I was at the gym yesterday and a friend of mine shared with me the shares he bought and how he “invests” his money in these shares by trading only the top 30 shares of the day. Interestingly when I asked him if he knows the companies’ earnings, operating profit and cash flows of the shares he bought for the last 3 years, his replied was: “what’s that?” I am sure he is not the only trader who doesn’t do their homework before trading. It is important to understand the financials of the companies of the shares purchased since the value of a company is determined by its’ efficient and productive use of its’ capital, assets to produce free cash flow for its shareholders. The honest truth is that successful stock traders spend most of their time understanding the company rather than the price movements. It has never been a straight linear growth line for the stock price and often most of the stock prices move in range. If the company’s fundamentals are strong, there is no need to panic if the price drops because it will be temporary.
Market always overreacts to news, either good or bad. Traders believing in fundamentals seek out stocks that stumbled, inciting the speculators to rush for the doors, driving the share price far below its real value. But a low stock price is not enough. Fundamentalists will try to pinpoint the quality companies that will recover from their current problems; companies that are going through a rough period but have a solid history of profitability and good cash flows. These are the stocks that will return to their winning ways once they've overcome their difficulties.Even though I designed my KUTE system to come up with stocks that I think would be of interest to for its fundamentals, I would not blindly buy the stocks that turned up in screen. I believe in the value of due diligence, and am passionate about the value of learning everything I can about a company before I buy. That is the reason why I am still calm even though some of the stocks I bought are in the red.
Interestingly there seems to be a consistent correlation between Liverpool and the stock market. Whenever the team lost the stock market ended up in red and red is the color of Liverpool. Stocks closed lower last night despite generally better than expected earnings results, as worse than expected economic data rattled investors. Though housing starts rose, it rose less than the expectations of what the markets are looking for. Of all the stocks I bought, Citibank hurts the portfolio most and it is the only stock that didn’t pass through my filtering system. I should not have allowed my emotion to rule over me, but I am human after all. That is why it’s easier to teach and remind others to be discipline than to apply it myself. Nevertheless, I am glad that I maintained my 30-20-50 money management and trading rules so overall I am not too bad.
Again I bought into PTEN when the stock dipped tonight. I bought at $17.06 and $16.85, adding to the position I bought yesterday at $17.28. It closed at $17.16.
The losers from the recommended stock are XTO, down -0.46% at $45.69; Edison (EIX), down -2.21% at $33.14; OSG down -4.91% to close at $43.76 and CAH, down -1.04% at $28.57. Watts Water was up 0.13% at $31.10 and Genesco up 0.5% at $28.32.
Have a good day today.
Francies Cheng
BBus MAppliedFinance
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