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How useful is Forecasting (fortune-telling)
post Posted: Feb 28 2005, 11:02 AM
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In reply to: happy2 on Monday 28/02/05 07:50am

Thanks Happy2. I might start an experimental portfolio of "sure things" and report back in a year or two...

post Posted: Feb 28 2005, 08:31 AM
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In reply to: anne on Sunday 27/02/05 10:31pm

Another beautiful post Anne,

We all have been patting ourselves on the back on how well we have done, yet from the list being honest I had one single stock and only for around 30% of the ride.

How stupid we all are.

MCC- I am ashamed to tell where I sold it.
I fortunately liked the coal sector but it came from back in 2001 my attraction to CEY when it fell below 55 cents. The NTA of the company was well over double that and it was paying a very good dividend. Since then it has paid around the original amount it cost to buy in dividends alone. The share price at $4.50 speaks for itself.

Just regarding the coal and iron ore industry. My own view is prices paid for both will come off in coming years regardless of what I suspect will be a well bid oil market.
Just my own view, of course. CEY my favorite coal company has had a dismal rise when compared to some other coalers, and since I feel some in the industry have their share prices well overcooked, expect them to come off from here. MCC I looked at and mentioned a few weeks ago on a thread. Latest results were excellent and a brokers report floating around calls for the profit to explode three or four fold, however it does use the current record high prices to arrive at its numbers.

Now my personal reasoning is this, current thermal coal global export market is around 600 million tones. Right now for both thermal and coking coal demand is not being met.
However with just plans currently known in Australia, companies are planning to increase exports by a whopping 100 million tones by 2010. Now if this doesn't halt the rise nothing will, exports from other producing countries I presume will also rise as well.

At present the market is in love with some of the coal stocks and also I presume the same for iron ore. Don't pretend to be a world expert in either commodity, however knowing the basic demand and supply and export numbers right now is enough for the coal industry, just one look at BHP's expansion plans alone should tell you something. As to the iron ore situation I suspect it may be the same thing. Possibly and probably a short term price spike when demand exceeded supply, but with a lot more supply planned to come on line 2006-2010, maybe not the best time to be presuming prices stay up here.

Going away to sulk .... thanks Anne !
Not really, depends on your style. If you are a long term investor, fine, but looking down the list of names for myself, with my guidelines regarding spec stocks and non performing stocks I would be lucky if 20 out of the 100 stocks fell within my buying guidelines other than complete spec stocks which I try and limit to under 10% in total.

Interesting past 12 months. Even some of our best and biggest racked up returns of 50 % plus .... BHP,MBL,CSL, MAP and on and on and on. Some aproachin 100% rises.

Just regarding long term returns on a portfolio.
Had a think about this. For an active trader, well disciplined and not putting over 15% into any one stock my estimate is a return of 100% plus year in year out is achievable.
Last year was special, but looking back to even down years, stocks all don't go in one direction it is a matter of identifying them, and taking a ride. In a very good year with a somewhat conservative stance like this with a minimum of 12 stocks to spread the risk, top end probably is in the region of 250-300%. No Margins, but as you take a profit it is added to your capital base. Some would call it Pyramiding, it is a dirty word when you ever read a book, but the risk is still there but its not a great leap. Where books never seem to make the distinction about the risks of pyramiding is when you have a leveraged position on margin or futures. You make $10,000- and your initial capital is doubled, and hence your position, but if it goes all pear shaped, the losses will rack up twice as fast below your initial capital out lay. By just adding your wins as they come with no leverage on a basic share portfolio, if you are active a compounding return of 7% per month will return 125% in 12 months.

Now I say 100% is achievable and top end possibly 250-300%. Myself a return of 5% per month as a target if you are active, well it adds up, in 12 months compounding it comes to a 79% return. Of course then there is tax ect ect.

This is for an active full time trader.

For the super funds and a much more conservative stance a I would suggest a target of say 35% P/A is a good one. This year managed funds have come close, but a few years ago the returns were negative. Super is your retirement money. No spec stocks at all should be used. A minimum of 15 stocks and possibly 20 should be in the portfolio.
Trades should be infrequent, once or twice a year. This is not an active portfolio.
Growth and long term growth stocks should be picked. No holding of more than 7% in any one stock, no matter how much you love it is advised.

Now 35% looking at 2004 sounds mean, but after inflation and tax, the real growth rate is somewhere around 25% if you can achieve this goal. This sort of growth rate to put it into perspective in 10 years in real terms you will have a return of 830 % and in 15 years 2,742% and 20 years if you do it 8,573%. In plain English if you were to maintain the growth rate and had 100 k in super ... 20 years from now even adjusted for inflation you would have around $8.6 million in super.

