ASX market tips

How to pick shares after they have bottomed out

In this tip on how to pick shares after they have bottomed out we’ll explain how we avoid common pitfalls, and take advantage of buying opportunities.

Buying oversold shares, once they have bottomed out, presents a wonderful opportunity to make quick gains on the stock market.

One of the most common pitfalls investors make is trying to catch the falling knife.

Overvalued shares will keep falling until they reach their real value, often falling below that real value as investor fear takes hold, resulting in overselling of a share.

At Active Investing to pick shares after they have bottomed out, we first study the share price chart, looking for a J curve to form. A J curve shows when a stock reaches the bottom of the trading range over various time periods, including 15-day, 5-month and one year. Once a stock has risen one or twice, after finding its lowest resistance level, is our buy trigger.

How to flip shares with no money

Wouldn’t it be exciting if we could flip shares with no money and make  over 10% cash in a day or two. In this guide on how to flip shares we’ll show you how. At Active Investing we have done this on numerous occasions.

Real estate buying, on the other hand, is the ultimate passive investment. Few people buy real estate with the idea they will flip their purchase in six months to make a killing, though some lucky ones have. One third will purchase the property for a place to live. (We all need somewhere to live.) One third will buy the property as an investment; many owners not even renting it out, waiting for the capital gain. And of course, if the investor has bought the property with a substantial bank mortgage, the reality is the bank owns the property, not the investor. Legally, the bank can tip out the investor when one payment has been late. If the investor has to sell the property quickly in order to generate cash, it could take up to six months to sell for a reasonable price in a normal market, even longer when the market is falling.

Online share investing platforms such as Commsec provide for a two-day settlement period. If you bought $3,000 worth of shares in the company that owns free-to-air Channel 10 (ticker code “TEN”) on 29 May 2017 at the opening price of $0.17 and sold the shares on the same day at the closing price of $0.20, you would have made a tidy profit of 17.65% in one day. As settlement is not due until 31 May, you would have  the sum of $529.50 (the profit) less brokerage fees of $43.89 deposited to your linked bank account, providing you with instant cash of $485.61 from nothing.

If you had bought $10,000 worth of shares in Meteoric Resources (MEI) at 10:00am on 29 May 2017 for $0.23, after the price had already risen 60% compared with the last closing price, and sold at the close of trading on 30 May 2017 at the closing price of $0.34 you would have pocketed $4,740 in two days with no money needed in the bank to buy the shares because you have sold before settlement was due, and Commsec trading rules allow the purchase price and sale proceeds to be offset against one another in that time frame.

Of course if the price falls, the purchaser still has to come up with the $10,000 purchase price on settlement day, or sell at a loss by close of trading on 30 May 2017, the loss being deducted from their linked bank account. Failure to be able to settle on the day, or come up with the cash shortly thereafter, would result in suspension of one’s Commsec trading account.

With numerous well-informed people, such as the chairman of ASIC, saying Australia is in the middle of a housing bubble, particularly in markets such as Sydney and Melbourne, the smart money will be looking elsewhere to find a home, such as shares on the Australian Stock Exchange. If one can make money on the ASX with no money, imagine how much money one could make with money. It is like Donald Bradman doing batting practice with a wicket rather than a bat, hitting a golf ball against a tank stand with an uneven surface.

Bradman would use one hand to hold the wicket while he hit the golf ball against the tank stand, then switched to two hands to hit the ball when it bounced back at him. This practice as a child developed unique hand-to-eye coordination enabling Bradman to score multiple double centuries on tour. We all know that his batting results were unique, but few have followed his training methods. Bizarre isn’t it.

 

Gold stocks ultimate hedge against bad times

Gold Stocks – The Ultimate Hedge

In uncertain times, such as those we are seeing today, what is the best way to protect our wealth, and are gold stocks the ultimate hedge against these bad times?

For the conservative investor, gold stocks have traditionally been seen as a highly speculative investment. After all, as Warren Buffett has stated over and over, the yellow metal has few industrial uses, and in today’s world of the US dollar not backed by a gold standard, gold seems to be an anachronism at best.

