Bt-time To Buy?

[R K]

for the long term natch.these days I don't bother with stocks except for big oil/pharma(at the mo) in my 'won't ever gamble'pension pot

decade low PE of 8.5 X,divi 16pence +,=9.3%gross

I'm bearish medium/ long term but sorely tempted to put those thoughts aside.

Only problem is it's carrying debts of £9.7 billion.

That's what I call contrarianism

For me everything is falling, so I can't see any upside. I can't see anything positive on the chart. But if you like bottom fishing then I guess you could drip feed in. I remember buying into BT around 750p about in around 2002 thinking they couldn't possible fall much further.

[A.steve]

decade low PE of 8.5 X,divi 16pence +,=9.3%gross

Only problem is it's carrying debts of £9.7 billion.

Does that P/E take account of their recently below expectation actual performance?

http://www.ft.com/cms/s/0/2dc3ad52-5f62-11...0077b07658.html

BT, to me, seem desperately ill organised and unlikely to turn their position around to increased profit - especially now people have credible alternatives to using a BT land line for calls. I see BT as being under-attack from every side.

Perhaps they'll bounce - a bit - but it's a trade more risky than any I'd want to make.

Edited August 1, 2008 by A.steve

[R K]

ignoring the chart on this one.I'm in it purely for the yield.I know it's falling but I feel drawn to this stock.

my case is this,they are going into digital TV,add on services etc.most businesses telecoms arrangements are considered a small cost.they use the best supplier ie BT.bosh,never gonna set the world alight but that's a nice little income above the 5 year gilt,no??

I'm gonna watch but the 'no gambling ' fund is definitely gonna get somma dese.

'Tis a good yield. The 2002/3 lows were around the 150p mark so maybe that will give them a bottom to bounce/base off. They look like they'll try and claw their way back up to 200ish meantime anyway. Good luck mon brave!

Edited August 1, 2008 by Red Kharma

[A.steve]

one minute you're talking spreadbetting and then you won't buy a utility cos of the risk!!!!!!!!!!!!!!!!!!!

I don't see the hilarity. I am interested in maximising expected return - risk is only half the equation, reward is also important.

In buying BT, I don't see that I can expect a return greater than cash in a savings account... definitely not by owning the asset and probably not by shorting it (I understand too little of what might encourage short-term investment in BT.)

I am interested both in assets that I believe will steadily appreciate with little risk and in high risk speculative trades that promise high returns.

I am not interested in "investments" which I expect will lead to steady capital losses. I don't believe in the value of BT - so I won't buy.

P.S. Spread-bet on Google is up 35% on allocated capital - and the option is up 3% - both in positive monopoly-money territory. Early days, of course, but panning out... so-far.

P.P.S. I bet you £1 (monopoly) that you're in negative territory on BT shares bought today by Xmas 2008.

Edited August 1, 2008 by A.steve

[R K]

P.S. Spread-bet on Google is up 35% on allocated capital - and the option is up 3% - both in positive monopoly-money territory. Early days, of course, but panning out... so-far.

What "notional" price did you sell at, what level of gearing and what is your stop? It's only down around 15p isn't it, so if you've turned 35% on a 3% movement you're way way WAY over leveraged.

[A.steve]

What "notional" price did you sell at, what level of gearing and what is your stop? It's only down around 15p isn't it, so if you've turned 35% on a 3% movement you're way way WAY over leveraged.

Spread-bet (least certain about this calculation...):

Sold at 486 - having decided to set a stop-loss 10% above that price. nice and easy - £1 per point. I've deemed this to tie-up £48.60 in capital (correct me if this is wrong) and today's price is 469 - I think it should return £17 if closed today. Are you saying that my margin would need to be greater? Erm - would this gearing be 10x?

Option (most certain about this calcualtion):

Sold at 475 (later the same day) and the put option for a strike price of 500 was 59. I deemed £59 in capital... today the same option could be sold for £60.80... hence 3% profit.

