Graphics

Saul,
More than a couple of times you have mentioned the you plot your investments in order to keep track of performance. You may have described this in more detail some time in the past, but if so, I missed it.

Would you please elaborate on exactly what you plot? I assume you track time on the x-axis and stock price on the y-axis. Please correct me if that assumption is not right. How often do you add a plot point? Do you use linear scales for both time and price? What do you consider an alert versus normal noise? I seem to recall that you draw the plots by hand rather than using Excel or some other s/w, is that correct? Why would you prefer hand drawn plots to computer drawn ones? Do you use butcher paper or some other rolled paper? Seems like these would get rather cumbersome after a while. How do you deal with splits or other actions that would appear to have a drastic effect on price? Do you plot stock price or value of you holdings in a company? Please describe anything else significant I neglected to ask about.

Thanks,

Brittlerock, I’m not Saul and a number of your questions are specific to what he does, but they resonate with some investigations I have done recently with web sites for charting. It isn’t as if I have historically done a lot of charting, but some circumstances have arisen that are causing me to cast about for some new things to do with different strategies for some new portfolios and that has gotten me interesting in charting relative performance, which seems at the core of your question.

Early in this process a friend remarked about a fund he holds which made a fairly large mid-December distribution which caused a certain amount of scrambling on his part to manage the tax implications, but a part of this was observing that sites like Yahoo Finance, which show the history of the stock price, make it look like something bad happened to the fund when the distribution happened, since, naturally, the stock price dropped significantly. These sites do handle splits and reverse splits gracefully, however.

One of the discoveries on this investigation was that stockcharts.com handles things rather differently. First of all, they have two different charts (and then some, for other purposes). One shows the performance of the stock or fund in terms independent of the price, i.e., the scale is not the price, but the gain or loss from inception. That chart allows putting up to ten tickers on the same chart. The other chart is in terms of market price and is for one ticker at a time and has a bunch of other things that one can display. But, the interesting thing about this other chart is that if you put in the ticker in plain form, the prices are adjusted for distributions as well as splits. So, for that distribution in my friend’s fund, the price before the distribution was adjusted down to reflect the amount of the distribution. So, that chart also is showing you actual net performance of the ticker. One can add a leading underscore to the ticker symbol to remove that correction and see the raw prices.

I can’t say the UI is as intuitive as it might be, but this site seems to offer a lot more relevant control than other sites I have found.

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Saul, More than a couple of times you have mentioned the you plot your investments in order to keep track of performance. You may have described this in more detail some time in the past, but if so, I missed it. Would you please elaborate on exactly what you plot? I assume you track time on the x-axis and stock price on the y-axis. Please correct me if that assumption is not right. How often do you add a plot point? Do you use linear scales for both time and price? What do you consider an alert versus normal noise? I seem to recall that you draw the plots by hand rather than using Excel or some other s/w, is that correct? Why would you prefer hand drawn plots to computer drawn ones? Do you use butcher paper or some other rolled paper? Seems like these would get rather cumbersome after a while. How do you deal with splits or other actions that would appear to have a drastic effect on price? Do you plot stock price or value of you holdings in a company? Please describe anything else significant I neglected to ask about. Thanks

Hi Brittle Rock, this one I can answer pretty simply. Neil has a whole section on graphing in the FAQ/Knowledgebase that he has compiled of my posts. If you look there I think you’ll get most of your questions answered in clear, concise form. If you still have some specific questions left after reading it, please let me know and I’ll do my best to answer them. (That’s why we have the FAQ/Knowledgebase, after all, to save me from having to try to answer the same questions over and over). Thanks.

Saul

Neil has a whole section on graphing in the FAQ/Knowledgebase that he has compiled of my posts.

Saul, at the risk of being a thorn in your side, would you be so kind as to provide a link, or post number or something that would steer me in the direction of the FAQ/KB?

Thanks

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Brittlerock,

Go to post 5584 for the entire FAQ/Knowledgebase.

Here is the section on Graphing:

## Graphing
--------------------------------------------------------
* Here are some ideas for evaluating a new company.

1. Go to the company website and find out what they do. To get there, google, for example, “Zillow Investor Relations” and you’ll get the Zillow investor relations website.

2. Read the text part, at least, of their last quarterly report. “Analyzing the financials” sounds intimidating, and probably isn’t necessary. They usually tell you in words what is going on.

3. Read the transcript of the conference call. You should be able to find it on Seeking Alpha “Zillow Q1 2014 Transcript” should get it. (Yep, I put it in on Seeking Alpha and it came right up).

4. Go back through at least two years of quarterly reports and pull off at least adjusted earnings and revenue. Make a table (pencil and paper) for each. Since you are interested in Avigilon, here’s what their revenues look like

2012 - 18 24 25 33 = 100
2013 - 32 39 51 56 = 178
2014 - 56

You see what a good visual image this gives you. You can see both sequential change and year-over-year change at a glance. And that 78% increase in revenue from 2012 to 2013.

Here’s earnings

2012 - 02 04 08 08 = 22
2013 - 08 10 22 19 = 59
2014 - 19

Incredible rate of growth.

Then do a running 12 month trailing earnings:

12 2012 22
03 2013 28
06 2013 34
09 2013 48
12 2013 59
03 2014 70

Gives you a picture of where they are going and how fast. You should graph this on a piece of log paper. (On log paper a move from 10 cents to 20 cents is the same length as a move from 50 cents to a dollar (100%).

To compare, here’s the earnings for BOFI. Regular good growth, but of course not as fast.

