Ask Marcus
I put this ASK MARCUS button in the newsletter on Tuesday. I have had quite a few. I will answer the questions that I think will be of most interest to other Members. Sorry if I don’t get to yours (so many!) – I have taken a bit of artistic licence and doctored some of the questions for (better) effect.
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Keep clicking. Here are some of your questions and my answers. As I answer more questions I will add them here.
BARKING DOGS QUESTION - What do you mean about a stock when you say the “The dogs are barking” ANSWER – Sorry for not answering this one earlier. Bit of Margon (Marcus Jargon). It is an expression to suggest a stock that has been performing terribly for some period of time (a dog – like AMP) has started to make a ‘noise’ on the chart (Bark) and looks like it may have turned the “big” corner and started to go up. Which AMP hasn’t yet by the way. It’s also a play on “Who let the dogs out” – in other words, what caused this terrible stock to run off (go up)..png)
Here’s are a few other dogs (once great stocks) that everyone is waiting and hoping will bark again – MFG, RBL, APT, KGN…the list is endless.
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I spot a lot of these “Dogs” on a search on our technical software which is called “Bollinger Band Buys” – which means stocks that have dropped outside the bottom of their bottom Bollinger Band and have re-entered – which means the share price is more than one standard deviation (or however many STDEV’s you set) away from a moving average or ‘trend’. You don’t want to do this on too short a timeframe so here is a weekly chart of RBL (bit obvious) with Bollinger Bands – you’ll see it's dropped below the lower Bollinger Band.
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What you can scan for when looking for a Barking Dog (if you have the software - very basic and by no means a silver bullet) are these Bollinger Band buy signals – when the share price returns to the band which might suggest the share price has bottomed (it works the other way around as well). Sounds technical but it has to be said, spotting a “Barking Dog” is something you don’t need technical analysis for, on big stocks in big trends, the turning points can be pretty obvious before you act and in fact, it is better if you let them ‘mature’ before you trust them. An obvious major turning (pivot) point in a large stock in industrials, was Telstra when it finally ended that terrible period of performance in 2018. And again a year or so ago.
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Ultimately spotting the “Big” pivot points is what making money in the stock market is all about. Be it an index, a stock, a commodity, pivot points are everything. Spotting the change. Spotting turning points is what most technical analysis is designed to spot – a change of direction. Almost all technical indicators are geared to identify them. Pivot points are where the millions await.
Barking Dogs (long term downtrends ending) are just one pivot point and unfortunately, it’s not that easy and it is risky, as you know, catching the knife can cut you up. The way to minimise the risk is to stick with big trends in big stocks and let the turning points mature. Like Telstra or BHP, RIO and FMG at the end of last year - as it happens (in hindsight) BHP, both at the top and bottom, broke through its Bollinger bands. Not that that was why we picked the bottom.
Of course, if it was easy I wouldn’t be writing for money and you wouldn’t be bothering to make money. But as an investor, it is good that you recognise that spotting pivot points is a very profitable focus. If you can correctly call one or two of these big-stock (or small stock) turning points a year, it’s going to be a good year. I am very happy that we did that last year in iron ore, calling the bottom in the iron ore stocks at the end of COP 26. Good call. Worth the subscription alone!
Rinse and Repeat. 2022 awaits. Hmmm... what's the next Dog to Bark? It never ends..
Turht is I'm more concerned about the opposite. About the market tipping over (always too cautious?)
What's the opposite of a Barking Dog? An "Icarus Moment" perhaps.
Flying too close to the sun.
