Share Trading Strategy

brainactive on 14/01/2017 - 21:55
Last edited 14/01/2017 - 22:18

Thinking about starting investing in shares. My strategy at the moment is to buy shares immediately after big events that result in big drop in share price. There tends to be over reaction to these big events and shares almost always bounce back in the following months. An example is the dreamworld incident at the end of October when prices dropped to 2.00. Two months later, it is now selling at around 2.25. This is around a 12% increase over the span of 2 months, and taking into account brokerage, probably 10% return in 2 months. Anyone else have any success using this strategy?

Any recommendations on what is the best platform to trade in? Is commsec any good? Any good deals (e.g. free brokerage) at the moment?

Financial

Comments

  • watwatwat on 14/01/2017 - 22:00
    +2

    Then pay tax on that so really 6% return?

    • mskeggs on 14/01/2017 - 22:06

      You pay CGT at 50%?
      EDIT: sorry. My math failed

  • mrham on 14/01/2017 - 22:03
    +2

    Read the book The Intelligent Investor before you do anything. It's not a bad strategy but there is more to it than that.

    • brainactive on 14/01/2017 - 22:10

      Any personal examples of when this strategy went awry?

      • railspider on 14/01/2017 - 22:23
        +11

        Bellamy's had horrible news in December, their share price dropped 40%, and they stopped trading for 40 days. Following your strategy it'd be a good idea to buy as soon as trading was resumed - if you'd done that you would now be down 10%+ in just a few days.

        Then you run into trouble deciding how long to hold/when to sell, or even identifying when a "bad news" stock has bottomed out.

        Your idea isn't a bad one - lots of professional traders are eager to buy after bad news events - but it certainly isn't fool-proof.

      • mrham on 14/01/2017 - 22:31
        +9

        No, but without any further analysis you are really just speculating and taking on a significant amount of risk for average returns.

        • brainactive on 14/01/2017 - 22:35

          What further analysis would you suggest?

        • poboy on 14/01/2017 - 22:44
          +12

          For starters, actively try and disprove your confirmation bias. Search for Australian corporate scandals. Look at their time frames and see how their share price moved over time. This of course is an inexact science as there are many gears in play - but it's a start none the less.

          Also, beware the falling knife. If a company has bad news, it may have more bad news around the corner.

        • mskeggs on 14/01/2017 - 22:45
          +1

          @brainactive:
          Reviewing the financial position to understand what the change in circumstance will do to income, and how that will effect valuation if the PE multiple stays the same, for a start.

        • brainactive on 14/01/2017 - 22:50

          @mskeggs: Isn't this starting to overcomplicate the process. As you mentioned previously, based on available public info, what makes you think you know how the story will pan out, let alone how each scenario will affect the valuation and PE multiple…

        • mskeggs on 14/01/2017 - 23:06
          +8

          @brainactive:
          To give an example, say a company needs to make interest payments to their bank of $100m per quarter.
          Their normal sales are $200m per quarter, and they have costs of $50m besides the interest.
          If they suddenly have the bad news that their major customer has left, this could be bad or terrible.
          If the major customer bought $40m of product, the business is still profitable, and can likely recover over time as they source replacement customers etc. If the customer bought $140m of product, the company will immediately be in deep trouble, and likely at the mercy of its creditors, with shareholders very likely to see their shares drop massively.

          If you don't look at the financials, and just follow your instinct, you won't know when the stock drops 20% if it is a reasonable response to the first situation, or simply a waypoint on the way to an 80% drop.

          I'm not trying to over-complicate things, and I only have this depth of financial understanding of a handful of stocks in the market, but I make sure I get a handle on what the books look like before I buy.
          It is a nice idea, and one that I believe is the core of the Intelligent Investor book cited by mrham, is to start with the financials, work out what you predict the future growth of the business will be, and calculate what you think is a fair price for a share. If the market is substantially less than you calculated, you have a margin of safety and a good chance to make money.

          My personal strategy is a little different, as I only invest in businesses where I have a particularly close understanding of the industry, but that isn't because that analysis is wrong, but because I feel there are less unknowns/'black swans' in industries I know well. For example, as I understand it, SGH was blind sided by a change in the way legal compensation payouts were treated in the UK. I don't know much about the economics of law firms, so I would have been unable to quantify whether that statutory risk was big or small.

