To get from 'a' to 'b', you need to have the ability to go through 'c'?

Hi,

It seems to me, to achieve multibaggers, an investor needs to be able to deal with large share price drops.

Setting a price stop-loss at less than 75% will get in the way of having big winners and making serious money, over time, so why have a share price stop-loss?

Good reason to know your companies inside and out, so sell decisions are made based on business potential rather than the share price/Mr Market?!

NASDAQ_MSFT
LSE_JIM
LSE_RMV
LSE_IPX
LSE_SDI

Regards,

Ben

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That’s a good point you make. I had invested in SDI just before that last lurch you point out. As I recall, an IC writer had sold out because the PE was getting too high. This was a pity because I only got interested in the company as a result of his interest! I could not see any reason to sell, apart from a fear that revenue and profit growth might slow or new acquisitions might not bed down easily. The price bubbled along and then it dived in the Covid crash. But it has rebounded very positively. If I had sold when that writer did, I would have made about 50% profit. By holding, I am now seeing a gain of 290%. I wonder whether the writer has regrets. The shares he moved into have not really performed as well as that

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Hi,

Congratulations on holding onto SDI !

This share tipping business is interesting, to me at least.

Generally financial journalists tend to be very young (or maybe I am getting very old !!) and therefore inexperienced, not having been through market cycles. Because they have journalistic exemption for giving financial advice, they give advice with impunity (and indeed that is what they are paid to do).

Also, for IC I believe the rule is that IC journalists are not allowed to hold any shares personally (ref Simon Thompson). This covers their backside against ramping, but makes them less useful to advise investors because they are not in the same boat. What self-respecting share enthusiast would exempt themselves voluntarily from owning shares - maybe something wrong there?

Possibly share tipsters are a good source of ideas, but when it comes to buying and selling I don’t personally think they are credible, as you suggest.

Apologies for the rant!

Regards,

Ben

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I think there is a common mentality amongst a lot of tipsters and fund managers - with obvious exceptions such as Terry Smith and the Scottish Mortgage crew - to obsess about the correct price of a share. The only annual and semi-annual reports that I make a point of reading are those of funds - both closed-ended and open - to see what portfolio moves they have made and why. I have lost count of the number of times that I have read that “we took profits because the shares looked expensive” and, to be honest, it often serves as a red flag for me. I would prefer them to make the call based on things such as whether they believe the strategy and whether it is being executed effectively, the culture. whether the balance sheet looks robust, potential political risks etc. I wonder how many people sold out of GAW (Games Workshop) during the lockdown last year when all the shops were shut and the shareprice seemed to be in freefall. Again, you would struggle to find an investment that recovered so far and so fast once people realised that the online sales channel was working flat out to sell paint and figures. The history of this particular company is littered with accounts of people who sold out when they thought the price was at its peak, including our friendly host, I Believe. As you implied up above, once a share has doubled or tripled in value, it takes nerve to keep holding on but, provided there are no red flags, director sales, ratios going adrift, regulatory threats etc that is the only way you will find a multi-bagger

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I hope this doesn’t come across as piling on, but the afore-mentioned IC columnist has been holding Venture Life (VLG) for about 2 years now. In a recent report he said " Venture Life (VLG) continues to torment me, falling 20 per cent. There was little new information in its half-year results, but they sparked another wave of selling from despondent shareholders." A quick look at their interim statement as at 30 June shows Debtors of £10m on Turnover of £14m. I suggest that there might be a major write-off in the offing. Debtors have regularly been around 30% of turnover, which for me is a big red flag. ROCE always less than 10% and negligible CROCI. If I had this in my portfolio, I don’t think I would be sleeping at night. It has the hallmarks of a disaster company.

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Hi,

That is a good point re VLG.

Re my earlier post, a falling share price could be an indicator of trouble ahead and shows the need for further research at that point, rather than an automatic sell signal - it could be the market is telling us something, or it may just be negative momentum - I think the trick is determining which?

VLG’s share price has been dropping for a while now, which would trigger further research and probably a sale from what you discovered.

That journalist has said in the past that he takes accounts as gospel. I took that to mean he doesn’t look for fraud - if I were cynical, maybe he would look for fraud if he had his own money invested? (It is a good job I am not cynical!).

Regards,

Ben

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Buying is the easy bit, selling is the difficult bit.

I’ve had some multi-baggers (e.g. IQE, Avon Protection etc) that I held onto for too long and finished up selling at only a modest profit.

Whilst it is hard to hold on to a falling share in the attempt to get ‘from a to b’ it is just as difficult to sell when you refuse to accept a red flag and finish up going ‘from a to d’ (via c and not passing Go!).

If only this game were simple. But then again the challenge is what we all enjoy and keeps us involved.

I have a lifetime’s experience in the betting arena and can endorse the need to avoid following tipsters - it is simply a fools game. You must back your own opinion and the more your opinion is ‘against the crowd’ the higher your potential rewards can be.

There are plenty of useful nuggets to be found on a sensible forum like this. Far more valuable than the views of an uninvested tipster.

I enjoy reading and learning from experienced contibutors on here, so long may that be the case and a big thank you to Maynard for all his input. I’m constantly amazed at the speed with which he comes up with very detailed threads / responses. I guess he gets by on very little sleep.

Regards and good luck to all.