So, what explains the parabolic rise of gold stocks in recent times? And why should I have gold bullion or gold stocks in my investment portfolio?

First, gold is a global currency, and always has been. Second, it is backed by real value, whereas paper money is backed by no value, other than a belief in the soundness of government policy and the net worth of the country issuing the paper currency. Third, as far as countries such as China, Russia and India are concerned, gold is not an anachronism. Fourth, what will happen if the Trump administration starts a currency war? What will be left standing – metals with real value such as gold and silver, or pieces of paper?

Gold stocks go mainstream

These factors may explain why hedge funds are now moving into gold. When hedge funds move into gold, we can be sure gold has become a good main-stream hedge against bad times.

Why do we believe gold shares are the ultimate hedge against bad times? Our first investment on the stock market was $60,000 in St Barbara about six years ago. At the time St Barbara was seen as a highly-speculative little-known gold miner. If only we had followed Warren Buffett’s advice of sitting tight and believing in ourselves.

In 2015, St Barbara was the second best performing stock on the ASX. Over 15 months, St Barbara rose a staggering 2,262% as new management significantly improved the companies poor performance.

The beauty of gold stocks is that when they move up, they move up sharply. The converse also happens. With an active investment strategy we can maximise potential profit opportunities when gold stocks rise, and minimise any potential losses when they fall, periodically adjusting the percentage of gold stocks in our portfolio to maximise their portfolio diversification value.

Buy gold sold in Australian dollars, not US dollars

The other important thing to remember about ASX gold stocks is that when Australia’s currency is being belted, and our economy appears to be tanking with the Aussie dollar falling, the income of Australian gold miners selling gold in Australian dollars (such as Evolution Mining, Northern Star Resources, Millenium Mines and St Barbara) goes through the roof.

As the Aussie dollar falls, the price of gold in Aussie dollars rises.

So why did St Barbara’s shares rise 2,262%?

We can put the dramatic rise in St Barbara’s shares down to four key factors:

  • A rising US dollar gold price
  • A falling Aussie dollar
  • Lower production costs
  • Increased production

When the price of gold in US dollars is rising and the Aussie dollar is falling, these factors combine to double the impact on the price of gold sold in Australian dollars.

For Australian investors, buying shares in gold production companies that sell gold in Australian dollars is therefore arguably the ultimate hedge against bad times.

Ordinary Investor Success

Ordinary Investor Success

At Active Investing we are here to help with ordinary investor success.

Knowledge is power. Our knowledge comes from daily updates of price, financial and volume movements of all the stocks on the ASX to find the most likely to rise in price.  We analyse this data in real time using a sophisticated mathematical evaluation system, call it an algorithm if you will.

Our best recent trade was a 42.8% gain in RMX in five days in Nov 2016. Since then, we have successfully followed Warren Buffett’s advice of not making a loss.

Following the election of President-Elect Donald Trump, our gold stocks shot up the same day, only to come crashing down the next. We didn’t mind the crash, we had learnt a valuable lesson – in times of crisis gold stocks are like car shock absorbers. They absorb the shock.

Our portfolio did not go down the day Trump was elected because our gold stocks, comprising roughly 30% of our portfolio rose. And our portfolio did not go down either in overall value the following day either – gold stocks declined sharply, but the ASX rose as investors realised Trump would be good for the US economy.

Whilst experienced professional investors on the Sky News Business Channel lamented making losses in their gold stocks because their shares had hit stop loss triggers following Trump’s election, we held tight.

Last Thursday we sold all our EVN and SLR gold stocks at a profit, even though we bought them initially when prices were higher than they are today.

How did we do that? Ordinary investor success strategy #1 – averaging.

After our gold stocks bottomed out, and after they began rising again, we bought more, thus able to make a profit even though we sold at a lower price than what we originally paid on the initial purchase when the price of gold was around $1,300 USD.

The key secret is that the average cost of these shares was less than our initial buy-in price.

When we sold at a higher price than the average cost, we made profit.

We are now watching our remaining gold stocks rise steadily.