Edited August 1, 2008 by A.steve

[A.steve]

nice work on google btw

Coo, Ta - I think. Now, I'd love to be able to establish how I can move from my fundamentals idea to an investment strategy rather than a fun-gamble with monopoly money (and not just because I seem to be up today!) I'm critically aware that my short-term gains might be short-lived... conversely, I now have a 13% margin that I'm willing to sit-out for any short-term rallies... and, if I establish that I was wrong all along - I could cash out now in profit. To turn this 'real' I'd have to be able to clearly calculate ahead of using real money exactly what my costs would be; what my maximum loss would be - and, exactly, what would lead to this loss. It is for this reason that I've become interested in "Listed CFDs"

I'm predicting a steady decline in the share price of Google and similar companies where revenues come from discretionary spending; competition can be established for a tiny proportion of the market-cap and there seems to be little original innovation left to wow the public. Google is the exemplar - and I'm looking for similar stocks. Dell are another idea I've had - their kit is all made in inflationary economies - and their profit margins must be really thin... especially on deals for consumers... and I don't envision business to be rushing out to replace their kit with high-end Dells en-masse any time soon either. They've also had a recent rally... and if the best idea they have to make money is a $100 ipod "killer" I'm thinking that I've heard it all before.

couldn't give a toss about christmas2008,it's lognterm.the reward is that 9% yield.

whats the spread on the optin?

According to bigcharts.marketwatch.com (which has just changed its figures to make me 2.5% up not 3% - hrumph! ) this is what I see:

GOPMO Google Inc Put option - strike price 500 dated January 2009.

Last price: 63.64

Change: +10.05

Volume: 5.00

Bid: 60.50

Ask: 61.20

So, the spread is .70 in absolute terms or 1.15% - I think.

I understand what you mean about "longterm" - but buying a share with an expected 9% yield now (based on out-of-date profit predictions, no doubt) doesn't seem the best idea... especially not if the price falls by - say - 10% in the next 6 months. My take on BT's operation is "utterly incompetent" - and I don't see them turning that around. I imagine them haemorrhaging cash over the near future... as people realise that international calls can be made for free using broadband and national calls can be made for costs they're already paying for their mobile. I don't see buoyant profits for BT as the nattering classes feel their budgets squeezed.

Edited August 1, 2008 by A.steve

[R K]

Spread-bet (least certain about this calculation...):

Sold at 486 - having decided to set a stop-loss 10% above that price. nice and easy - £1 per point. I've deemed this to tie-up £48.60 in capital (correct me if this is wrong) and today's price is 469 - I think it should return £17 if closed today. Are you saying that my margin would need to be greater? Erm - would this gearing be 10x?

Option (most certain about this calcualtion):

Sold at 475 (later the same day) and the put option for a strike price of 500 was 59. I deemed £59 in capital... today the same option could be sold for £60.80... hence 3% profit.

Ok, so at £1 per point you are effectively "investing" 486 x £1 = £486. Yep, so you're using £48.60 capital to give you exposure to £486 of investment capital. Which is where I got my 10 x leverage figure from. I was just pointing out that your 35% profit on such a small price movement (3.5%) means you must be using high leverage. When you are "right" then it of course exaggerates the movement. When you're wrong ditto. Thus a 10% movement against you would give you a 100% loss. So when you are using that sort of leverage you just need to be aware what happens if it goes against you. It depends somewhat on what percentage £48.60 is of your "total" pot.

Anyway, so far so good, and interestingly you are making 10 times the money on the spread. I think an ANNUAL gain of 15-20% is good going, so 35% in week is er.....well, we'll see how it goes won't we!

[A.steve]

Ok, so at £1 per point you are effectively "investing" 486 x £1 = £486. Yep, so you're using £48.60 capital to give you exposure to £486 of investment capital. Which is where I got my 10 x leverage figure from. I was just pointing out that your 35% profit on such a small price movement (3.5%) means you must be using high leverage. When you are "right" then it of course exaggerates the movement. When you're wrong ditto. Thus a 10% movement against you would give you a 100% loss. So when you are using that sort of leverage you just need to be aware what happens if it goes against you. It depends somewhat on what percentage £48.60 is of your "total" pot.

Anyway, so far so good, and interestingly you are making 10 times the money on the spread. I think an ANNUAL gain of 15-20% is good going, so 35% in week is er.....well, we'll see how it goes won't we!

Yes - 10x leverage - I now agree... I assume this is realistically achievable?

If this shorting malarkey was part of my real investment strategy, I'd be looking to risk this kind of 100% loss of no more than 5-10% of my initial investment capital in leveraged short plays (the rest in cash - earning ordinary interest).