Snazzy

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Hi Ben,

Agreed, my own experience holding multi-bagger Tristel (TSTL) shows the price is often 15% below – sometimes 30% below – the trailing all-time high:

Currently the price is 40% below the trailing all-time high. At the moment I believe the drop is due to earlier share-price expectations mostly being too optimistic, rather than anything untoward developing at the company.

So I think you have to judge each situation on its own merits and importantly, what is happening at the company and whether fundamental problems are emerging.

I don’t think stop losses are that sensible really for anyone buying on company fundamentals. If you thought the market was undervaluing the company when you bought at 100, then why do you think the market is suddenly overvaluing the company when the price drops to 80 (or whatever) and the stop loss kicks in?

Always worth considering survivorship bias with long-term multi-baggers, too. Microsoft etc are great examples of holding on through thick and thin if you bought at the 2000 tech top, but what about the likes of Nokia or Blackberry or countless other tech faves at the time that people now forget. Lots lost 90% and never recovered to their 2000 peak let alone multi-bag thereafter.

I guess if you buy only when a share is already off its peak by a large margin, perhaps the chance of a large drop on valuation grounds is reduced – or any possible company problems are more evident.

Maynard

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Hi,

That’s the thing.

We make investment decisions based on a combination of expected future value and tolerable variance during the investment lifetime, imo.

Sometimes the right decisions are made along the way but unlikely events occuring result in a loss. Because of this I think it takes a decade or two to make a decent investor of someone. It is difficult to decipher what has happened, for what reasons, sometimes.

I don’t mind about ‘D’ particularly because I have 60+ investments, so my single company risk is limited. Over 30+ years I can’t remember many of them, certainly not any more than 50% loss.

Thanks to the workaholic MP also!

Regards,

Ben

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Hi Ben,

The IC rules seem very tough. I too have read (from Phil Oakley’s articles) that IC writers cannot hold any shares. The reasoning I guess is to avoid any claim of ‘front running’ and to always give an unbiased view. FWIW Motley Fool would allow its writers to write about shares they held, but with strict dealing windows before and after publication. Finding good investors that can also write well is hard enough without having to find one that wishes to give up their shares as well! This non-ownership policy may well be reflected in the standard of IC company coverage.

The market-cycle point is important. Last long bear market was 2007/2008 and before that was 2000/2003. So any market commentator less than c35 years old has most likely not yet faced a prolonged downmarket. You can read all you want about bear markets, but there is nothing like experiencing one first hand to improve your investing skills. I started at Motley Fool in Nov 1999 and the FTSE would lose 50% of its value within the next three years!

Maynard

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Hi Diogenes

I did make a profit on Games Workshop

However, I actually bought at £8 way back in 1998:

I should add that I bought more shares under £2 during 2000 and sold mostly between £4 and £5 during 2003. The rest were sold for nearly £3 during 2007.

My overall investment was therefore not great but not a complete disaster either.

…but to be fair the company took another 10 years after I had sold to become the ‘quality’ name it is today!

Maynard

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Hi Maynard,

I suspect that is why Terry Smitb et all spend so much time reading trade publications. Possibly this gives then an edge. It certainly doesn’t hurt!

Agreed. Maybe it is worth writing down why the company in question is better placed than competitors when inevitable share price declines occur and the stress is greatest. Looking at MSFT and NOK, they both had similar declines in eps and other metrics, but MSFT’s metrics recovered and NOK’s didn’t. With hindsight, MSFT was always better placed, so maybe it would have been possible at the time to spot this if enough time and thought was put into it?

Not sure I personally can hold cash for long because I consider that a risk, also. I can’t buy shares in a confirmed downtrend either, but you are clearly the better old school value investor !

Hopefully the decline in the FTSE and you writing for MF weren’t related !

Regards,

Ben

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2 posts were split to a new topic: SDI Group (SDI): Small Caps Life verdict

Hi Ben,

I do think there’s an element of correlation between volatility and multibaggers, its rare that SP progress is serenely upwards. I find that where shares have bagged for me I am prepared to be very tolerant of future swings. Where shares show a quick loss and continue to decline I need to get out.

Taking Microsoft from above, if you bought in at the 2000 peak, you’d have had to have the patience of a saint to sit it out to 2017 to reach breakeven! Not surprisingly, its all about getting the entry right.

Clearly stop losses and volatile share prices don’t mix, but what I do observe above is that the EMA you plot is a useful indicator. Sometimes the prices seem to bounce of the EMA and where they cross, selling out and re-buying would have worked to avoid the worst dips.

Treat this with caution however as I am as far away from a chartist as you could get, its just possible that the EMA is a stop-loss substitute. I’d be interested in others views.

Regards
Roger

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Hi Roger,

I certainly agree all shares have major ups and downs on the way to becoming multibaggers. If it were not difficult along the way, I suppose everyone would be having them!

If someone held a gun to my head and told me I had to use a price stop-loss (which I don’t currently), I would probably use a couple of consecutive closes below the 10xatr line (average true range), which factors in current price volatility, so it is a little more dynamic.

A close below my current ema would certainly cause me to get the microscope out, though!

Regards,

Ben

I tend to look at the 200 day average as a guide as to whether I need to take an opinion or not. I know that certain economists (eg Dillow at the IC) assert it as a rule but he ignores dealing costs. SDG and SDI are both examples of why selling when the price went below the 200 day average and buying back on the reverse cross would have been errors. And that’s only in my sample!