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TRADING INCOME STOCKS FOR CAPITAL GAINS QUESTION - Is there a suggested strategy (other than BUY and HOLD LONG TERM) for a trader to exploit anticipated high dividends from stocks like BHP, CBA, TLS. ANSWER – Yes it’s called dividend stripping. There is a long article about it on the website, here is the link. But there are other ways to exploit income stocks, one is trading them for a rally into the dividend. The technique is for someone not interested in income, and should only be attempted in a bull market only when these big stocks are generally trending up not down - because you can’t swim against the tide even if there is a dividend coming up. What you do is buy big dividend stocks (Banks, Telstra, others) a month or two ahead of the ex-dividend date and catch the traditional run-up to results and the dividend ex-date – they generally rally into the dividends and people tend not to sell until after its ex-dividend. You can exploit them, and their unwillingness to sell until they get the dividend. The way you do that is to ride the rally to the dividend but sell ahead of the results (don’t take the results risk) or hold to the ex-date (take the results risk) but sell just before the ex-date so you miss the adjustment (drop) when the stock goes ex-dividend on the ex-date and also avoid getting caught in the post dividend selling by all the people who were only there for the dividend. Also, you might note that big dividend stocks tend to drop just before the ex-date, thought to be International institutions doing the same thing because they don’t get franking so Australian stocks tend to hurt international investors (fund managers) more when they go ex-dividend. So some of them are thought to sell before the ex-dividend day kicking off a 'top' for the stock before the 'trapped' income investor sell. There are other strategies for those interested in getting the dividend but probably best you see the article. There is another one I’ve done (bit old) on How to strip bank dividends..png)
DIVIDEND STRIPPING - IS IT WORTH IT QUESTION – Is it worth dividend stripping? ANSWER – Some financial planners routinely attempt stripping dividends for their clients (buying the CBA ahead of results for instance) but I can tell you (so can they) that there is no guarantee it will make a dollar, especially if the market is in downtrend. My experience is that you should never attempt stripping dividends unless the market is in a solid uptrend, you are happy to buy the stock anyway, and are prepared to hold for longer if it goes wrong. I also have views about the folly of chasing dividends at all, for a number of very valid reasons which are in this article – The Folly of Chasing Dividends..png)
POSITION SIZING QUESTION - How are the % portfolio weightings determined and how necessary are they? Any advantages in using them? Can $ amounts be used instead of percentages?.png)
ANSWER – Not very necessary – the size of holding is a personal thing not a scientific thing. Some traders (note traders not investors) use what is called POSITION SIZING for their trades. This is a fairly simple formula which adjusts the size of a holding based on how volatile the stock is (measured by ATR- Average True Range). The effect of the formula is that the more volatile (risky) a stock is, the smaller the position size you take. You can read all about position sizing in this article. But the basic principle is consciously (or sub-consciously) applied by a lot of investors whether they are running a large portfolio or trading individual shares with a set amount of capital to risk. The basic principle is this – the more risky the stock the smaller the size of the holding tends to be and vice versa. It means investors are generally more comfortable holding larger stakes (weightings) in safer (often larger) stocks. When it comes to our portfolios we are mindful of relative performance (the performance of the portfolios relative to the ASX 200) and so do tend to pay some mild attention to the size of a stock in the index and as such the bigger the stock the more likely we are to tend to hold a bigger holding that might roughly match its index weight. In the same way, big, generally means lower risk (volatility). But in the end, when we get down to it, we start with 1% holdings in smaller riskier stocks, 2% in mid-caps and more in stocks that are particularly big (if we hold them) or we are “convicted” about (hate the word). With all holdings, if we are vigilant enough, we will add if they perform and subtract is they don’t (called pyramiding). So MQG is a big holding – we have ‘conviction’ but it is a volatile stock in a correction. But ultimately the main take from our portfolios is not the weightings (they are an indicator of risk) but which stocks we hold. That’s the value add, and the weighting size might indicate perceived level of risk. Dollar amounts or percentages is your choice…same same but different. A dollar amount is a percentage as well if you add a column on your spreadsheet. Some trading platforms have position sizing calculations for those that understand them.
WANT SOMETHING ON THE STOCK BOX OR THE MARKET MAP QUESTION - When will BOE be returned to the Uranium section in the Market Map? It’s been MIA since its consolidation. ANSWER – When stocks go into a consolidation or have a share issue they temporarily change the code on Reuters (usually add a ‘DA’ to the code to indicate ‘deferred settlement’) and in so doing it buggers all our spreadsheets (error codes). Sometimes we think the stock has been taken over or delisted (very regular occurrence on the MARKET MAP) so we delete them – must have missed BOE was just a temporary code change. We’ll add it back now. Anything any Member wants changed or added to the Market Map or the STOCK BOX just email Layton on layton@marcustoday.com.au.png)
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Keep clicking. Here are some of your questions and my answers. As I answer more questions I will add them here.