        • mskeggs on 14/01/2017 - 23:07
          +1

          @mskeggs:
          OR to put it a bit simpler. Analysing the financials will more often tell you if the dip is going to be small, or if it is likely to be ongoing - allowing you to not buy the stocks likely to have ongoing issues.

        • cloudy on 15/01/2017 - 09:09

          @mskeggs:

          out of interest, what industries are you particularly close to?

        • mskeggs on 15/01/2017 - 09:57

          @cloudy:
          Energy, telecoms and software are what I follow most closely.

        • boo hoo on 15/01/2017 - 11:20

          @brainactive:

          have a look at the https://hotcopper.com.au site
          There are a quite a few posters that are helpful. you will learn the terms "rampers" ie posters trying to influence "peeps" to buy or sell with their own interests at heart. "Hearts" so called reliable posters. A multitude of forums and heated debates. The site is heavily moderated so behave.
          and as most people say do your own research before committing real money. Do some theoretical trading for a few months. There is no easy money.
          best wishes.
          BH

        • cloudy on 15/01/2017 - 12:00

          @mskeggs:

          Do you work in those industries? I'm interested in learning more about the telecom industry considering the thumping TPM/VOC has suffered but don't know where to start.

          I'm happy to hear where you learn about the industries you follow.

        • congo on 16/01/2017 - 07:29

          @mskeggs: do you obtain the company financial from the ASX site?

        • mskeggs on 16/01/2017 - 08:09

          @congngo:
          Yes, annual and quarterly reports from the ASX or company website.
          Many stack broker research reports also list their own interpretation of the financial information - which sometimes exposes elements the companies are trying to downplay.

        • congo on 16/01/2017 - 08:54

          @mskeggs: thank you. Pity there isn't a website that discloses all of the financial information in an easy to read sortable table.

        • mskeggs on 16/01/2017 - 11:16
          +2

          @congngo:
          There are some tools that allow you to scan the market for financial info like PE, yield, NPAT etc.
          Morningstar has one, and there are others that I can't remember right now.
          http://www.morningstar.com.au/Tools/StockScreener

        • congo on 16/01/2017 - 11:41

          @mskeggs: Thats awesome, thank you!

        • JepunK on 16/01/2017 - 12:25

          @boo hoo: LOL…HC is only good to learn about terminologies but NEVER EVER listen to those so called "Hearts" there…always Do your Own Research…

          those "hearts" can sell you a donkey as Race horse thoroughbreed…. TON is a classic example

      • [Deactivated] on 15/01/2017 - 16:23

        Babcock and brown

      • [Deactivated] on 15/01/2017 - 21:47
        +4

        Asking for personal examples is a great sign you don't care whether or not it's a successful strategy.

      • hayne on 16/01/2017 - 15:58
        +8

        To answer OP's question about whether this strategy has backfired - plenty of times. Just of the top of my head - Vocation (ASX:VET) and Australian Careers Network (ASX:ACO) are ones that immediately comes to mind.

        Slater and Gordon (ASX:SGH) shares went from $8 to $6 to $3 to $0.40 in graduated steps in the course of ~6 months.

        Dick Smith Electronics.

        Did someone already say Babcock and Brown?

        Spend a bit of time looking at http://www.delisted.com.au/ and you'll undoubtedly find a bunch of others.

        Your underlying thesis has some merit, but two really important things:

        1) Don't invest unless you have a pretty good understanding of the business and you have an investment thesis behind it (e.g. why the market has overreacted and why you think the underlying value of the business is more than it looks on the market). Just investing because the share price dropped and you suspect the market overreacted because they normally do - that's a good way to lose all your money. That's like going to the blackjack table and betting your chips without looking at the cards.

        2) Think about whether you'll set a stop-loss, or if you're happy to lose all your money. If you set a stop-loss, you limit your downside below a certain level. But if the share price drops below your stop-loss, then you sell out and might lose out on an eventual recovery. Take a look at Bradken (ASX:BKN). You'd have to have nerves of steel to hold out for almost 18 months or so (from recollection). The share price lost 40% of its value to around $2.70, a bunch of investors bought in on a similar thesis to yours, then it fell to $0.40 or less afterwards and stayed down for ages. It's finally back up at $3.20.