2012 - 58 64 67 70 = 259
2013 - 74 78 85 91 = 326
2014 - 100

12 2012 259
03 2013 275
06 2013 289
09 2013 305
12 2013 326
03 2014 352

Now Avigilon will sell at a higher PE than BOFI so it balances out. There’s a limit how high you should pay for rapid growth though. [Post 2003]

* If you have the time, do a weekly graph on your stock, on old fashioned large graph paper. It helps you keep things in perspective. A drop from $51 to $49 doesn’t look so bad if you look back and see that it’s been between $52 and $48 for the past six weeks, or if you see that your stock rose from $40 to $51 in the previous two weeks and the “drop” to $49 is meaningless. (The problem with graphs that your computer makes is that a move from $10.00 to $10.05 will fill the whole space if that’s the whole move for the day or week. There’s no fixed scale.) Mark where you made purchases. [Post 5]

* 1 – I graph quarterly adjusted TTM earnings on the left side of the log paper and monthly stock price ranges on the right.

2 – The basic sheet goes from 10 cents earnings on the bottom left to $1.00 on the top left, and from $2 stock price on the bottom right to $20 stock price on the top right. If the price and earnings are at the same level it corresponds with a 20 times PE ratio. That’s true no matter where you are on the page. (35 cents is exactly across from $7, and 90 cents is across from $18, etc). It reflects a PE of 20 at every point on the vertical axis.

3 – What happens when the earnings are over $1.00 and the price is over $20? BOFI is a good example with TTM earnings of $3.52 and a price of $74. Well, instead of starting my graph at 10 cents trailing earnings and running it to $1.00, I start at $1.00 and run it to $10. Stock prices then start at $20 and run to $200. I have 11 quarters of trailing earnings points on my graph of BOFI (I start before the point where I buy to give myself a picture when I first evaluate the company). It goes up at a very consistent 45-degree angle (maybe angling up even slightly more the last two quarters). TTM earnings of $3.52 is, of course, just above the $70 price line, and my July stock price line runs from $70 to $76 with a close at $73, so it’s evident that it’s very fairly priced.

Note also that the TTM earnings refer to March, as June earnings aren’t out yet. Thus the stock price is four months ahead of the TTM earnings. When the June earnings come out, the next point on the graph will be at about $3.75, which will be opposite $75.

4 – If the graph starts lower and then goes up to a higher page, I cut off the white border of the graph paper and scotch tape the two pieces together so they run together seamlessly, and just fold them in half for storage.

5 – Zillow, by comparison, has its TTM earnings half way up the bottom page at 53 cents (opposite a 20 times earnings stock price of about $10.60), then a huge amount of empty space and the actual stock price up near the top of the top page at $143 or so. Gives you a picture of a stock trading entirely on future promise.

6 – UBNT is on the top page with TTM earnings of $1.77, and a stock price of $39. As $1.77 is across from a point between $35 and $36 and the actual price is $39 (with the July line running from $39 to $45), you can see it’s priced rationally.

And, like BOFI, UBNT also is based on March earnings, four months behind. When June earnings come out we can expect TTM earnings about $1.97, which will be just under the $40 price line. The four previous earning points are $1.77, $1.51, $1.23, $0.92, and the line is almost straight up, as opposed to BOFI’s more sedate, but still impressive, 45-degrees.

7 – I also find some blank place on the graph page for my tables of earnings, revenues and TTM earnings as described in posts 2003 and 2011. [Post 2893]

* To find the paper, go to http://www.printablepaper.net/preview/70_Divisions_5th_10th_……

You’ll get a PDF that you can print out. That’s the one I use. Remember that one page goes from earnings of 10 cents to a $1.00 and corresponding stock prices of $2 to $20, so as prices move up you may have to scotch tape a second page above, running from earnings of $1.00 to $10.00 and prices from $20 to $200. With a stock like BOFI it would all go on the $20 to $200 page and you wouldn’t need the lower page. [Post 2112]

Brian

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Brittlerock,

It would be worth at least taking a look at the entire FAQ/Knowledgebase. It’s cram full of thoughts and information, which is why we have it.

Best,

Saul

For FAQ’s and Knowledgebase
please go to Post #5584

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Thank you all. I have not yet studied the information, but I will. I very much appreciate the prompt and attentive replies.

Take care . . .

Saul,
This is a bit embarrassing, as I’m reasonably math literate but after having read all related FAQ/KB posts there remains one thing which eludes me.

You suggest plotting quarterly TTM earnings on the left side and monthly stock price range on the right side of semi-log paper. Left y-axis earnings scale ranges from $0.10 - $1.00 and right y-axis price scale ranges from $20 - $200. This provides a quick visual establishing P/E of 20 when both plots are at the same y-axis distance form the baseline. I’m with you on all that.

Here’s the part I don’t quite grasp - what is the scale of the time-line along the x-axis? Using the printable graph paper you linked, there are 70 equidistant increments along the x-axis, do you have time in months running left to right along the full length? Do you have time in quarters running left to right for 17 quarters (51 months) and time in months running right to left for 53 months? Or do you have an all together different layout? Also, do you plot earnings and stock price in different colors?

One other related question, do you somehow take volume into consideration? It’s easy to dream up scenarios which can show that a seeming upward (or downward) trend is in fact just the opposite if you consider transaction volume. However, I’m not confident that all the possible imagined scenarios represent market realities.

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Hi again Brittlerock,

The way I do it is months right along the bottom. Thus I plot the quarterly trailing earnings every three lines, and the monthly prices on each line (top of range to bottom of range for the month and a crossbar for the close). I don’t consider volume, but you could.

Hope that helps,

Saul