BARKING DOGS QUESTION - What do you mean about a stock when you say the “The dogs are barking” ANSWER – Sorry for not answering this one earlier. Bit of Margon (Marcus Jargon). It is an expression to suggest a stock that has been performing terribly for some period of time (a dog – like AMP) has started to make a ‘noise’ on the chart (Bark) and looks like it may have turned the “big” corner and started to go up. Which AMP hasn’t yet by the way. It’s also a play on “Who let the dogs out” – in other words, what caused this terrible stock to run off (go up).
Here’s are a few other dogs (once great stocks) that everyone is waiting and hoping will bark again – MFG, RBL, APT, KGN…the list is endless.
I spot a lot of these “Dogs” on a search on our technical software which is called “Bollinger Band Buys” – which means stocks that have dropped outside the bottom of their bottom Bollinger Band and have re-entered – which means the share price is more than one standard deviation (or however many STDEV’s you set) away from a moving average or ‘trend’. You don’t want to do this on too short a timeframe so here is a weekly chart of RBL (bit obvious) with Bollinger Bands – you’ll see it's dropped below the lower Bollinger Band.
What you can scan for when looking for a Barking Dog (if you have the software - very basic and by no means a silver bullet) are these Bollinger Band buy signals – when the share price returns to the band which might suggest the share price has bottomed (it works the other way around as well). Sounds technical but it has to be said, spotting a “Barking Dog” is something you don’t need technical analysis for, on big stocks in big trends, the turning points can be pretty obvious before you act and in fact, it is better if you let them ‘mature’ before you trust them. An obvious major turning (pivot) point in a large stock in industrials, was Telstra when it finally ended that terrible period of performance in 2018. And again a year or so ago.
Ultimately spotting the “Big” pivot points is what making money in the stock market is all about. Be it an index, a stock, a commodity, pivot points are everything. Spotting the change. Spotting turning points is what most technical analysis is designed to spot – a change of direction. Almost all technical indicators are geared to identify them. Pivot points are where the millions await.
Barking Dogs (long term downtrends ending) are just one pivot point and unfortunately, it’s not that easy and it is risky, as you know, catching the knife can cut you up. The way to minimise the risk is to stick with big trends in big stocks and let the turning points mature. Like Telstra or BHP, RIO and FMG at the end of last year - as it happens (in hindsight) BHP, both at the top and bottom, broke through its Bollinger bands. Not that that was why we picked the bottom.
Of course, if it was easy I wouldn’t be writing for money and you wouldn’t be bothering to make money. But as an investor, it is good that you recognise that spotting pivot points is a very profitable focus. If you can correctly call one or two of these big-stock (or small stock) turning points a year, it’s going to be a good year. I am very happy that we did that last year in iron ore, calling the bottom in the iron ore stocks at the end of COP 26. Good call. Worth the subscription alone!
Rinse and Repeat. 2022 awaits. Hmmm... what's the next Dog to Bark? It never ends..
Turht is I'm more concerned about the opposite. About the market tipping over (always too cautious?)
What's the opposite of a Barking Dog? An "Icarus Moment" perhaps.
Flying too close to the sun.