        If reading that piques your interest and you're willing to learn more about investing, then keep going down that path. If it made your eyes glaze over, then stick to investing in ETFs (Exchange Traded Funds).

        • sator on 17/01/2017 - 13:23
          +2

          My strategy is to utilise ETFs and LICs as my primary investing vehicle. When I have more time or become very interested in active trading, will use 1-2% of net worth to speculate/play.

          I don't see how it's possible to beat the professional funds and banks as they have:

          1. Very smart people doing this full time

          2. Supercomputers and very fast connections to execute trades quickly

          3. Advanced algorithms that act many time s faster than a human can

          4. Subscriptions to every conceivable share monitoring software/newsletter e.g. Motley's…

          5. And more nefarious, corporate espionage and insider trading.

          If you think you can beat these odds then good for you and good luck. Also consider going to the casino, as I'm sure you'll beat the system..

      • Starcraftmazter on 16/01/2017 - 21:19
        +1

        GFC

        Banks fell, then they fell more, then more than more. All major US banks eventually lost around 90%-95% of their share value and had to be bailed out.

        Deutsche Bank is a great ongoing example.

        Coal companies are a great example since coal is on the way out and is doomed to obsolescence.

        Fukushima is a great example, since Uranium stocks either never recovered or took many years to recover.

        Cochlear had some faulty implants a little while ago, their stock fell, and many people like yourself bought it up, and in the following months it just fell more. It took much longer than many thought for it to recover. Sure eventually it did, but you are losing all that time that you could have had your capital making money, and you lose it because you've blindly speculated on the price of a stock based on nothing.

        Your strategy is nothing more than dumb speculation and hoping to get lucky.

    • Musing Outloud on 15/01/2017 - 12:23
      +11

      Also read Elder's Trading for a Living.

      You are taking on 3 risks:
      - Investing all your money in one trade (eggs in one basket)
      - Speculation (You are hoping for a good outcome)
      - No fundamental/value analysis (If it is a "well managed company, undervalued" with/without bad news, or a "badly managed company with bad news")

      Your contrarian market entry strategy (technical analysis - entry tactic) is fine (as far as that goes), but without the 3 risks addressed you have a very high chance of doing all your money - (May as well bet on the horses or dogs).

      I think you need to get some experience first before taking on higher risk contrarian trades, so I'd suggest the following:

      • Do paper trading for 3 to 6 months first (pretend trading) and read trading books
      • Develop your trading rules and write them down (strictly follow your rules)
      • Document your trades against your rules and record what you learn from each trade (get insight via a log/diary)
      • Break your money into 10 or 15 trades - 2% per trade would be better but I assume your capital is small
      • Use MACD analysis for technical entry (and exit)
      • Use a stock picker service to focus your analysis on worthwhile shares with upside value (Buy/Sell recommendations)
      • Set a "stop loss point" (for if the trade goes bad)
      • Set a rule for exit (for the trade having gone well, but runs out of steam)
      • Acknowledge and accept that some of your trades will be duds (won't follow your rules) so get out of these ASAP
      • Follow your rules and leave bias & emotion out of it (see your log/diary)
      • Avoid contrarian strategies until you have traded for several years AND read 30 trading books

      Regarding Dreamworld:
      - Luna Park failed after the Ghost Ride fire
      - Another theme park in the US recently shut after a single death
      - Every piece of bad news about all 3 theme parks will affect share prices, especially at Dreamworld itself
      - Is the company well managed? Form your own opinion based on the new CEO's actions at the time of the incident

      Regarding an online broker:
      http://www.infochoice.com.au/investment/investment-broker/on…
      https://www.canstar.com.au/online-trading/

      Good luck.

      • lozbargain on 17/01/2017 - 08:33

        I did a double take when you said Luna park had failed. Had to google it. Didn't realise there was one in Sydney, before my time.

  • mskeggs on 14/01/2017 - 22:19
    +8

    I also keep an eye on the heavily beaten up shares, with some success and some failure.
    Like my friend who doesn't invest said, if you buy the shares at their low point, then sell later when they have gone up, you will always be on a winner.

    The issue, of course, being when Ardent had dropped to $2, you had no way of knowing if the next move would be lower, or back up.
    And you would have no way of knowing if the next phase in the story was "Dreamworld sued for millions after systemic negligence revealed" followed by a share price drop to 50c.

