better value points would be similar to starting a position at $50 with a PE of 30 and maybe 6 months later it is 60 but with a PE of 25. So reasonable to add due to the better value point.

You are correct. I should have said Averaging down.

Saul

There are others who like to add “at a better value point”, which sounds good, but often means buying an idea that isn’t working out (watering the weeds, making excuses for bad news)…

I don’t think that is what adding at better value points is suppose to mean but maybe people use that term when they are really averaging down.

Hi Jdc, I just saw the following post on a MF SA board under the title “Is MTZ a buying opportunity?” and thought it typified what I wouldn’t do. (Granted, I should have said “averaging down”). Here’s the post: With the disappointing MTZ results, is MTZ a buying opportunity?

I don’t know anything about MTZ, nor did I read their results, but the general idea of buying more because they had bad results and the price fell, and thinking you are getting a bargain, is a NoNo for me.

Saul

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Saul,

What if the company suffered from a one-time (or rare) event? Like an insurance company that had to pay out more than expected claims for a freakishly-severe storm from the past quarter? Would you make an exception for something like that or would it still be something you generally avoid?

  • Matt

I thought adding at better value points would be similar to starting a position at $50 with a PE of 30 and maybe 6 months later it is 60 but with a PE of 25. So reasonable to add due to the better value point.

Unless I am missing something, I didn’t think better value point was tied just to the stock price – jdc

The approach you describe is exactly what Tom E (TMF1000) refers to when talking about “value points” and I suspect he’s your source for that. It’s a reasonable idea.

Personally, I’d rather just be sure of what I’m buying and buy at that $50 you mention, but the other approach is good if your confidence in the company is rising and you didn’t buy “enough” initially. :slight_smile:

Rob

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What if the company suffered from a one-time (or rare) event? Like an insurance company that had to pay out more than expected claims for a freakishly-severe storm from the past quarter? Would you make an exception for something like that or would it still be something you generally avoid?

Hi Matt, while a freakish storm may be a one time event, it’s often hard to tell with other events. Companies will always say, business is down because of this or that. They never say “our business model is failing”.
There are always alternative companies that are doing very well, and even some doing very well and selling off (even though earnings were up 75% year-over-year, they “missed” some analysts estimates by a penny, etc), so there’s no urgency in buying the ones doing poorly.

Saul

(And paying out claims is an insurance company’s business and they should have funds set aside for it)

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Thanks Saul!

Hi saul
can you explain what you mean by “BOFI was up to $105, way ahead of itself”? Do you mean , the PE started increasing ?
thanks
usha

Hi saul
can you explain what you mean by “BOFI was up to $105, way ahead of itself”? Do you mean , the PE started increasing ?
thanks
usha

I’m not sure about the P/E as I don’t track it for BOFI, but when the stock topped $100 per share the price to tangible book ratio was more than 5x. That’s a bit rich even for a company growing like BOFI, especially considering it was something like 2x only a year earlier. It’s right around 3x right now and I will guess it stay between 3x and 3.5x going forward.

Fletch

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around 3x right now and I will guess it stay between 3x and 3.5x going forward

If this is true and you draw a straight-line through the EPS chart as Saul charts them then you get a stock price of around $190-200 about 18 months from now which would be about 33% IRR. That’s what I’m betting on…

Chris

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