Going Through the Garbage, Can Be Profitable!


Do you like going through other people’s trash?  No.

OK, do you like going to yard sales?  Maybe.

How about going through the garbage, metaphorically speaking, in terms of stocks.

Count me in!

I love doing this.  Maybe it’s my Nova Scotia roots but I love buying things at a discount.  Others may call this schadenfreude – yes, enjoying other people’s pain – and I would have to say “Guilty, your Honour”!

There is a free lunch in the financial markets – OK, no more metaphors – and that’s buying stocks that nobody else wants.  There always seems to be a handful of stocks or a sector of stocks in every market that have caused other investors emotional and perhaps physical pain in owning them.  Yesterday’s stock winners that seemingly everyone was invested have turned inexplicably into today’s losers.

Humans love to purchase investments making all time highs.  This somehow validates their decision-making and quite frankly makes you feel good – dopamine in action.

Purchasing stocks at their 52 week-lows is NOT dopamine inspired.  In fact it’s quite the opposite.  With over thirty years of market experience, I now know myself physiologically enough that when my ‘Flight-Fight’ response is triggered – by a strong sick pre-vomit stage feeling – a market bottom is at hand.  (Try being 100% equities in the first quarter of 2009.  I spent more time in the bathroom than looking at my quote screen. Ah, memories!)

So I needed a system.  A system that logically could over ride my ‘Flight-Fight’ response nervous system.  And when I saw Model Price Theory (MPT) math and understood the philosophy behind the Economic Book Value (EBV) Lines, I was all in.

My stock trading system is incredibly easy.  When a stock, any stock, has a positive transit of EBV-3, I invested in the company.  I didn’t care how name company names I had in my portfolio – the more the better – I would make the investment no ifs, ands or buts.  When do I sell?  Again easy, when the stock I purchased had a negative transit of any of our EBV Lines.  And when the investment is a small portion of your portfolio it is an easy action to do.

I digress!

So what stocks am I looking at in terms of ‘Coming Out of the Blue’ or aka ‘Garbage’?

Aurico Gold Inc.

Aurico Gold Inc. with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

Aurico Gold Inc. with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

For those interested, a daily updated chart of AUQ subsequent to this post will be maintained on Facebook, here.

Centerra Gold Inc.

Centerra Gold Inc. with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

Centerra Gold Inc. with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

For those interested, a daily updated chart of CG subsequent to this post will be maintained on Facebook, here.

Turquoise Hill Resources Ltd

Turquoise Hill Resources Ltd.  with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

Turquoise Hill Resources Ltd. with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

For those interested, a daily updated chart of TRQ subsequent to this post will be maintained on Facebook, here.

Legacy Oil + Gas Inc.

Legacy Oil + Gas Inc. with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

Legacy Oil + Gas Inc. with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

For those interested, a daily updated chart of LEG subsequent to this post will be maintained on Facebook, here.

Detour Gold

Detour Gold Corp. with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

Detour Gold Corp. with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

For those interested, a daily updated chart of DGC subsequent to this post will be maintained on Facebook, here.

Am I recommending these stocks to you?

Nope!

Just being a bird dog here and pointing out what is going on.  These stocks have been crushed over the last year.  Checking the long term charts on our Model Price App some of these stocks were trading at and over EBV+5!  Representing an amazing loss of value for holders of these companies over the last three years – again happy schadenfreude!

What kind of garbage is in your portfolio?

4 responses to “Going Through the Garbage, Can Be Profitable!

  1. Doug Cowdrey February 12, 2014 at 9:45 am

    Sorry about any remnants on the ground this morning after I cased you garbage can…I looked hard, and the bones were picked clean!

    Doug Cowdrey MSc DDS Date: Wed, 12 Feb 2014 14:31:17 +0000 To: moocow@sympatico.ca

  2. Andrew Sproule February 12, 2014 at 5:17 pm

    For clarification – even with a negative to model price, the coming out of the blue strategy is valid? i.e. AUQ-ca
    Or is it a case by case?
    Another man’s trash is often my treasure. Just as their treasures are sometimes viewed as trash by me.
    Thanks again for a great blog.

    • ModelPrice Guy February 12, 2014 at 6:15 pm

      Great question. Yes, just a positive transit of EBV-3 only. Our model price calculation is NOT relevant. Analysts are in this instance ‘backward looking’ in most of these situations and cannot by nature call potential market bottoms. In the instance of AUQ-ca the market is saying one thing and the analysts are saying something else. Who is right? We will see!

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