    Some recent places where this strategy would have failed: ARI, SGH, FGE
    Some places where it probably would have worked: BLY, ASL, SLR

    If you want an example right this minute, check out PDN. This uranium company is heavily in debt and struggling for cashflow due to an unprecedented slump in Uranium prices. If they successfully restructure, or the Chinese fulfil their promise to buy a portion of their main mine, or the price of U rebounds, the share price will likely quadruple, maybe more. But if none of those things happen in the next 6-12months, shareholders will have very little (maybe a 1c share).
    The stock has traded over $9, but is now 9c.
    I think it is a good illustration of how the unknowns will look clear in hindsight, but right now, who knows?

  • holdenmg on 14/01/2017 - 22:21
    +2

    This is essentially a like a contrarian trader.
    Taking a (well-researched) position over a stock that is misunderstood, hopefully with good fundamentals and backed by strong Net tangible assets with a view that they will trade out of the stock at a defined upward price.

    The road is littered with companies that dropped or fell and never got up.

  • chumlee on 14/01/2017 - 22:28
    +1

    Over the past couple of years I have also been trading with the same theory. Just have to keep a stop loss strategy in place as some stocks don't rebound but keep dropping eg it didn't work for me with Blackmores and Bellamys but has with the banks, ozforex, mayne, fortescue and number of others.

    In todays market it's all computer automated trading and causes stocks to drop and rise greater than in the past and things settle down within a few days

    • brainactive on 14/01/2017 - 22:34

      How have you fared over the past couple of years. Regarding your last comment, are you implying we have only a few days to pick up the drops?

      • chumlee on 15/01/2017 - 07:44

        I just play with small money as prefer to pay don the mortgage first plus with kids the credit card takes a hammering every month so have to pay this off too.

        Just saying if when you buy and it is still heading down cut your losses and better stocks rise after a big sell off. If it continues to drop like Bellamys has it means that market is really out of love with the stock and it's not just an over reaction to bad news.

  • holdenmg on 14/01/2017 - 22:34
    +2

    Worth being aware of this site:
    http://www.shortman.com.au/
    and that there are people trying to profit from the price falling as well.

    • the cheeky dropbear on 15/01/2017 - 10:26

      I'm guessing they're trading options to profit from the fall in price?

  • holdenmg on 14/01/2017 - 22:38

    QAN is a Stock than fell on hard times with no Dividends and many large and small investors parachuting.
    Turned around, but prefer others.

    • brainactive on 14/01/2017 - 22:42

      Out of the loop with QAN. What happened in 2015 to cause an almost 3-fold increase?

      • mskeggs on 14/01/2017 - 22:45
        +2

        Oil price.

      • bluedufflecoat on 16/01/2017 - 16:57

        and transformation program to cut costs, streamline the planes they used etc, cut jobs too.

        • Baysew on 17/01/2017 - 12:06

          Oil price.

    • WillKillfor5Cents on 17/01/2017 - 23:04

      I think QAN was a massive overreaction when it dropped below A$1. If memory serves me right, sentiment was so bleak than share traded below their NTA. In other words, if they were to liquidate and sell everything, it would worth more than their total market cap. Somebody correct me if I was wrong.

      • bluedufflecoat on 20/01/2017 - 08:23

        you're not far off. Lowest price was $1.0277 on 10/12/2013 in the last 5 years. They reported in FY2014 that their tangible book value was $1.03/share though. In FY 2013 it was $2.46

  • Aceboy884 on 14/01/2017 - 22:50
    +4

    Catching a falling knife is suicidal

    Good luck with that,

    • brainactive on 14/01/2017 - 22:52

      Any alternative strategies worth sharing?

      • mskeggs on 14/01/2017 - 23:26
        +17

        When my partner worked for a stock broker years ago, the brokers loved new share traders, because they were confident, made decisions quickly and tried all sorts of shortcuts to getting rich quick.
        They funded most of the rest of the market's gains, and a big part of the broker's bonuses.

        During the DotCom bubble, a heap of software/engineering guys I worked with saw all the numbers in the share market, and punted a bunch of their money. After all, these guys had been good with numbers their whole lives, so they would have an edge on the average investor. They were mistaken.

