KbFirst of all, we often forget just what it is we are trying to do in the Market…..
Wp—Yes, that is our objective. However, to accomplish the goal, I think we must first try to understand market dynamics. This is the point of my inquiry. This is the issue that I am trying to understand. As sellers recently pushed down the price of XOM (and FDG), each owner, at least if they were watching the price declines, must have asked, how low will it go……and at what point(s) might I make more money (or preserve capital) by selling NOW, with the view (and confidence) that I can re-buy the position at a lower (safer) price. [or as dabum would say, ‘get out of Dodge.]
To use conventional parlance, XOM and FDG were over-bought. This statement ignores a fundamental question: What is fair value --- and how does one know that in advance?
If we could/can answer the question, we can leave positions before the masses sell, and buy before the masses arrive. Second, how does one explain the relative disparity between PE’s of FDG, XOM, Peyto, and Google and Microsoft? XOM is THE cash cow of the world. Unless we go back to travel by donkey, it is likely to remain as the preeminent capitalist engine for profit. So, isn’t it reasonable to wonder why it sports a lower PE than Google or Apple? IF XOM was over-bought, what the heck is Google?
KbMaybe that is true, but can you make a profit (the only goal, remember) trading off this "information"?
wp--- Here we are talking past each other. At this point, I’m only secondarily concerned with making money. I first want to know and define the process for determining the root, base level below which a stock IS very unlikely to fall. In short, as the PE declines, at what point will a stock like XOM bottom? If we can’t know this, why can’t we?
Certainly with a ST bond, there is a root value. The base value is the face value of redemption. Period. Holding a bond as rates rise causes a paper loss. IF one keeps the bond until maturity, there is no loss, save the opportunity cost of investment. So, in a very direct way, we can understand the downside risk. What I am trying to do is a comparative process for XOM………or historically, for those stocks that have been the focus of our ‘community’ of interest over the years [ RRI, PGO, GW, RIG, PTEN, HAL ……and yes, even MIR]
Kb But return once again to the main question: will the use of this data point, or any FA data point, help you to accomplish the main goal of a market participant? That is, to regularly, and with some taming of the risk, take profits out of the Market?
wp--- YES, I think so. Examples: Recent news that steel producers had hiked the price of steel……caused many more to buy RIO. Recent news about the price-hikes of met coal have caused FDG to rock. So too, as rumors of China’s cooling economy reached the headlines, FDG sank. MANY folks on other boards are now struggling with this stock and its future price action. One person whom I regard as highly as you, projects FDG will reach 170+ within 12-14 months, even as IT pays owners a respectable divvy. Now, this same person suggested FDG in the mid-twenties (now 93ish) and he did so via a FA argument. (The same individual discounted Peyto’s story for the last 3 years and yet, its chart is probably one of the most impressive of any in the Western markets!
What is the root, base value (PE) for FDG in your view? Or – how about Peyto? Will it double again, or is it ‘over-bought?’
KbPeople like to use timeframes as if they made a difference. The short and simple answer is that a timeframe makes no difference in trading financial instruments.
wp--- I disagree. Timeframe and relative beta does make a difference. If I don’t want to sit in front of the computer all day…..and if I have a view that says o/g prices will probably remain firm for the next 2 years, I can buy patch stocks in my IRA and go fish with a large measure of confidence that when I return, the value of my IRA won’t have declined by 50%. Further, with a Canadian Royal Trust, or set of them, the IRA will be paid monthly at a rate of 10-16%....with little fear of severe capital loss, assuming the macro pressures for high CL/NG prices remain range-bound.
KbYour question, just for clarity, is: how do you determine if a trend is a trend? And, actually, the question is, how can you know in advance whether a trend will continue or will simply chop up?
wp--- No, that is not the intent of my question. I was trying to determine, what is the probability of any stock doing an ELAN before breakfast. IMO, stocks like Google, Rim, or BIIB, have a greater risk of bushwhacking your account than CRT’s. |
