Tim, Basically, your method is a reversion to the mean system you wrote a couple of times before. Today you have bought CFI but this is well above all moving averages. How does that fit into your strategy since you are now long this stock?
If you are just reverting price to the mean price you would do a logarithmic linear regression of price and call it a day. I personally do that with Stocks, Bonds, and Gold -- and this past week Gold went from third place to second on a ten year projected reversion to the mean target. That doesn't really work so well with individual stocks, so instead I revert to the mean ratio of price to breadth and volume (on the technical side) and price and debt to long term growth in earnings, cash flow, book value, and profit margin (on the fundamental side). So in this trade I moved to PLT (not CFI, which I sold). PLT has better fundamental growth than price growth for the bulk of this business cycle, and no debt to speak of.
Tim, I see that you have a different approach to 'reverting to the mean' than what I had in mind. It's a bit more complicated than what I had in mind. Personally, I let my decisions be guided by technical analysis elements and at this level price is extremely far away from its rising 9-day and 20-day moving averages. Only at the start of this bull market (March and May), in September 2010 and in August 2012 did we see such extreme values. At these levels the most likely move is a consolidation or a sell off.
Did your system not show PLT as a possible buy some 3 weeks ago (on 10/20/2014) when this stock was just beginning this fantastic climb? Or was it only yesterday that PLT suddenly appeared on your screen? In other words: does your strategy allow you to have a 'preview' of the possible candidates for the next buy?
The industry PLT was in didn't fall into my buy zone until this week. Wouldn't have even looked at it before.
In any case, I'm looking at technical ratios going out further than a year, and fundamental ratios going out further than five years. 9 day and 20 day moving averages are barely visible in those gauges.
Thanks. I've recently tightened up the fundamentals after the ESI trade. The specs I'm using now have worked the best of all my experimental filters these past 3 1/2 years. Granted, ESI has recovered a good bit, but that 70% drop was annoying in the extreme. If I can just avoid those kinds of trades in the future, I'll be happy.
Tim,
ReplyDeleteBasically, your method is a reversion to the mean system you wrote a couple of times before. Today you have bought CFI but this is well above all moving averages. How does that fit into your strategy since you are now long this stock?
Wil.
Hi Wil,
ReplyDeleteIf you are just reverting price to the mean price you would do a logarithmic linear regression of price and call it a day. I personally do that with Stocks, Bonds, and Gold -- and this past week Gold went from third place to second on a ten year projected reversion to the mean target. That doesn't really work so well with individual stocks, so instead I revert to the mean ratio of price to breadth and volume (on the technical side) and price and debt to long term growth in earnings, cash flow, book value, and profit margin (on the fundamental side). So in this trade I moved to PLT (not CFI, which I sold). PLT has better fundamental growth than price growth for the bulk of this business cycle, and no debt to speak of.
Tim,
ReplyDeleteI see that you have a different approach to 'reverting to the mean' than what I had in mind. It's a bit more complicated than what I had in mind.
Personally, I let my decisions be guided by technical analysis elements and at this level price is extremely far away from its rising 9-day and 20-day moving averages. Only at the start of this bull market (March and May), in September 2010 and in August 2012 did we see such extreme values. At these levels the most likely move is a consolidation or a sell off.
Did your system not show PLT as a possible buy some 3 weeks ago (on 10/20/2014) when this stock was just beginning this fantastic climb? Or was it only yesterday that PLT suddenly appeared on your screen? In other words: does your strategy allow you to have a 'preview' of the possible candidates for the next buy?
Wil.
Hi Wil,
ReplyDeleteThe industry PLT was in didn't fall into my buy zone until this week. Wouldn't have even looked at it before.
In any case, I'm looking at technical ratios going out further than a year, and fundamental ratios going out further than five years. 9 day and 20 day moving averages are barely visible in those gauges.
Tim
Hi Tim,
ReplyDeleteI'm impressed by your overall result. Yet, in this particular case I would be apprehensive. Time will tell.
Regards,
Wil
Hi Wil,
ReplyDeleteThanks. I've recently tightened up the fundamentals after the ESI trade. The specs I'm using now have worked the best of all my experimental filters these past 3 1/2 years. Granted, ESI has recovered a good bit, but that 70% drop was annoying in the extreme. If I can just avoid those kinds of trades in the future, I'll be happy.
Tim