        My suggestion is you read some of the recommendations in this thread, learn about back testing and financial analysis. Read the broker reports on companies that interest you from 5 or 10 years ago through to today, and keep a diary of your predictions showing what you anticipated would happen at different times. The ASX also has a lot of free resources available, and your library will have a copy of Money magazine, both useful when getting started.

        My guess is, like me and a lot of other investors, you will dive in, win a few, lose a few, then after a couple of years realise you have lost more than you have won, and you will then forget the whole business and just get a superfund/fund manager to do it for you, or go back and do the learning/work that you initially skipped.

        • macrocephalic on 16/01/2017 - 15:54
          +4

          I would be wary of fund managers as well, they don't necessarily know what they're doing - but they'll charge you for doing it. It's amusing just how many of them can't beat the index.

      • Aceboy884 on 15/01/2017 - 19:54
        +4

        Buy an index fund or sector based fund instead of punting

        • aerom on 16/01/2017 - 17:51

          I was just going to say that :)

  • CyberMurning on 14/01/2017 - 22:55
    +1

    The problem is no one know if they will keep dropping or not.

    Read about candle charts.
    I belive more in technical analysis than fundamentals.

    • mskeggs on 14/01/2017 - 23:12
      +1

      Technical analysis can conceivably provide an insight into whether technical traders will be positive or negative on a stock, so I won't say it is all nonsense.
      Fundamentals will always beat technicals over anything but the shortest term. You can have stocks falling apart showing they are over-sold, but if they are going out of business that trumps a pretty graph.

      • holdenmg on 15/01/2017 - 06:01
        +1

        tl;dr

        Trump's going out of Business is a Pretty Graph. :+)

      • wackedupwacko on 17/01/2017 - 11:50

        Depends on your strategy though. If you are playing short-term then typically charting, reading market sentiment will be more important than underlying FA. Not that FA doesn't have a place in short term strategies, just that there's less weight for me personally. I use them to see if they are likely to be volatile due to upcoming news due or achievements soon as well as trying to understand the LT investors that will also be jumping on board / exiting.

        • mskeggs on 17/01/2017 - 13:54

          OK, fair point. Trading versus investing.

  • brainactive on 14/01/2017 - 22:59

    Great to hear so many opinions in such a short period of time. Sounds like a lot of ozbargainers share trade. Anyone want to share some of their biggest winners/losers over the past year? And how much of it was due to luck/speculation vs actual analysis/inside-knoweledge?

    • mskeggs on 14/01/2017 - 23:09
      +11

      Please send your real names and contact details to me for any inside-knowledge gains. Be sure to CC ASIC also for expediency.

    • pangwen on 15/01/2017 - 08:57

      Tried this strategy earlier with ARI… next minute, in administration :(

    • bravotwo on 15/01/2017 - 16:45
      +4

      If you're new to all this, start with ETFs. A great way to start, which I am currently doing.

      • enzioFirenze on 16/01/2017 - 21:06

        Which ETFs did you start with mate?

    • miguelsanchez on 17/01/2017 - 11:35

      There's a company called Brainchip (BRN) doing some amazing stuff with AI.

      Were 1c two years ago, now 30c. Highly speculative, but are starting to monetise their technology.

      I was in at about 10c, just put a little bit on them. Paying off so far.

  • blackfrancis75 on 15/01/2017 - 09:21
    +4

    As others have said, "timing" the share market is incredibly risky - even more so in today's market swamped by HFT algorithms.
    If you want to build wealth over the long term, a much better strategy is to build a portfolio of relatively stable stocks whose price doesn't change too much, but which pay decent Dividends.
    Diversify a portfolio, target fully franked or at least partially franked dividends to optimise your tax situation. Plan to be in it for the long haul.

    • congo on 16/01/2017 - 07:43
      +1

      This is good advice.

  • EightImmortals on 15/01/2017 - 09:26
    +1

    After 10 years or so of trying all kinds of different strategies on the stock market I ended up doing two things. 1) for the stock market I just invest in LIC (licensed investment companies) namely the Geoff Wilson ones (WAM, WLE etc). I decided that the professionals who have the time and experience to go through endless company reports and meet with boards etc will do a far better job that I can. If you have the time and experience to do that yourself, then good luck to you.