These are just some targets.
Biggest problem with getting them ?
Go have a look in the mirror. Enemy number one.
Be patient, don't go for the big kill. Big risk, big rewards, and usually a big mistake.

Sadly another lesson hard learnt on my side.
The older I get, the less I realize I know.
Things are good now I have hopefully learnt these lessons !

Something I keep repeating, but its important. Only being 40 now I sound like an old fart.
Then again 1983 when I started was a long time ago, especially for the shelf life of an active trader.

Trading is a profession many aspire to. In the end very few meet the call. Having seen literally hundreds of trainees whilst working with banks, the qualities of a long term successful trader are varied. Of the hundred or so trainees that passed in my direction over the 15 years very few made a successful career of trading. When I say trading I mean risk taking, sure when one sees a dealing room on the news there may be hundreds of people there. Of any dealing room with say 100 people, usually there might only be 6 or 7 who really take the risks and make the money. The rest, position keepers, liquidity managers, sales people, economists, trainee's and so on. A fair proportion whilst active in the markets in reality are basically there to facilitate customer orders. Customer want a price in 100 million, he makes it, but within 10 minutes he, or rarely she, has dumped the position out into the market. In effect they are arbitrageurs, quote a different price to the customer as opposed to the interbank market. The real position takers, well they make the price and say thanks. Then when given a position and being long, might turn around and buy more in the market until the momentum and size of bids and price goes up, then they will offload both the customer position and what they purchased on top of it to drive the price higher.

Now trading shares is the same sort of risk.

For the 100 trainees that made it through the interview process, there were 100 applications.Out of the 10,000- in total only 3 make it in reality to the pinnacle.
What you are trying to do if you are trading full time for a living is backing yourself to say you are one of those three. Its not to scare you, just to bring a reality check. Last year a monkey could have done well with the market rising 33%. Being the old bugger I am, have seen both bull and bear markets. Explosions to the upside that defy logic and then their is the crashes. Last year 2004, was possibly the easiest, time to think ahead.

Sorry another ramble.
Last thought.

Trading must be treated like combat. Pretend you are at war and everyone is out to get you. Be paranoid, skeptical but above all use your own judgment and the lump of meat sitting on your shoulders. It's the only thing between long term success and failure.

Don't go for the big kill ! If it looks too good to be true, well thats probally what it is.

Have to go prepare for the fun ahead today ..... New all time highs driven by BHP,RIO ?


All views expressed are my own opinions. While I take every care when posting no guarantee to the absolute veracity of the postings is given or implied. Please do your own reseach and consult a professional investment advisor before investing.
post Posted: Feb 28 2005, 07:50 AM
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QUOTE (Lizard @ Monday 28/02/05 08:42am)

Unfortunately, I only find my own "sure thing" about once a year, so not enough for a diverse portfolio!

Lizard, if you haven't done so already, wrap your tongue around CST.

It has first class management. Industry endorsement. FDA approval. A virtual monopoly.

It is as sure a thing as you will ever see.

Have a good one

Happy 2

"Knowledge is a process of piling up facts; wisdom lies in their simplification".

Caveat Emptor: the above comments are merely opinion, not advice.
post Posted: Feb 28 2005, 07:42 AM
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In reply to: anne on Sunday 27/02/05 09:04pm

That was an interesting list Anne.

I'm not totally convinced about the "hot sector" approach though. The few shares I know really well on that list (I know the NZ market well - I'm still a beginner in Australia) would have looked like scary possibilities for losing a large portion of your investment before they began their rise (and probably didn't look safe until after they had already made their initial big jump). I'd be interested to see a comparison list of shares that lost 50% last year to see how easy it would have been to spot the difference!

If there is a short-cut to successful investing, I think it is most likely in the "sure thing". That is, when an experienced, successful investor who has closely followed a particularly share for a period of two or more years is prepared to put their reputation on the line and tell you the shares in question are a "sure thing (almost)".

I would like to prove to you that this works, but I don't yet have enough data for a major study and what I do have would take me some time to collate...

Unfortunately, I only find my own "sure thing" about once a year, so not enough for a diverse portfolio! And of course, to generate those "sure things" you have to keep following quite a few that turn out worthless...

post Posted: Feb 27 2005, 10:55 PM
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In reply to: anne on Sunday 27/02/05 09:31pm

Indeed you have, Anne. Refer to RMI thread.

