Its Over

Originally posted by 1ronnie: ↑

"Skill number two is to wait for a 90% drop minimum before you play."

My favourite example is Yojee (YOJ)
YOJ Stock Price and Chart — ASX:YOJ — TradingView

90% down from peak of $2.22 is 22c recorded on 6 Mar 2023 which went on to make +18% to 26c in two weeks, the hovered around 22-24c for another month giving the impression of a bottom, before the plunge thereafter that took it down to 5.1c- anyone who bought at 22c would have lost more than -75%!

5 year view
APX Stock Price and Chart — ASX:APX — TradingView

90% down from peak of $33 is $3.33 but you got even more astute buying in at $2.20 on 1 Feb 2023. Bingo! APX rose to $3.09 by May 2023 just 3 months later and you are up +40% and confident you have picked the bottom. It wasn't to be, it is $1 now, and you're down more than -50% thinking you had a bargain buying the bottom of an ex-darling.

What about Gold stock since Gold is making all time highs?

5 year view
SBM Stock Price and Chart — ASX:SBM — TradingView

90% down from its 2020 peak of $3.76 is 37c and you are more astute buying in at 28c on July 2023- by Feb 2024, it halved to 14c before rising to 30.5c by mid April 2024, then fell again thereafter to 23c today, down almost -18% after one year hold.

Your 90% rule does not apply across the board. Knowing which stock to pick bottoms obviously is the key, but my thinking is that even when they rise from the ashes, the majority of cases are simply just a false dawn that encouraged speculation. Once speculation dies down, they return to the bottom. Here we are talking about largely micro caps.

My personal opinion extends to TTT and FBR, recent 'tech' favourites which I used to trade/invest back many years ago. They have had many years to commercialise and prove their business model (just like YOJ) but got nowhere. The issue I reckon with their business model is that their revenue is project based. Project based revenues are lumpy. I once wrote in the FBR thread why I didn't think FBR could be successful - they were not here in Australia, maybe they can be in the US (which is what is causing the excitement).

My rule is this- if a company has had >5 years and could not commercialise and generate decent revenues, don't flog a dead horse, management is just enticing new shareholders with a new positive narrative, to make more CR. And credit themselves with huge number of shares via performance based share payments. That was certainly the case with YOJ and FBR.

5 year view then All time view
TTT Stock Price and Chart — ASX:TTT — TradingView
FBR Stock Price and Chart — ASX:FBR — TradingView

As Michael Heffernan of Phillips Capital used to say, and quote "I'd rather buy a stock that has a chart that keeps going higher rather than a stock making lower lows".

And that should also apply to bargain hunters looking to buy bombed-out lithium stocks.

The common mistake market participants make in this is looking at the share price, not its market cap.

LTR looks cheap trading at 61c which is some -80% below ALB's $3 TO but despite that, its market cap is still $1.48Bil, that is not cheap for a stock that is not likely to make any profits producing under current lithium market environment. People anchor themselves to the peak price, thinking that at some point in the future, the stock could return back to its peak, so it becomes a real bargain. But it is the forward outlook that determines its future price trajectory.

APX for example will never return to >$30 peak.

A Lazarus play to me is just a Short term buying opportunity at best. Which is fine, provided you don't fall in love with it, thinking it could return to its former glory.

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The fall of >90% can be repeated from any price is quite true. No argument there at all. Not being aware of this is a real trap for new players.

This is why the knowledge that these things take a few years to play out is important in terms of entry.

In respect of LTR we are only in the first few months of the fall. I won't be considering such plays for another 6 months minimum as it takes time for companies to act on their earnings disasters ( close mines, cease to exist and fall fully in price etc ) before commodity price turnarounds may occur. Given the game theory advantages of China in this space I probably won't ever play here in actual fact.

One does not just throw darts at the contenders. One needs the skill to pick the diamonds from the coal pile. My reasons for going with TTT have still not actually occurred. That being big contracts with Boeing and or Airbus. They are making progress there but not over the line yet. Their share price performance so far is all based on lots of tiny wins with other companies. This could reverse in a prolonged recession. On the other hand, if Boeing or Airbus go all in with TTT then current returns will look tiny compared to what happens then. This is why the losses I freely admit to become swamped by the returns of the winners.

I repeat if you don't have the skill to pick the winners then don't play here. You have to be psychologically comfortable with some losing 100% of your money put there.

And you need to have the work ethic to constantly reassess new information and form a fresh view after each news item. Companies do have brief revivals in price before collapsing again as @1ronnie points out, all the time. Learn the difference between dead cat bounces and earnings based recoveries is important. Traders are going to trade and hedge funds will milk you if you let them.

When you know that an example like SGR has a big fine yet to be determined you have the discipline to hold off buying until all of the bad news is out.

All of these cheap opportunities mentioned happening before a general market crash.... How cheap will they be when this happens. Normally they get cheaper again AFTER the crash. And again, that takes months to play out.

Patience and discipline.