I think the 35% is an anomaly - it could easily be wiped out tomorrow. I'm more pleased about the option. I've covered the spread and I'm in profit - making the gain slightly less ephemeral. The beta has risen from 1.99 to 2.04 - which is also in my favour. I also realise that I need to see double the price decline again before January in order to break even on the option... but I am more confident now than I was when I decided upon the trade. The big noise made by "cuil" places Google in an interesting position... while it doesn't need cuil's innovations, they can't afford the coup of this clever-like-google technology being bought by Microsoft. It seems likely that google's business plan is exposed to an additional risk of buying unprofitable, but technologically plausible, businesses just to keep them out of MS's hands. Until recently they could walk on water... Either they buy cuil - and open the flood gates for copy-cat venture capital moves... or they let MS buy it for a song - and embrace and expand it to challenge google for the first time this century.

BTW - I was surprised to note that 60% of google is "Inst. Own" and 69% of Dell. Does this really mean that only 40% and 31% of the shares in these two massive corporations are traded?

Edited August 1, 2008 by A.steve

[A.steve]

sooner or later you have to jump in.long term pots-man,I just put the shares in there and look em up once a year.Looks like you do more research for your dummy runs than I do for my pension pot.

Absolutely.

At present I can't see any long value in any stock... i.e. I can't see anything that I expect to yield more than savings interest. As soon as I do, I'll be right in there - buying. I've allocated cash for this.

In the short-to-medium term, I expect short plays to be the only ones that are plausibly profitable... though I'm starkly aware that I'd want to use as much leverage as possible with capped losses. Making a 5% loss would be embarrassing but no calamity if it stopped there. I think diversification of shorts might prove key to establishing a successful approach. I think it should be possible to pick the stocks most likely to decline in value and to couple that with my view that there will be scant gains to be made except by day-trading (for which I am not equipped).

If I were to go short with real money, I'd need to be sure it would manage itself if I wasn't free to look at it for a month, say.

Edited August 1, 2008 by A.steve

[VedantaTrader]

Yes - 10x leverage - I now agree... I assume this is realistically achievable?

If this shorting malarkey was part of my real investment strategy, I'd be looking to risk this kind of 100% loss of no more than 5-10% of my initial investment capital in leveraged short plays (the rest in cash - earning ordinary interest).

I think the 35% is an anomaly - it could easily be wiped out tomorrow. I'm more pleased about the option. I've covered the spread and I'm in profit - making the gain slightly less ephemeral. The beta has risen from 1.99 to 2.04 - which is also in my favour. I also realise that I need to see double the price decline again before January in order to break even on the option... but I am more confident now than I was when I decided upon the trade. The big noise made by "cuil" places Google in an interesting position... while it doesn't need cuil's innovations, they can't afford the coup of this clever-like-google technology being bought by Microsoft. It seems likely that google's business plan is exposed to an additional risk of buying unprofitable, but technologically plausible, businesses just to keep them out of MS's hands. Until recently they could walk on water... Either they buy cuil - and open the flood gates for copy-cat venture capital moves... or they let MS buy it for a song - and embrace and expand it to challenge google for the first time this century.

BTW - I was surprised to note that 60% of google is "Inst. Own" and 69% of Dell. Does this really mean that only 40% and 31% of the shares in these two massive corporations are traded?

Good thead here guys...Steve, it might be worth using a dynamic stop. By that I mean a stop that follows the direction of the price, when it goes in your direction, ie, short. So by using a stop that adjusts on a daily basis to "current" market volatility your stop can move closer over time to your entry price, if google keeps going down. Lets say the ATR on google is 10, you could multply that 10 by a multiple of 2.5 which would mean your stoploss is 25 points above your entry price, or 25 USD above your entry price.

What the ATR tells you is that over an average (X)number of days the average range between the high and low on daily basis in google is 10 USD. So when google moves 25 USD in your favour lets say after 5 days, and the daily range average is up to 12 USD per day(ie, increasing volatility)your stop loss is adjusted by a mutiple of 2.5*12 moving your stoploss to 30 USD above that days price. That would mean your stoploss is now only 5 USD above your initial entry price, and it is adjusting to changing volatiltiy of the market...therefore giving your position room to breathe.

At this point the worst thing that can happen is that you get stopped out and lose your 5 USD...or on the other hand google could fall through the floor, falling another 100 USD and you decide to take your profit of 125 USD.

