My trailing Stop Limit was exercised today at $17.92 but MTEX dropped further to close at $16.65 almost a 13% drop from its previous close. This dropped occurred on no new information as far as I could tell and underlines the volatility that has been common among MFI picks.
If you've been following this blog for a while you'll know that this was the 1st of my Magic Formula purchases and that I doubled my position in June. You'll also remember that MTEX dropped a ton in May after just reaching $20 a share. This time I protected my gains with a trailing stop. It is too early to claim victory. Only time will tell.
I earned a 44%/62% Annualized 56%/281% Annualized respectively on my two MTEX positions. I am quite satisfied with both those returns and will reinvest in Mannatech Inc. if it falls further.
Unfortunately Blogger won't allow me to post any of the images that I want to upload.
Monday, October 16, 2006
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5 comments:
Nick, I gotta tell you that I am not a fan of this stop loss approach. MTEX bounced right back today, so all you have done is incurred transactional costs and ST taxes.
MG
MG,
I think the Magic Formula is messing with my head. Prior to the MFI I would do my own research. Typically I would read every K and Q for 5 years and come up with my own estimate as to the company's intrinsic value.
Now that I only do a cursory look into the company and try to fight my urge to get to know the company intimately. I was only planning to own the company for a year and I was going to own many more commpanies than I typically followed.
Do to my lack of due diligance I find that my cool headed , stick to my guns mentality doesn't have a foundation to stand on.
I think it was Peter Lynch that said something to the effect of, "Prune your weeds and let your flowers grow." With a the trailing stop limit approach I've pruned my flowers and kept my weeds. In fact I only placed stops on my strongest positions. Of course had MTEX tanked and TGIS's earnings not been so strong, we might be talking about how clairvoyant my decision was to add the stop losses.
I have to wonder if the error in my approach was how far below the market price of each stock that I chose to establish the stop. Was my error one of inexperience using stop losses or one of selling because of Mr. Market getting cranky rather than the fundamentals of the company changing?
Obviously my decision had nothing to do with the company's fundamentals and that is an egregious error and one I feel "dirty" for making.
I'm not accustomed to the volitility that this porfolio exhibits and worse yet I'm not accustomed to hold ing companies that I'm not very proud of.
For me, I think I would do best over the long-term if spent the time to do my research on the top 25 companies with market caps above $50 Million on www.magicformulainvesting.com and only own 5-8 companies. I would then be able to get to know the companies bit better and would be better position to be an investor rather than a frustrated speculator stuck in an investors mindset.
As always thank you for the much needed criticism; however, once TGIS earnings came out last night I was already kicking myself. I was nervous about AEOS because of its P/E and because I'm the last person to know when something is no longer trendy. I'm probably a decade behind right now. I don't personally believe in Mannatechs's products but I do like the 40% insider ownership, but I still feel like management is very honest. I can't stand feeling like I'm working with a dishonest person. Somehow I felt very different with TGIS- I like the CEO he sounded very down-to-earth and honest in an interview I saw online a few months back. I regreted that sell immediately and even moreso now that the stock jume 10% this morning.
Oops, I'm going to be late for work,
Nick
Hi Nick,
Be careful! You may like to read a note I wrote to myself on this subject:
"3. Ensure that I am not being tempted to sell a winner (since the highest return in any particular year for an MFI stock (of 30 stocks in a backtest) varied from 124.6% to 916.2% (average annual highest return of 351.9%), whereas the lowest return varied from -100% (twice) to -45.9% (average -75.2%) [according to calculation over last ten years (to December 2005) of MFI shares])"
This is from info. posted on a yahoo group on the Magic Formula. Any stock that can increase this amount doesn't go straight up. Surely some of the volatility in small cap MFI shares is due to their being overly influenced by the effect of a large sale (for whatever reason) on a very low volume of shares traded.
Also, don't get hooked on P/E. See what JG has to say about it in the appendix, and lots of other securities analysts also prefer EV/EBITDA. It's really worth trying to fully comprehend the appendix if you're going to try to be smarter than the Magic Formula. I don't want to be patronising, as I've made the same errors!
Dan
Read the appendix!
Careful, Nick!
I wrote this instruction to myself on this subject:
"Ensure that I am not being tempted to sell a winner (since the highest return in any particular year for an MFI stock (of 30 stocks in a backtest) varied from 124.6% to 916.2% (average annual highest return of 351.9%), whereas the lowest return varied from -100% (twice) to -45.9% (average -75.2%) [according to calculation over last ten years (to December 2005) of MFI shares])".
This info is extracted from a Yahoo Magic Formula group.
Also, if you want to outsmart the formula, make sure you understand the appendix fully. P/E ratios can be very deceptive, as JG points out.
Also, if you want to avoid sudden drops, set up a watch list and only buy the stocks on MFI that have already tanked, remembering that volatility in small cap shares is often just due to small trading volume being affected by sudden selling for whatever (including legitimate) reasons.
Good luck in your investing, anyway.
Dan
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