TRADING INCOME STOCKS FOR CAPITAL GAINS QUESTION - Is there a suggested strategy (other than BUY and HOLD LONG TERM) for a trader to exploit anticipated high dividends from stocks like BHP, CBA, TLS. ANSWER – Yes it’s called dividend stripping. There is a long article about it on the website, here is the link. But there are other ways to exploit income stocks, one is trading them for a rally into the dividend. The technique is for someone not interested in income, and should only be attempted in a bull market only when these big stocks are generally trending up not down - because you can’t swim against the tide even if there is a dividend coming up. What you do is buy big dividend stocks (Banks, Telstra, others) a month or two ahead of the ex-dividend date and catch the traditional run-up to results and the dividend ex-date – they generally rally into the dividends and people tend not to sell until after its ex-dividend. You can exploit them, and their unwillingness to sell until they get the dividend. The way you do that is to ride the rally to the dividend but sell ahead of the results (don’t take the results risk) or hold to the ex-date (take the results risk) but sell just before the ex-date so you miss the adjustment (drop) when the stock goes ex-dividend on the ex-date and also avoid getting caught in the post dividend selling by all the people who were only there for the dividend. Also, you might note that big dividend stocks tend to drop just before the ex-date, thought to be International institutions doing the same thing because they don’t get franking so Australian stocks tend to hurt international investors (fund managers) more when they go ex-dividend. So some of them are thought to sell before the ex-dividend day kicking off a 'top' for the stock before the 'trapped' income investor sell. There are other strategies for those interested in getting the dividend but probably best you see the article. There is another one I’ve done (bit old) on How to strip bank dividends.
DIVIDEND STRIPPING - IS IT WORTH IT QUESTION – Is it worth dividend stripping? ANSWER – Some financial planners routinely attempt stripping dividends for their clients (buying the CBA ahead of results for instance) but I can tell you (so can they) that there is no guarantee it will make a dollar, especially if the market is in downtrend. My experience is that you should never attempt stripping dividends unless the market is in a solid uptrend, you are happy to buy the stock anyway, and are prepared to hold for longer if it goes wrong. I also have views about the folly of chasing dividends at all, for a number of very valid reasons which are in this article – The Folly of Chasing Dividends.
POSITION SIZING QUESTION - How are the % portfolio weightings determined and how necessary are they? Any advantages in using them? Can $ amounts be used instead of percentages?
ANSWER – Not very necessary – the size of holding is a personal thing not a scientific thing. Some traders (note traders not investors) use what is called POSITION SIZING for their trades. This is a fairly simple formula which adjusts the size of a holding based on how volatile the stock is (measured by ATR- Average True Range). The effect of the formula is that the more volatile (risky) a stock is, the smaller the position size you take. You can read all about position sizing in this article. But the basic principle is consciously (or sub-consciously) applied by a lot of investors whether they are running a large portfolio or trading individual shares with a set amount of capital to risk. The basic principle is this – the more risky the stock the smaller the size of the holding tends to be and vice versa. It means investors are generally more comfortable holding larger stakes (weightings) in safer (often larger) stocks. When it comes to our portfolios we are mindful of relative performance (the performance of the portfolios relative to the ASX 200) and so do tend to pay some mild attention to the size of a stock in the index and as such the bigger the stock the more likely we are to tend to hold a bigger holding that might roughly match its index weight. In the same way, big, generally means lower risk (volatility). But in the end, when we get down to it, we start with 1% holdings in smaller riskier stocks, 2% in mid-caps and more in stocks that are particularly big (if we hold them) or we are “convicted” about (hate the word). With all holdings, if we are vigilant enough, we will add if they perform and subtract is they don’t (called pyramiding). So MQG is a big holding – we have ‘conviction’ but it is a volatile stock in a correction. But ultimately the main take from our portfolios is not the weightings (they are an indicator of risk) but which stocks we hold. That’s the value add, and the weighting size might indicate perceived level of risk. Dollar amounts or percentages is your choice…same same but different. A dollar amount is a percentage as well if you add a column on your spreadsheet. Some trading platforms have position sizing calculations for those that understand them.
WANT SOMETHING ON THE STOCK BOX OR THE MARKET MAP QUESTION - When will BOE be returned to the Uranium section in the Market Map? It’s been MIA since its consolidation. ANSWER – When stocks go into a consolidation or have a share issue they temporarily change the code on Reuters (usually add a ‘DA’ to the code to indicate ‘deferred settlement’) and in so doing it buggers all our spreadsheets (error codes). Sometimes we think the stock has been taken over or delisted (very regular occurrence on the MARKET MAP) so we delete them – must have missed BOE was just a temporary code change. We’ll add it back now. Anything any Member wants changed or added to the Market Map or the STOCK BOX just email Layton on layton@marcustoday.com.au