I find with using this adjusting stoploss method accommodating market volatility that my losing trades end up losing less than my initial risk. Lets say a position moves in my favour, and my initial stoploss is 20 USD. My stoploss adjusts and moves my stoploss to 10 USD...the position then turns and moves against me and I take the loss. My actual loss is only half of my original risk I assumed. I find by doing this that my losing trades are on average less than my initial risk...

In order of importance from LEAST important to MOST important here are the components of a trading strategy...

1. Entry

2. Exit

3. Trade management during the trade

4. Risk control...

I think entry is the least important part...

[VedantaTrader]

An excellent experiment on the importance of risk management...

Ralph Vince did an experiment with forty Ph.D.s. He ruled out

doctorates with a background in statistics or trading. All others were

qualified. The forty doctorates were given a computer game to trade.

They started with $10,000 and were given a 100 trials in a game in

Page

which they would win 60% of the time. When they won, they won the

amount of money they risked in that trial. When they lost, they lost the

amount of money they risked for that trial.

This is a much better game than you’ll ever find in Las Vegas. Yet

guess how many of the Ph.D’s had made money at the end of 100

trials? When the results were tabulated, only two of them made

money. The other 38 lost money. Imagine that! 95% of them lost

money playing a game in which the odds of winning were better

than any game in Las Vegas. Why? The reason they lost was their

adoption of the gambler’s fallacy and the resulting poor money

management.

Lets say you started the game risking $1,000. In fact, you do that

three times in a row and you lose all three times - a distinct possibility

in this game. Now you are down to $7,000 and you think, “I’ve had

three losses in a row, so I’m really due to win now.” That’s the

gambler’s fallacy because your chances of winning are still just 60%.

Anyway, you decide to bet $3,000 because you are so sure you will

win. However, you again lose and now you only have $4,000. Your

chances of making money in the game are slim now, because you

must make 150% just to break even. Although the chances of four

consecutive losses are slim - .0256 - it still is quite likely to occur in

a 100 trial game.

Here’s another way they could have gone broke. Lets say they

started out betting $2,500. They have three losses in a row and are

now down to $2,500. They now must make 300% just to get back to

even and they probably won’t be able do that before they go broke.

In either case, the failure to profit in this easy game occurred

because the person risked too much money. The excessive risk

occurred for psychological reasons - greed, the failure to understand

the odds, and, in some cases, even the desire to fail. However,

mathematically their losses occurred because they were risking too

much money.

[A.steve]

Good thead here guys...Steve, it might be worth using a dynamic stop.

...

I think entry is the least important part...

In general, I love the idea of a dynamic stop... and I'd certainly look to use it if I was expecting a dramatic price movement over a relatively short space of time... but for Google, I'm not expecting any significant shocks (except, maybe, a brief rally on some unexpected well-spun announcement...) I'm shorting Google because I think they're over-valued in the public perception... and that given the height of expectations, Google will inevitably fail to achieve them.

Trading has been described as the act of "surfing" a wave - whereas that is not my technique here. Rather than try and exploit the wave itself, I'm trying to exploit a slower-moving flow... as investors realise that they valued Google highly because it was exceptionally cool - not because it is exceptionally profitable. To think of it another way, when modelling share price movements using random walks (log-normally distributed) it is usual to have a drift-term that represents the long term creation of value relative to the noise of speculative trading. With Google, I think, this term is now negative... and I'm looking for low risk strategies to exploit this.

I was looking at Symantec a few minutes ago... trading at 21.78 - at the top-end of their 1-year range (14.54-21.95) after a sharp rally - allegedly on news that they'd signed a few big orders... putting them about 14% up on the week - and at their highest price in 2008. I think Symatec is over-valued at $18.29bn and I completely fail to see why they need 17,600 employees - if I couldn't do everything they do with 10% of that number, I'd not be trying! That said, they do have a service oriented business model (offering gangster-style protection for Windows PCs) and their profits are, allegedly, recently up. If they continue to rise next week, I imagine guessing the top with a dynamic stop might prove a profitable strategy... short term... at least... based on the idea that what goes up quickly might well come down quickly too. I'd definitely want to start with a tight limit to minimise my losses if this price hike is actually a signal of a successful emerging new strategy for Symantec. Conversely, with a P/E ratio of 41.15, I do think their price is set to drift lower over the medium term - just like Google.

