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The Best of chrisperruna.com in 2007

December 31, 2007 by 4 Comments

I went ahead and developed an excellent recap of the “best of 2007″ chrisperruna.com educational articles. I am not including entries written about specific stocks as they can be found by doing a simple search using their ticker symbols.

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If you missed anything from 2007 or are a new reader, here’s a second chance to digest some of the most talked about material from the past year. The articles are listed starting in January 2007. Some great material can be found throughout this post!

Happy New Year!

January

February

March

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Filed Under: Blogs, Education, Misc.

Higher Priced Stocks Give Best Gains

December 12, 2007 by 13 Comments

Lower Priced Stocks Don’t Double Faster!

I cringe every time I hear a novice or even a long time investor tell me that they only purchase low priced stocks because they offer quicker potential gains. A common phase I hear is:

“I like to buy $1 and $2 stocks because they can double easily and I can afford them”

You can afford them? To start, a $1,000 account is a joke but to actually say the above statement and believe what you are saying after thinking about it is insane. A 50% gain is a 50% gain regardless of how many shares are in your portfolio. So, should you be buying 100 shares of SIRI because you love Howard Stern and can “afford it” or should you be buying Apple (AAPL) because you love it as it crosses $100, $150 and $200 per share? The novice says they can’t afford a $200 stock. Please smack yourself because you can afford it but in your mind, you can’t afford a nice round lot purchase of 100 shares (who cares, you’re trading small to begin with – making money is your only concern). One share or one hundred shares: a gain is a gain and a loss is a loss.

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I rather own 15 shares of Apple than 100 shares of Sirius or a similar beaten down piece of garbage. I could care less about the number of shares in my account.

I care about making money – MY PERCENTAGE GAIN AT THE END OF THE YEAR!

Hell, I would’ve bought one share of Berkshire Hathaway at $100,000 before I would consider much of the hopeless crap treading along the bottom of the market’s ocean.

“Stocks are priced low for a reason, just as stocks priced high are there for a reason”.

Like anything in life, quality is never offered at a discount. In most cases, life offers its best material possessions at premiums.

A $1.00 stock is trading this low because it is only worth this much in investor’s eyes. A stock priced at $100 or $200 is trading at these levels because of a quality that the lower priced stock does not have (in most cases). Institutions, such as mutual funds, banks and insurance companies will not purchase a stock at $1 based on strict internal rules and fund guidelines.

Stocks such as First Solar (FSLR) move quicker than dirt cheap crap due to the vast amounts of support from institutions that have the buying power to propel prices 100%, 200% or more in less than 12 months.

  • Apple (AAPL) is up almost 300% in eighteen months
  • First Solar (FSLR) is up almost 900% over the past 13 months
  • Baidu.com (BIDU) is up almost 400% over the past 18 months
  • MasterCard (MA) is up almost 400% over the past 18 months
  • Research in Motion (RIMM) was up almost 500% over the past 18 months
  • Garmin (GRMN) is up almost 300% over the past two years
  • Petrochina (PTR) was up more than 200% over the past 2 years
  • Mcdermott (MDR) is up more than 300% over the past two years
  • Google (GOOG) has doubled over the past year or so

The stocks above were trading at these prices June 1, 2006 (pre split adjusted):

  • AAPL: $62.17
  • FSLR: $27.89 (12/1/06)
  • BIDU: $83.43
  • MA: $47.51
  • RIMM: $65.91
  • GRMN: $97.12
  • PTR: $106.45
  • MDR: $44.84
  • GOOG: $382.62

So, would you rather own low priced media mentioned stocks such as SIRI ($4.51 on 6/1/06 and $3.50 today) or the higher priced $40, $50, $60, $100, $200 and $300 priced stocks above. I’ll take the 300%, 400%, 500% and 900% gains of the higher priced stocks over the losses or minor gains from the lower priced options.

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A quick study of stock market history will prove that the majority of stocks priced at $2 or less will be de-listed or bankrupt before they ever give an investor a triple digit return. High quality stocks are typically representative of high quality companies that usually have innovative products or services that are increasing revenues and earnings thus peaking institutional interest. You have all watched more stocks double or triple from the $25-$100 range on this blog than any other price level during the past year (chrisperruna.com is one year old this month).

I bought BIDU at $103, MA at $107, FSLR at $101 and AAPL at $130 this year alone (I rounded the cents). How many sub $5 stocks did I buy this year? NONE!

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Filed Under: Education, Psychology, Stocks

Market Corrections, Bears and the Big Picture

November 8, 2007 by 13 Comments

Market Corrections:
Market corrections are healthy as they allow advancing stocks to take a step back and breathe. Corrections of 5%-10% allow the leading stocks to shake out all weak holders while setting up support levels and sometimes new base formations. Humans (traders) are typically sheep so they pile in at the top and run for the doors at the bottom. Don’t follow the crowd, so don’t panic during a market correction.

