Forum Archive Index - October 2003

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Phaedrus,
 
>
>Snoopy,
>You state
>>"The more I study the RBD share price chart, the  more I am 
>>convinced that it has almost no value." 
>
>You must surely be joking!!! The RBD chart has so far proved its
> worth in a very satisfactory manner.
>

Ah, I thought you might bite Phaedrus ;-)

>
> The chart gave an absolutely
>unequivocal SELL signal on 7/5/02, giving an exit at $2.10
>(Price/volume climax, trendline break, moving average
>crossover etc) The simplest of TA techniques got you out of
> this stock just after its peak and kept you out for a year and
> a half while it fell by over 40%. 
>

I think the event you refer to was the AMP selling out.   They had a large 
volume of shares to sell, so it is not surprising that the price became 
depressed in the time immediately following the sale which would have 
also depressed the moving average.   IOW those multiple signals you 
noted were simply three different manifestations of the same thing.

IIRC AMP was facing an outflow of client funds at the time so why not 
sell something on which they had made a good profit?    I don't see that 
AMP selling out is a reason for all other shareholders to do the same.

As it turned out perhaps they should have, but it is easy to say a lot of 
things in hindsight.   Please note I am talking from an F/A perspective at 
the time here.   I know the pure chartist would have sold as your chart 
demonstrated.  But I don't use 'pure charting'.

>
>RBD gave a trendline break
>buy signal yesterday at $1.33, though it is still in a
>long-term downtrend and the moving average has not been
>crossed yet. 
> 

So I should wait until other fundamental analysts have done the work 
that I have already done before buying in, you mean......

>
>Contrast this with your actions/recommendations based on
>fundamentals. On 29/5/02, when RBD was $2.06 and a confirmed
>downtrend was in place, you said "The fact that the yield of these
>shares is so good means there exists a floor through which the share
>price is unlikely to fall". 
>

Yes.   It looks like that 'floor' was around the $1.25, with the benefit of 
hindsight.   We are talking about a significant correction but not an ITC 
like collapse here.

>
>You spoke of RBD "having a growth  strategy in place"
>

It did.  Still does.  But business plans do not always go exactly in 
accordance with shareholder expectations.

>
>and continued "I won't be quitting any of my
>income portfolio shares. I don't have to sell them, and I am quite
>happy to keep the income rolling in". While this modest income
>"rolled in", the capital value of your investment fell by over 40%. 
>

No, the value of my RBD shares, part of a much larger portfolio,  fell by 
40%.   Or adding back in the 18c per share of dividend I have received 
brings the share price fall down to 30%.    Considering you selectively 
charted some of the darkest days of RBD history, and this is my worst 
performing 'income' share I am quite pleased if this is as dark as it gets.   

Nevertheless, despite all this chart drama, (while the actual performance 
of the underlying business was quite steady) I would still be cash flow 
positive on my RBD investment if I sold today.     

> 
>By 25/7/02, when RBD had fallen by about 20% and the downtrend 
rolled
>on, you said "RBD is a 'Buffespeculative' buy at these levels" and
>"RBD, at $1.75, is one of those rare shares that is of interest to
>  both the 'income' and 'growth' investor". 
>

You did see the word 'speculative'  there, didn't you?

A 'speculative buy' consists of swallowing the management's recovery 
story and seeing it come right.    It doesn't always happen.    In this case 
the speculation did not pay off.     The best way to pop a share price is 
to destroy any built in inflated expectations of growth.   That is exactly 
what happened with RBD.  None of this means that RBD was *not* a 
speculative buy at the time, as the story could have gone the other way.
None of this means that RBD is not a good buy today.

But yes, buying in at $1.75 was a mistake for the income investor, with 
hindsight, seen in the cold light of today.    Come back in another three 
years and it might not be a mistake though, if the alternative was 
sticking your money in the bank for five years at 6%.   The RBD share 
price would only have to recover to $1.50 or so by 2006 for the 
economic analysis to look much better.

>
>RBD has fallen a further 25% since then.
> So much for standalone fundamental analysis and high
>yields providing a floor. What price income?
>

Share prices do rise and fall.  Income investors know this.  The share 
price floor of around $1.25 may have been lower than some income 
investors would have hoped for, but 'hey' that's life.     The share price 
did not keep falling when it breached the $1.25 support line.