I'm amused that you think entry is the least important part... there are only two parts: entry and exit. If I accept that there's a lot of noise (short term activity I can't predict) then entry and exit are equally important... and entry demands the most concentration - since, at the outset, loosing the entire stake is most likely.

[A.steve]

Ralph Vince did an experiment with forty Ph.D.s. He ruled out

doctorates with a background in statistics or trading. All others were

qualified. The forty doctorates were given a computer game to trade.

They started with $10,000 and were given a 100 trials in a game in

Hmm... a possible explanation might have been that the subjects were not motivated to win... and it is also important to establish if the subjects knew the odds they were given... since, if they guess even odds, they may well decide to take greater risks... It also matters, I guess, how wealthy the subjects are - since they will be affected by their concept of the utility of money.

[A.steve]

symantec is sh1t.why you'd short if theyre trending up I dont know.

google have been trading on eye watering pe's for years

I'm considering Symantec (though haven't made the call - even with Monopoly money) to short it. I don't see a price that is "trending up" - I see a share that has risen rather irrationally on manipulative press releases... I don't believe that the picture is as rosy as the company's statements suggest. I mentioned this stock because it seemed an appropriate candidate for aggressive use of stop losses and gearing. If the last week's gains are re-traced, then a 14% fall in price can be exploited - and I think there's more than a 1 in 5 chance of that. If I were to be able to short with an adaptive +1% limit, I suspect a quick buck could be made if such a play were made often enough.

I've positioned myself short Google because they've had eye-watering P/Es for years... during a bull market... and today, in a bear market, investors - IMHO - are more likely to be asking questions about fair value... or, at least, expect others to be doing that - making Google a sell either way.

[R K]

I'm amused that you think entry is the least important part... there are only two parts: entry and exit. If I accept that there's a lot of noise (short term activity I can't predict) then entry and exit are equally important... and entry demands the most concentration - since, at the outset, loosing the entire stake is most likely.

VT is spot on here.

Risk management is far more important than entry, and exit is far more important than entry too. I am not suprised (but puzzled) you disagree with him but once you have done this for a number of years you will come to realise he is absolutely right.

There is a simple reason for this. Exit controls your profit/loss not entry. You can be wrong 99 times in a row and if you exit with a small loss but make a big gain with your 1 winner you can make money managing only exits. However, if you are right 99 times in a row, take small profits and allow your 1 loser to wipeout you will lose money. These are extreme examples (and fees play a part) but you get the idea.

In terms of risk management it is an oft quoted mantra that successful traders never have more than 2-3% of their total pot at risk on any one position. Being right or wrong isn't as important as how much you have at risk and what you do when you are right and wrong. Again, theory is fine but practice is more difficult due to fear/greed emotions. I'm sure most traders/investors fail because of poor money/risk management and not paying attention to exits. Anyone who had 100% of their money in Northern Rock, for example, and failed to pay attention to their exit will have learned this valuable point by now.

[A.steve]

Risk management is far more important than entry, and exit is far more important than entry too. I am not suprised (but puzzled) you disagree with him

I consider risk management to be everything. I don't agree that exits are dominant... though I can understand this to be assumed by investors whose default position is holding equities.

I've several perspectives from which to justify that entry is at least as important as exit:

1. If I don't enter a market, I don't need an exit strategy for it.

2. It would be insane to ever enter a position without having established why the position is desirable. Once this reason is established, the exit follows naturally when the reason no-longer holds.

3. If we assume active engagement of the investor, the objective is to maximise the expected reward to risk ratio without exceeding a maximum risk threshold.

4. Exiting one position is logically identical to entering a new position with (fees aside) identical instantaneous value.

Saying that exit is more important than entry is to ignore that these are one and the same concept. If you start with eggs, chickens are the first step, eggs the second... and vice-versa.

[R K]

I consider risk management to be everything. I don't agree that exits are dominant... though I can understand this to be assumed by investors whose default position is holding equities.

I've several perspectives from which to justify that entry is at least as important as exit:

1. If I don't enter a market, I don't need an exit strategy for it.

2. It would be insane to ever enter a position without having established why the position is desirable. Once this reason is established, the exit follows naturally when the reason no-longer holds.

3. If we assume active engagement of the investor, the objective is to maximise the expected reward to risk ratio without exceeding a maximum risk threshold.

4. Exiting one position is logically identical to entering a new position with (fees aside) identical instantaneous value.