    2) To actively keep trading I ended up with forex (still a noob for now), you can setup demo account for free until you get your head in gear and your strategies in place. It's much more liquid that the stockmarket and therefore harder to manipulate (though governments can do so) and it tends to respect the technicals a lot more than other instruments.

    Each to their own but after many years of company claims that never eventuate, ramping, deramping and dodgy directors I have pretty much given up, for the most part anyway.

    • cloudy on 15/01/2017 - 11:58
      +1

      Not sure if it was a typo or you were just being funny, but pretty sure LIC is a listed investment company, I would have thought they were all licensed :)

      • EightImmortals on 15/01/2017 - 12:26

        hehe, yeah, just a typo…lucky one of us is awake. :)

    • congo on 16/01/2017 - 07:48

      How to get started on forex? What platform do you use?

      • EightImmortals on 16/01/2017 - 08:05

        I went with IC Markets or you can use FP markets, they are both local companies with good reputations. Just go to their website and download the MT4 platform for free and setup a free demo account. Beware of magic software on the internet that will make you a millionaire in 6 months, it doesn't work like that. Look at it as you would a university degree and give it a good 3-4 years of solid work and by that time you should be doing OK (but with no HECS debt! :) ). Find a good mentor, successful traders who have turned their hand to coaching. Most of them will offer you a free basic strategy to get you started so you can see if you like it and that style of trading suits your trading personality.

        I use these guys, their website is fairly new, they just started it up last year but they are honest operators and wont keep bugging you for more money.
        http://forexbasicsplus.com/

        This guy also seems good but works on a monthly subscription basis afaik:

        http://vladimirribakov.com/

        My one main bit of advice for beginners is this :DO NOT TRADE WITH REAL MONEY. I can't stress that enough, demo trade until you have a strategy and methodology sorted out and you are getting CONSISTENT results. Consistency is the key, once you have achieved that you can simply bump up your lot sizes. I demo traded for over 12 months and only recently went live but still trading very small lot sizes. So have patience and stick with it even when you feel like chucking it in (and you will feel like that some times)but if you stick with demo trading then your costs will be minimal or non existant, a little bit for training. You can of course teach yourself but it's a bit of minefield out there.

        A great free resource is: http://www.babypips.com/ So have a read through that before you do anything else and see if FX trading might be for you.

        • congo on 16/01/2017 - 08:58

          Thank you. I know with Forex there is a lot of leverage and hence risk. I also know this is how banks makes $$$.

        • EightImmortals on 16/01/2017 - 10:30

          @congngo: Yes, money management is a big part of trading and that is part of the learning curve. Having gotten my fingers burned with CFD's a few years a go I was totally off-put by the leveraged nature of forex but after learning how to manage trades and money using a demo account I no longer have that fear.

    • sator on 17/01/2017 - 13:31
      +1

      Geoff Wilson's investments charge 1% + 20% performance fee… Doesn't that seem a tad high when compared to Argo or AFIC?

  • jhmtaylor on 15/01/2017 - 10:11
    +4

    First off your strategy is not investing. It is speculating. Under standing the difference is important. Also read up about catching falling knives.
    I support the idea of LICs but only buy them when the share price is at a discount to NTA. Geoff Wilson's LICs are trading at a premium. Fees charged by the investment manager can murder the bottom line so consider this in any decision. Low fees are charged by MLT, BKI,ARG, WHF. WHF is my pick at the moment, low fees, good performance and SP @ discount to NTA

    • EightImmortals on 15/01/2017 - 10:23

      "First off your strategy is not investing. It is speculating."

      My current strategy is simply 'buy LIC's' how is that 'speculating' any more than buying any other stock, especially as you recommend another LIC at the end of your post? Yes Wilson is trading at a premium for now but that is merely a sign of how much the market values the stock, plus I got most of mine under $2.

      • iseenya on 15/01/2017 - 20:25
        +4

        I'm pretty sure jhmtaylor's first paragraph is referring to the OP.

    • mskeggs on 15/01/2017 - 22:10

      I think this is a sound strategy if you are patient. LICs go in and out of fashion, with some spending years trading below NTA, then boom, they trade at a premium after a couple of good years.
      While I agree some managers are better than others, blind luck says some will do better than others over a given period, the trick is working out the consistent Buffets versus the also rans.