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Look at the overall BIG PICTURE before making major decisions on a short term intraday or daily chart.

Even weekly charts can fake you out when you start to see red across your portfolio screen (during a large market correction).

Market corrections and flat markets allow intelligent investors to study conditions carefully while they sit on the sideline patiently awaiting the defining trend. Money is made on the big moves, not the minor day to day moves. Corrections allow big moves to establish themselves.

Don’t go crazy over the minor day to day moves! Look at the BIG PICTURE!

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As for Bear Markets:

  • Keep in mind that nearly 75% of all stocks follow the general market trend
  • Your cash doesn’t need to be committed to the market at all times. This philosophy is suited to making the most money in bull markets or markets trending higher
  • It is psychologically and emotionally healthy to get out of the market from time to time, especially after a losing streak
  • It is essential to keep up your watch lists during bear markets and/or general market corrections as many present and future leading stocks are building new bases
  • Stocks that correct the least and display the highest relative strength ratings tend to be the leaders of the next up-trend or bull market. Take note of all stocks that are base building during corrections; a cup with handle, flat base or major moving average support.

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Signs pointing towards a correction or bear market:

  • The major indexes will advance on below average volume
  • Stocks making new 52-week highs will be limited
  • Stocks making new lows will increase
  • Major indexes will fall below the 50-day MA and/or the 200-day MA
  • Index averages will start to under perform. Relative strength lines will head south
  • Major publications will tout hot stocks at key market reversals (market tops)
  • Institutional (smart money) will bail on huge volume
  • General market index down days on excessive volume (always above average)
Filed Under: Education, General Market, Psychology

Point and Figure Charts

November 6, 2007 by 16 Comments

A point and figure chart is:

“A chart that plots day-to-day price movements without taking into consideration the passage of time. Point and figure charts are composed of a number of columns that either consist of a series of stacked Xs or Os. A column of Xs is used to illustrate a rising price, while Os represent a falling price. This type of chart is used to filter out non-significant price movements, and enables the trader to easily determine critical support and resistance levels. Traders will place orders when the price moves beyond identified support/resistance levels.”

– Investopedia

“Additional points are added to the chart once the price changes by more than a predefined amount (known as the box size). For example, if the box size is set to equal one and the price of the asset is $15, then another X would be added to the stack of Xs once the price surpasses $16. Each column consists of only one letter (either X or O) – never both. New columns are placed to the right of the previous column and are only added once the price changes direction by more than a predefined reversal amount.”

– Investopedia

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I use point and figure analysis every night while scanning my charts because I can easily determine key support and resistance levels. Many indicators can trigger buy and sell signals but I stick to the basics and only trade a few patterns that the point and figure charts offer, such as the ones described below (see chart examples as well).

Understand that I use point and figure charts as a secondary technical analysis tool behind candlestick charts (both daily and weekly). I view point and figure charts (will be referred to as a P&F from this point forward) after I find an interesting stock that has already passed my fundamental criteria and peeked my interest on the candlestick charts. Support and resistance levels can be found using basic candlestick and bar charts but P&F charts eliminate the unimportant noise by setting-up the critical levels and breakouts or breakdowns with the more important (larger) moves.

My favorite pattern setup is the Triple Top Breakout which occurs when a stock hits a certain level of resistance on three separate occasions, telling me that a move above this zone has some meaning. Not every triple top breakout will be successful but the odds of a breakout above this setup increase dramatically. As with all trading, you must take the signal with proper position sizing and set your stops without thinking like a human.

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Filed Under: Education, Point and Figure, Technical Analysis

Disregard Conventional P-E Ratio Theory

October 9, 2007 by 8 Comments

Don’t base your portfolio buys on P-E Ratio alone; you will most likely miss the biggest winners of each cycle!

I use the Price Earnings (P-E or P/E) Ratio as a secondary indicator for buying and selling stocks but I don’t use the ratio in the same a manner as many value investors teach. I will explain the difference in my methodology for using the P/E ratio to your advantage.

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Many value investors will pass on a growth stock that has a P-E ratio higher than a predetermined level. For example, they may discard all stocks that have a ratio of 20 or higher, regardless of the industry group they come from. Some investors will discard any stocks that have P-E ratios above the industry group averages, concluding that they are grossly overvalued. I am not saying that this method doesn’t work, because it does but it will not work when you focus on buying young innovative small cap stocks that are growing at tremendous rates, rates that “big caps” can no longer sustain. Growth stocks cost more because they GROW!

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Filed Under: Education, Fundamental Analysis, Technical Analysis, Wall Street
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