Forum Archive Index - November 2003

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

Hi macdunk,

>
>When a
>company In an Increasing profit situation suddenly for no obvious
>reason to most share price drops do you let your stop loss come Into
>play or understand why and ride It out.    WRI Is an example we have a
> big Investor that distorted the share price by buying In so
> consequently after a drop In profit the share price went up.    
>

Are you referring to GPG selling their shareholding to RD1 Corp, aka 
Fronterra?  You are suggesting that this transaction depressed the 
share price?   IIRC the sale was made at $1 in July 2001 which was 
quite a good price at the time.  That was all before the days of WRI 
making serious profits again.

Perhaps you are referring to the peak time of August/September 2002 
after which the share price slumped back to $1 again, before it climbed 
to new highs?

I see this bounce back in the share price of WRI somewhat differently.  

After several years of slothful performance, people expected the WRI 
profit outlook to follow the farmers profit outlook perfectly and slump in 
FY2003.  Profit was down, but not nearly as much as anticipated, so the 
WRI share price went up.  It could really only go up once investors saw 
the dividend was sustainable because the dividend yield had become so 
high.

Any share price movement, when the results come out, Ihave learned is 
almost never as a result of those results.    There are all sorts of back 
room share fund analysts working on the top 50 shares all the time, so 
by the time the results are announced it is almost never a surprise.  

no surprise= no news= no share price movement

The main reason a share price will move on 'results announcement day' 
is because of any hints let out by management on what will happen in 
the *next* financial year.

>
>This works In reverse
>  AIA Is an example of late and It happens all the time.
>

You mean the AIA share price fell on a good result?  That would be as a 
result of the high P/E ratio of AIA where even good growth projected for 
FY2004 will be a disappointment to the market.  To maintain a P/E of 
over 25, like AIA has, you need absolutely stellar growth.

>
>It Is normal for a big player to get out after a bit of good news
>what better time and visa versa.
>

I think it is normal for a big player to get out if there are better 
opportunities elsewhere.  Or if the need the money to pay out unit 
holders if too many small fish start pulling their money from the fund.

>
>I think Snoopy with his Investment style this wouldn't change 
>anything 
>

Yes, you've been paying attention.  You are right!  I don't really care 
what the big players are doing provided the valuation remains sound 
and the investment meets my income and/or growth objectives.

>
>questions to snoopy are you
> an accountant?. 
>

If you mean am I formally trained as an accountant, then the answer is 
no.  Actually I tell a slight lie here.  I did do an accounting unit in a 
tertiary course many years back to help out a mate (neither of us had 
ever done accopunting before) who actually needed to do it.   The end 
result was that I scraped through with a pass and he failed.  So that plan 
kind of back fired!

Suffice to say I have learned far more about 'useful' accounting by 
reading Grant Samuel company appraisal reports (issued at the time of 
a company takeover) and reading the Buffetology Workbook than I ever 
did from a formal course.  I like to think that one of the best 'courses' out 
there is 'sharechat' itself.

>
>Do you use any tools other than FA? 
>

Do I use TA you mean?  I would like to think that I didn't have to.  We all 
like to believe we are smarter than Mr Market.    Ultimately whatever 
your FA tells you a share is worth, however, it is Mr Market that 
determines the price you can sell at on a given day.   So usually I seek 
out shares that I don't have to sell.  In other words if I select my shares 
carefully I can wait until Mr Market recovers from his foolishness.

TA, when it comes down to it, is simply a collective picture of what other 
people think and have thought.    Taking a mechanistic type view (which 
I do), I would place more value on what other people thought a month 
ago than five years ago.   So you can figure out from that what I think 
about ten year charts as an investment tool.  

Furthermore, you always have to consider that what other people think 
may be quite wrong.   And if they are quite wrong maybe you should 
take advantage of Mr Market and sell your shares to him at an inflated 
price as the share price climbs above 'fair value'.    Is that using T/A?   
Perhaps it is in a kind of contrarian sense.   In any case, I think the idea 
of a 'support level' has more value to me than figuring out if a share 
price is headed up or down.

>
>Do you use a stop loss?
>

My 'stop loss' is usually when a share fails to satisfy my investment 
objectives.   For example if a share I have bought for income suddenly 
cancels its dividend then I might sell it (thinking Air New Zealand).     If 
the holding becomes too small to justify spending a lot of time following 
it, (the BHP Steel spin off was a case in point here) then I might sell.   
The main other reason I have sold in recent times is if a share 
investment becomes too successful and makes up a grossly 
disproportionate part of my portfolio.

But if the share remains fundamentally sound, I tend not to worry about 
month to month volatility too much.    Of course studying a share for 
months, or even years (before I invest in it) does give me an underlying 
confidence in most of my investments that means I am not too worried 
by what Mr Market thinks of them in the short term.

SNOOPY




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