  • Skramit on 15/01/2017 - 10:27
    +1

    I am surprised nobody has mentioned getting professional broker advice. For small fees you get expert analysis reports, strategy advice, portfolio management and advice on timing of when to buy and sell which is what the OP was kinda trying to do by "buying the dips". It seems the OzB community is highly adverse to stock brokers for what I assume is reputational, cost and trust issues. But they have worked well for me in the past.

    My personal strategy is more aimed at overall market dips in price, like the day before the US election. I buy in to blue chip solid stocks when their price comes off during whole market dips. The recoveries of these stocks are usually more certain in the medium term. Rather than relying on individual "risky" stocks to bounce back, buying blue chips stocks during dips has worked well for me because the stocks I buy have solid financials and are proven performers. THis together with professional advice is a good strategy for buying the dips.

    Do your research. Don't rely on the media for your financial information on a company otherwise you will just be gambling on companies after big dips. It may get have paid off this time for you with Dreamworld but it won't always turn out so pretty.

    • bargainbargain on 15/01/2017 - 10:39

      You were probably just lucky on trading a day before the US election !

      • Skramit on 15/01/2017 - 10:46

        Not luck at all. :P

        I met with my broker in September 2016 to discuss my next moves. He suggested waiting to see how the election in the us panned out. We planned out 8 stocks to look at.

        On Fri nov 4 he and I were both satisfied the "trump factor" had been already built in the the market and Clinton was assured victory and markets would jump after the election as The us and asx markets were significantly down from their realistic levels.

        We did not of course predict the stock market surge on the back of the trump victory but I am 100% confident a Clinton victory would have yielded a nice jump as well but in different sectors to what we saw.

        Planned, researched and executed with the help of a broker. The trump victory actually worked out better for me than Clinton :)

        • bargainbargain on 15/01/2017 - 11:01
          +4

          My point was that no one could have predicted the market would surge on back of Trump victory. Hence you were plain lucky.

          The event driven investing can go either ways. With all the research, you could have been sitting on losses had it panned out how the market was expecting with the Trump win.

          Having said that I do agree with you that research driven decisions in blue chip stocks is likely to lead to less volatility and positive returns over medium term

        • Skramit on 15/01/2017 - 11:09

          @bargainbargain:

          Well not really. I think the market had dipped more on "uncertainty" than Trump specifically. This is fairly normal.

          Also the market had largely already factored in this uncertainty around Trump so it was highly unlikely the market would plunge much further even if he won. As I said if you look at the graph of any market leading up to the election it had already dropped to very low levels.

          So yes it was a risk but a calculated one based on historical movements around elections and where we thought the true value of the market was once the election was over.

          I also picked stocks that were paying good dividends so even if I lost 5% in the short term I would still be getting 5% in dividends.

          As it turned out I got 10% growth plus dividends :)

          It wasn't plain luck at all.

        • bargainbargain on 15/01/2017 - 19:53

          I so wish investing was that low risk !

          btw who is the broker you are using if you can share.

        • Skramit on 15/01/2017 - 20:29

          @bargainbargain:

          It's not without risk like any share investment. But if you do your research and get good advice you can minimise the risk and use it to your advantage to make money.

        • serpserpserp on 16/01/2017 - 20:07

          Well the Trump victory worked out for everyone because markets all over the world rallied. It would have been harder to pick out 8 stocks that wouldn't go up in this market than 8 stocks that would go up.

        • Skramit on 16/01/2017 - 21:09

          @serpserpserp:

          Agreed. But still better to have a plan with a long term view (in my situation anyway).

        • jhmtaylor on 12/02/2017 - 11:09

          @serpserpserp: Except for Hunter Hall!

        • serpserpserp on 12/02/2017 - 17:41

          @jhmtaylor:

          Well that was because they shorted all the stocks that went up.

    • holdenmg on 15/01/2017 - 10:41

      Why I see Dreamworld, I think of Mirage Resorts and Qintex.

      I know they are different companies (with different field of business and different times now), but remember the "too good to be true, Mirage" jingle still.