Saying that exit is more important than entry is to ignore that these are one and the same concept. If you start with eggs, chickens are the first step, eggs the second... and vice-versa.

You don't agree because you've never done it. We've had these tediously pedantic discussions before. I'm not going over the same old ground.

Good luck - with your obsessive rejection of experienced traders/investors you will need it if you ever risk more than £50. It's a shame no learning takes places on these threads. Missed opportunity.

[A.steve]

It's a shame no learning takes places on these threads. Missed opportunity.

I've learned quite a bit - though I didn't set out to be trained, per se. I recognise that conventional wisdom among traders is that, for their approach, "timing exists" is the mental heading under which they have to do most work. I'm just saying that alternative strategies must exist where most work is done under the heading "timing entry". This can be trivially shown by considering holding shares to be be default and cash the investment... For me, personally, I'd like to consider both simultaneously whenever I consider a move away from cash. I want to have a clear plan as to how I will return to cash - and only then will I consider an entry viable. I don't agree that one perspective necessarily suits everyone... though, of course, I'm fascinated by demographic bias.

Edited August 3, 2008 by A.steve

[R K]

I've learned quite a bit - though I didn't set out to be trained, per se. I recognise that conventional wisdom among traders is that, for their approach, "timing exists" is the mental heading under which they have to do most work. I'm just saying that alternative strategies must exist where most work is done under the heading "timing entry". This can be trivially shown by considering holding shares to be be default and cash the investment... For me, personally, I'd like to consider both simultaneously whenever I consider a move away from cash. I want to have a clear plan as to how I will return to cash - and only then will I consider an entry viable. I don't agree that one perspective necessarily suits everyone... though, of course, I'm fascinated by demographic bias.

I see. So risk management is paramount to you, timing entry is more important than timing exit and it's either short 10 x leverage and options or cash. I think you'll find you're in a demographic bias of 1 there. Fascinating indeed.

[A.steve]

I see. So risk management is paramount to you, timing entry is more important than timing exit and it's either short 10 x leverage and options or cash. I think you'll find you're in a demographic bias of 1 there. Fascinating indeed.

I've always been unique - I've never felt that I need to be doing the same as everyone else.

You misrepresent what I actually said about entry and exit - I said that they're both equally important - because one is the dual of the other. This is a philosophical point - it represents not considering any asset class (including cash) as being distinct or not deserving of risk analysis. I seriously doubt that I'm suggesting something especially contentious here.

My actual strategy - right now - is 100% cash. I'm only staking monopoly money on my shorts... but they're doing rather well. The leveraged short is 19pts up - or a position 39% to my favour relative to stake - so far; the option I bought at 59 closed trading at 62.30. I am still considering my practical options to make a portfolio of short positions "real" - I'd want high leverage and small maximum losses. Before I place a short with cash, both entry and exit conditions will be strictly defined... I do not expect to reverse my decision once the short has been placed... except, for example, if new information comes to light which undermines my base assumptions for taking the trade... with Google, this might be a leak about a service that I think they could easily monetise outside of the arena of search and placed adverts.

I detect a derisory tone... what in your opinion (aside from choosing not to trade arbitrary stocks/indices) is so wrong with my approach? What basis might you have to suggest I go long on equities now, say, rather than in a year or two? Do you think I should use less leverage on my shorts? If so, what do you think would be more appropriate? I suspect that leverage on short positions are essential given that inflation is eroding the value of cash.

Incidentally, I'm not entirely comfortable in talking about leverage in this way... in the context of my short, I agree that is geared, but my strategy - as a whole - is not. In my Monopoly Money portfolio (where I'm less conservative, for obvious reasons) I've assumed that I've £10,000 - and have allocated £500 to a maximum of ~10 speculative plays. The first two of which were Google - on which I've taken a short - anticipating a price falling to 370 from 486 within 6 months... in spite of the fact that fundamental rather than technical analysis indicated this play. The entry was crucial - because I wanted to use a fairly tight stop to minimise my losses if the play was misguided - which well it might have been - since I was not jumping on a clear short-term trend. If google does not reach 370 by January 2009, I'll accept that there were inaccuracies in my predictions... I'll factor those into my thinking and decide whether or not I should enter the market again to short google - or to go long - then.

