Its Over

Originally posted by 1ronnie ↑

ASX closed a tad higher but as I indicated previously, there is an apparent flight to quality happening right now. We see quality stocks like APX, PPS, XRO and NXT doing fairly well this week. On the other hand, like a deleveraging US economy in 2008-2009 removing its excesses, we are witnessing share prices of the smaller cap tech stocks ‘deflating’ to remove and burn its overvaluation that resulted from the tech exuberance of the 2^nd half of 2017.

New lows have been registered across once market darlings.

BUD dropped 16.7% to 12.5c after hitting a low of 11c on market capitulation after it revealed that its reseller agreement deal with Telstra fell through.

GSW dropped 5.5% to 43c after receiving a 3^rd class action against it [ AFR reported that a successful class action could cost them >$300m according to Squire Patton Boggs- GOD HELP YOU! ].

IXU, the company with the unique data business wonder that has yet to show any buy in from customers, has now closed below 30c , down 3.5% to 27.5c close.

Fatfish (FFG) continued its downtrend to close 3.3c down 2.94%- and I warned about blockchain stocks (see my earlier post)

Brainchip or BRN registered a new low to close at 14.5c down 3.3% despite announcement about having new sales representation in South California.

9SP having a pullball with a 5.7% drop to 4.9c, back below 5c – what an awful chart!

AXP woes continued with a 10% plunge today to a new low of 13.5c after the announcement of its CEO’s resignation just under two weeks ago. Before the announcement it was at 40c, that’s a 66% drop!

Now what do all these stocks share in COMMON?

Look at their charts – sharp downward movements. If you are holder, you have a predicament to decide what to do with them. If you are looking for bargains, you should look elsewhere IMO because you may be buying into falling knives, and there are reasons for their fall.

We sometimes think we are smart to smell a bargain – in reality the market has passed a judgement on these stocks – the VERDICT has been made- and only when a more sustained reversal in the charts occur on the back of evidence of validated fundamentals can you then conclude at that point that the worst may be over. The worse way to lose money is to buy into a falling knife- if you don’t believe me – look at the chart of BLA – the stock fell from $12.30 slightly more than a month ago to $3.65 close today – if you had bought at $6 thinking it was such a bargain, you would have lost close to 50% in just days!

The second thing they have in common is that none of them are profitable and have very low revenues and are in market discovery stage of their business development journey – market is increasingly concerned they may not make it and that is reflected in its share price movement.

Take care when trading in these speculative stocks of yesteryear! The market is awash with great buying opportunities in profit making stocks that are now selling at a lower P/E with validated proven growth track record.

Expand

While continuing to believe that the market remains a challenging place 12-36 months down the road, as I mentioned previously, there will always be pockets of opportunity for short term investing.

For me, Short term investing can be 1 week to a year depending on how the stock performs, behaves, level of interest and underpinning fundamentals as well as prognosis on the external market environment. It means selecting your stocks carefully in well-timed manner as best possible and remaining nimble.

Active investing requires constant assessment of all those above-mentioned variables and have a keen eye on opportunities as well as looking out for risk factors and staying open minded.

For me, it is important

To recognise my mistake early on and take appropriate action (be it a sell or a buy) and never be in denial (if on the face of probability, I have been wrong)

To recognise that in one’s portfolio, there’s always Win and Losses and while most people would be quick to sell their wins early (rather than let them run) and hold on to their ‘dogs’ for clinging on to hope that they would somehow spring back, I’d prefer to cut my losses quick to minimise the damage and ride the good horse until it gets worn out. And it’s the overall position that counts

To never put all eggs in one basket i.e the virtue of diversification , the theory which we all know but commonly fail to adhere to or practise

To never fall in love with any stock – market darling one day could turn out to be a dog the next. Should always consider using stop losses

To be decisive and not procrastinate, as opportunities wait for no man (or woman) (this include opportunity to sell as with opportunity to buy)

To always be ahead of the curve in understanding the wider investing landscape, the risks ahead and having the preparedness to take protection when the situation calls for

To recognise that a paper WIN is just that, without realisation it can just as well disappear. And to recognise that a large paper LOSS can and should be avoided as normally they get bigger (when everybody recognises your stock to be a dog, no one will pay to buy it) and both involves opportunity cost.

To know a speculative buy from an investment and not to treat the former as the latter, while treating the latter as the former is ok (and consistent with short term investing)

To understand at all times where your stock sits in terms of Over or Undervaluation vis-à-vis its peers or on well-established financial metrics

To not make stock buying/selling decisions purely on tax considerations

To have an open mind and listen to arguments for and against any choice of investing/speculative stock

To read widely to gain the requisite knowledge to make better informed decisions.

To remember Buffet’s 1^st rule of investing- to never lose money and the 2^nd rule which is to never forget the first rule

The above are just sharing my thoughts re: my investing experience and is not to be construed as extending investment advice. My experience may not be similar to other’s personal circumstances and as such should be read in that light.