Actually the one I was on was steel. Got GGB in the States. Check its chart for the last year on Yahoo finance. Didn't get a great piece of it, but got a piece nevertheless. As to that would be telling. Still a good buy, but not as good as say in May of last year.

post Posted: Feb 27 2005, 10:03 PM
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In reply to: anne on Sunday 27/02/05 09:04pm

Gee Anne, wish you hadn't done that. It is a bit embarrasing and dents the ego somewhat. Only rode 1 all the way (OPL). 1 most of the way (ALL), but sold a bit early and three of others for a small part of the ride.

You are absolutely right. Stock picking is tough, particularly if you are looking to do it as a contrarian, before any big market signals. Like you, once it becomes 'obvious' I worry that I may have missed the boat and could be getting on for the ride down.

Anyone who bought 6 or more of these companies a year ago and still holds is:
1. A genius who should now reveal the secret, or
2. Very lucky

Do it 2 years in a row (or even 2 out of 3) and I'll accept is is the first.


post Posted: Feb 27 2005, 09:31 PM
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In reply to: Thumper on Sunday 27/02/05 09:16pm

Ha, thumper,

I've set you up!

You say "iron ore was an easy one, really."

So if it was so easy, how many iron ore stocks did you buy and when, and how much of your total portfolio did you allocate to this "sure thing" hot sector? And are you still in?

That is the point I am trying to make: all the solid hot sectors look obvious in hindsight; but they never feel obvious when you first enter.

When I finally twig to what's actually hot, then I start worrying that I've missed the boat!

Cheers Anne

post Posted: Feb 27 2005, 09:16 PM
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In reply to: anne on Sunday 27/02/05 09:04pm

So then it comes down to: do you have the best information? ie are able to get the news that this or that sector will be hot in future? Iron was an easy one, really: China and all that - as to how long it will last.....mmmmm. People keep on saying that China's building (and minerals consumption) will last right up until the Bejing Olympics.....I doubt it.

If you've got the right information at your fingertips....the rest is relatively easy. I reckon you've done fantastically well - even in hindsight your picks have been good ones. Sure you missed on a couple, and only got a bit of some other shooting stars, but really you can tell you have some experience in the market on what you've done.

To Happy....when the trend is confirmed, don't worry I'll be in there shorting away to buggery. Hopefully sometime before if I'm to make some decent profits out of the bear situation.

post Posted: Feb 27 2005, 09:04 PM
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I'd like to prove to everyone that forecasting the market is possible - -if you're brainy enough!

It's just a case of picking the next hot sector, spotting which shares are undergoing significant profit growth, and which shares have just experienced a significant company re-rating event that adds heaps of value to their present share price.

it sounds easy when I type that, but for some reason it's a lot harder to master in practice.
Anyway, here is the evidence. Study it carefully and then explain to me why beating the market should be so damned difficult!

This is what i did (I hate doing this exericse -it is so painful!)

I did a metastock search to identify all the stocks that went up over 100% in the last 240 sessions (that's my best equivalent to a year's worth of trading I can come up with with my basic formula-writing skills!)

It turns out about 8% of the fully paid market went up more than 100% last year! Bugger! That's a lot of shares I missed!

I then knocked out the highly illiquid ones and the weird ones that went up for reasons like back-door listings.

I kept the rest and have listed them below in order of percetage gain (biggest through to smallest), with a bit of a note on why we should have spotted them early! It's all so obvious in hindsight!