    • holdenmg on 15/01/2017 - 10:42
      +3

      I'm surprised nobody mentioned their Barber or Taxi Driver or Uber Chauffer. lol

      • mskeggs on 15/01/2017 - 22:20
        +1

        They are all property spruikers at the moment!
        When they are talking about what disaster "x" investing is, that is the time to be jumping in.

    • cloudy on 15/01/2017 - 11:56

      I always thought brokers were in it to make the fee when u trade, and hence happy to give any advice that increases ur churn of money. Maybe you just have a awesome broker that's truly interested in you getting rich :)

      • Skramit on 15/01/2017 - 15:37

        Correct they make a fee that way but it's not a huge fee. Broking firms make money in various ways not just on trade commissions. But as I said above, I think they get an unfairly bad name because if a handful of bad eggs amongst the hundreds of good honest brokers - like any service industry :)

        Brokers who churn don't last long. They build up their clients Brough word of mouth and so they can't afford to screw everyone over. Every trade has to be authorised by you and there are protections in place. They have to provide you with a statement of advice etc.

        9/10 of my trades are on the back of my approaching my guy to say let's buy, make some changes or review what I already have.

        Even during times where I've thought it a good idea to sell they have told me to hold for different reasons which paid off.

        • mskeggs on 15/01/2017 - 22:26
          +3

          I'm not anti-broker, and I have known quite a few of both sorts of eggs.
          The trouble is, they have conflicting masters.
          When they need to shift a dodgy float they will be calling you, with a promise to hook you up with the next big thing if you take some of today's dog off their hands.
          I'll buy government floats, as the government is the only bigger bunny than the small investor from a broker's viewpoint.
          If you have a broker you trust and has a good track record, well done, but for most people, and especially new investors, there isn't much incentive for them to prioritise you over other clients, really the reverse.

          I note this is different if you are a high net worth individual, but I am some way from that club.

        • Skramit on 16/01/2017 - 09:07

          @mskeggs:

          When they need to shift a dodgy float they will be calling you, with a promise to hook you up with the next big thing if you take some of today's dog off their hands.

          I've never experienced this, but I'm sure it happens, yes.

          I made my intentions very clear to my broker - wealth generation via stable blue chip. Not get rich quick on small market caps or new floats, high risk/high reward companies. So he never suggests them to me, and I'm sure they are there on his radar.

          Doing your own research helps immensely - if you speak to a broker armed with knowledge, they won't treat you like an idiot and hopefully won't take advantage of you.

  • MITM on 15/01/2017 - 12:02

    BP after the Horizon Oil platform explosion. I even drove past a placard outside a servo here in Oz saying "don't buy BP fuel" - so worldwide condemnation - share price fall.
    But at the end of the day - BP is such an huge organisation that it could cover the cost of this "minor leak" in it's overall worldwide production. People still need oil to drive to work.

    Another event - Rupert Murdoch went into hospital a few years ago and News Corp shares dropped - everyone expecting he was acutely sick. He bounces back to health just as the share price did.

    News Corp again - phone hacking scandal. At the time Murdoch was trying to buy the rest of BSkyB, but had to withdraw his offer because he was seen as "immoral", and so BSkyB shares returned to normal pricing.
    Meantime he went into damage control (damage to his name) and so sacrificed a paper (News of the World I think ?) with the victims being his employees - he was moving from print to digital anyway, so no real cost to him.
    And Murdoch didn't end his plans to buy BSkyB, he just waited a few years and now he has fulfilled his masterplan for BSkyB.

  • Mrgreenz on 15/01/2017 - 13:09

    Very risky strategy IMO. Falls oftern follow falls. Think DSG, SGH BAL

    • holdenmg on 15/01/2017 - 13:27

      SGH was (is) a trainwreck and strangely in these increasingly litigious times should be buoyed by this.
      IMF has upside by funding cases.

    • webbj on 15/01/2017 - 18:45
      +1

      just off the top of my head last year you could add VOC, TPM, SRX, WLD, SRF, SRX,

      if one can catch the bounce, it can be a workable strategy. Much more complex and nuanced though than just buying after a drop greater than xx%
      The HFT and Hedge funds would be/are all over anything thats as simple as that .. with more money and at lower cost. Not to mention lots of experts honing their edge.

      • serpserpserp on 16/01/2017 - 20:09
        +1

        SRX must have really hurt you to list it twice :)

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