> 
>Snoopy, you must learn to recognise a downtrend. You claim "Over the
>last year RBD has been in a trading range of $1.25 to $1.60" Quite
>wrong. Over the last year RBD has been making lower highs and lower
>lows - this is a downtrend. 
> 

OK it has been in a downtrend *and* in a trading range of around $1.25 
to $1.60.  The question is, does the fact that it has been in a downtrend 
mean that the downtrend will continue?    At some point the downtrend 
will surely end.    I see a support line on your chart Phaedrus at $1.25 
which you haven't marked.    Yes I know it was 'breached' when the 
share went down to $1.23 but I would regard that as 'noise' rather than a 
breach of any significance.

>
>>It is in the nature of charting that entry into a share is always
>>late.... all a late entry does is reduce your potential profits"
>
>Wrong. If you wait for an established downtrend to reverse before
>buying, "late" entries also reduce your risk of loss and often give a
>more favourable entry price. 
>

That depends on whether you think a share in a downtrend will continue 
in a downtrend.  The lower the downtrend goes, provided business 
prospects remain reasonable, the greater the chance that it will end.    
At a certain point the share price becomes so cheap the chances of the 
share price suddenly spiking higher become greater than the chances of 
it descending further.    I use F/A to determine such points and in my 
judgement $1.25 is such a point for RBD.

>
>I'll bet you wish that your entries into  RBD earlier this 
> year had been "late"!
> 

No, I wish I hadn't believed the RBD PR hype.    If I hadn't swallowed it, 
F/A would have kept me out of the share.

>
>>"The other 'problem' with charting is that the share price movements
>>do not seem to relate to any developments within the company. In
>> other words share price movements seem to be essentially random 
and
>> unrelated to underlying performance." 
>
>Snoopy, this is not the problem
>with charting - this is the problem with fundamental analysis!!!! In
>any case, over the period of the chart, RBD's shareprice movement 
has
>most certainly NOT been random. There was a very clear uptrend
>immediately followed by an equally obvious downtrend. 
>

I think it depends on how you define 'random', and what part of the chart 
you are concentrating on.   Of particular interest to me is what has 
happened over the past year. 

I would like to think that with the benefit of hindsight you can correlate 
share price movements with real events.  In the period immediately prior 
to the announcement of the FY2003 financial results the share price 
moved from $1.35 to $1.60 and back down to $1.25 all within a period of 
three months.     What   announcements could have caused this?   I 
don't recall any.

I don't believe there was anything in the fundamentals of the business 
that varied that much in such a short timeframe.    I don't believe the 
investors who traded RBD shares in this time period believed that what 
they were doing had any fundamental relationship with the performance 
of the business.     That being so then,  I see no reason to change my 
opinion now, with comments on the other channel about selling because 
the share price breached the $1.25 level reinforcing my point.  However, 
if there are RBD punters who are so foolish out there then I will certainly 
take advantage of them - and I did.

> 
>"It is very difficult to be an F/A person then use T/A to select an
>entry point in such circumstances" Not at all. Your primary investment
>parameters are still valid. Just don't buy into an established
>downtrend, that's all. It is that easy to combine the two techniques. 
>

I didn't believe the downtrend was established any more.    That is why I 
bought.  I was prepared to stick my neck out and use F/A to choose a 
turning point.    If I had been wrong so-be-it.  But at that price ($1.25)  it 
was a gamble worth taking in my judgement.

> 
>Snoopy, we have had this same discussion time after time after time.
>We could just as easily be talking about WHS or TLS. Same story. 
Same
>arguments. Same entrenched positions. Same consequences. I 
despair.
> 

Consequences like those dividends keeping on flowing in and 
increasing you mean, and the apparently severe share price corrections 
not being as bad as everyone thought ;-)?  

SNOOPY






  --
Message sent by Snoopy 
on Pegasus Mail version 4.02
----------------------------------
"Q: If you call a dog tail a leg, how many legs does a dog have?"
"A: Four.  Calling a tail a leg doesn't make it a leg."



----------------------------------------------------------------------------
To remove yourself from this list, please use the form at
http://www.sharechat.co.nz/chat/forum/