sph - hot sector - iron ore
smm - hot sector - uranium
gcl - hot sector - coal - highly profitable
kmn - asset value increasd - significant gold-silver discoveries
pdn - hot sector - uranium
fcn - asset value increasd - significant nickel province discovered!
fmg - hot sector - iron ore
aqa - hot sector - coal
ady - asset value increased - announced a breakthrough in extracting minerals
sen - forecast a significant profit jump
was ??? don't know anything about this
ssn - asset value increased - significant gas discover???
hav - asset value increased- significant copper discovery
esv - was always a mystery; gpg was buying; they are profitable; tech was hot
mcc- hot sector - coal - highly profitable
ndo - the promise of asset value increased - NDO always had teh oil; now it looks like they'd access it (maybe!)
tgs - ???
nzo - asset value increased - good oil finds + coal interests + profitable
FLX - hot sector - coal -
ocl - forecast big profit jump - hot sector
rpg - ???
web - hot sector - internet e-commerce -
era - hot sector - uramium - profitable
qcl - ???
qgl - ???
all - reported huge jump in profit - turnaround
iba - forecast big jump in profit - hot sector
mgx - hot sector - iron ore - hightly profitable
csm - hot sector - (iron-ore's cousin) highly profitable; forecast big jump in profits
grr - hot sector - iron ore
cue - asset value increased - found huge oil deposit
tag - asset value increased - their iba sahres soared in value
gbp - ???
gtn ???
wnz ??? profitable company
cmw - ???
gme ???
avo - asset value increased - discovered lots more gold
wrf - ???
cvc ???
csh ??? actually a highly profitable scaffolding company
rea - hot sector - web commerce
jrv - asset value increased - so they claim!
pmm - hot sector - iron ore - highly profitable
dbs - hot sector web commerce - profitable
wcg - hot sector - web commerce - very profitable
rmi - hot sector - iron ore
tpx benefitting from soaring stock market; profitable
rdf - special stock
eqt - benefitting from soaring stock market; highly profitable
neo - asset value increased - hope of a significnat gas find
ppr - highly profitable
pxs - teh only biotech to make teh list; passed all its hurdles
rml ?
shg - asset value increasd - signifincat gas find?
opl - same as above
jum - hot sector - web commerce; reproted a nice (but meagre profit)
ebt - hot sector - web commerce -- don't know much about this one
auh ???
hsn - hot sector???
nxs - asset value increased - gas find
nia ??? uranium???
soo - government assisted prosperity!
cof - highly profitable;
tmo - benefitting from soaring stock market; profitable
brk - highly profitable;
sel - highly profitable
mck ???
mnd - highly profitable
iat ???
grn ???
ezl - benefitting from saoring stock market; highly profitable
arq - huge profit growth
emi - hot sector - web commerce; high profit growth
nhc - hot sector - coal
kov - profit growth
mto - ???

See - it's not that difficult - spot teh hot secotrs as they emerge; zero in on the profitable stocks in those hot sectors; watch out for the super-dooper company re-rating announcements; watch out for reprots of super profit growth making the stock bargain-priced and that's it.

That's why I hate doing this exercise. It's so bloody obvious in hindsight!

What did I pick? No coal stocks at all except for a 10% gain in flx! No uranium stocks, except for HAV - did quite well there.

None of the hot gas stocks - except ocl for a tiny part of teh ride.

i did pick mgx though - got in early and did really well.

I did get sen early; I got a tiny bit of HSN

Got a tiny bit of iba and was too late getting in TAG

Got a tiny bit of AVO

got in DBS recently, got a tiny piece of jum, but doing really well with wcg and ok with emi

missed out on all teh stocks benefitting from a soaring stock market! How silly is that? Except for EZL - cleaned up there!

Got a tiny piece of COF and SEL and mnd

Did OK with ARQ.

The result? I did OK. I feel I am on the right track, but I miss the obvious so often.

Why is it so difficult to pick up an emerging hot sector? What's emerging right now? My money is still on web commerce stocks. Manganse could be still hot - apparently they have won a 60% price gain -so my money's on omh.

iron ore - is it still hot? has it still got legs? I don't know. Probably - judging on how teh coal stocks kept going up and up and up - long after i called them overdone!

What about oil stocks. Are they still firng? Apparently oil stocks saored in the US on friday. And the oil price is holding up well. Should I stock up on more oil producers? Which ones?

What else is hot? What stocks are going up in the last week or so? Is there a pattern emerging? This exercise of spotting emerging hot sectors shouldn't be that difficult! In the paper I read where businesses are keen to spend big money on capital expenditure. What will they spend their money on? Equipment? Building things? Who benefits?

The other hard part of this exercise of forecasting is to know when to take the profits and run. I always quit too soon - -but hot sectors run for ages sometimes. Look at those coal stock charts. It's sickening!

Then there's the apparent hot sector that fizzles out just days after it starts. Nickel did that this week.

i think I should start an emerging hot sector thread too! Maybe someone out there has a real talent for spotting the big picture arther than just individual stocks darting up and down.

The other interesting thing about these highly successful stocks is that TA signals would often give you a pretty good entry price. maybe I'll go through the charts again and torture myself by looking for obvious t/a entry points!!!

PS Please let me know if you've spotted any emerging hot sectors. By this I mean genuine vidence of a cluster of stocks going up in price; not just guesses about which industries might boom soon.

Cheers Anne

post Posted: Feb 27 2005, 09:01 PM
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In reply to: Thumper on Sunday 27/02/05 09:57pm


I would predict that it would be better shorting the ASX200, rather than getting into cash, if I had your bearish outlook and was confident that the market would fall.

Have a good one

Happy 2

"Knowledge is a process of piling up facts; wisdom lies in their simplification".

Caveat Emptor: the above comments are merely opinion, not advice.

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