Edited August 3, 2008 by A.steve

[CharlieChuck]

I realise this has moved on a bit from BT, but I was looking at them the other week and I agree they look cheap, however...

In the medium term what will BT become? They own the copper network around the UK, they can't rely on call revenues as anyone and everyone seems to undercut them on long distance/overseas and have done for a while. BT can rely at the moment on line rental, whatever broadband supplier you have you still need BT line rental (obviously excluding cable). However, for me, the future looks increasingly like people will use mobile phones more whilst at home, and I wouldn't discount the possibility that broadband via the mobiles network will exist on a larger scale. Technology moves so quickly I can see a real possibility that copper wire (with the maintenace needed) will be as good as dead, and a liability to maintain.

[R K]

I've always been unique - I've never felt that I need to be doing the same as everyone else.

You misrepresent what I actually said about entry and exit - I said that they're both equally important - because one is the dual of the other. This is a philosophical point - it represents not considering any asset class (including cash) as being distinct or not deserving of risk analysis. I seriously doubt that I'm suggesting something especially contentious here.

My actual strategy - right now - is 100% cash. I'm only staking monopoly money on my shorts... but they're doing rather well. The leveraged short is 19pts up - or a position 39% to my favour relative to stake - so far; the option I bought at 59 closed trading at 62.30. I am still considering my practical options to make a portfolio of short positions "real" - I'd want high leverage and small maximum losses. Before I place a short with cash, both entry and exit conditions will be strictly defined... I do not expect to reverse my decision once the short has been placed... except, for example, if new information comes to light which undermines my base assumptions for taking the trade... with Google, this might be a leak about a service that I think they could easily monetise outside of the arena of search and placed adverts.

I detect a derisory tone... what in your opinion (aside from choosing not to trade arbitrary stocks/indices) is so wrong with my approach? What basis might you have to suggest I go long on equities now, say, rather than in a year or two? Do you think I should use less leverage on my shorts? If so, what do you think would be more appropriate? I suspect that leverage on short positions are essential given that inflation is eroding the value of cash.

Incidentally, I'm not entirely comfortable in talking about leverage in this way... in the context of my short, I agree that is geared, but my strategy - as a whole - is not. In my Monopoly Money portfolio (where I'm less conservative, for obvious reasons) I've assumed that I've £10,000 - and have allocated £500 to a maximum of ~10 speculative plays. The first two of which were Google - on which I've taken a short - anticipating a price falling to 370 from 486 within 6 months... in spite of the fact that fundamental rather than technical analysis indicated this play. The entry was crucial - because I wanted to use a fairly tight stop to minimise my losses if the play was misguided - which well it might have been - since I was not jumping on a clear short-term trend. If google does not reach 370 by January 2009, I'll accept that there were inaccuracies in my predictions... I'll factor those into my thinking and decide whether or not I should enter the market again to short google - or to go long - then.

I thought you said that entry was at least as important as exit and were amused at VT's suggestion exit was relatively more important. My misunderstanding of your position.

Entry and exit aren't the mirror of each other, philosophically or otherwise. If you are a trend follower, then one trend ending does not necessarily mean it will reverse and form an opposite trend for instance. It may do nothing for a period then either continue or reverse. Dollar/Euro for the last 6 months is a good example. In your example you have an (arbitrary as far as I can tell) exit target of 370p. That wouldn't necessarily be a good entry point if reached. I'm not even sure how you arrive at such a target based on fundamentals. Totally beyond me i'm afraid.

You've mentioned that entry for you is at least as important as exit, and yet appear to have made an entry at a totally arbitrary price as well, based solely on an expectation it will fall over 6 months. Your stop at 10% above entry is also arbitrary. i.e. not based upon volatility, price history etc etc. So, unless I'm mistaken entry, stops and exit are all arbitrary. i.e. Disconnected to the market which sets the price. I think that is an odd strategy.

Gearing is entirely personal. I wouldn't be comfortable with 10x leverage on an individual share. But if the total loss is £50 I guess you'll live. Would you do it if your stake was £500? £5000? £50000?

Paper trading may have its place, although I don't think it teaches you anything of much value. In fact, probably just about the worst outcome for you in the long-term would be if google falls to 370p in the next 6 months because you will think your strategy was successful, and will be tempted to replicate it with possibly larger real money sums. Much more useful to you would be for you to be wrong and understand how you deal with that outcome. I don't say this to be mean, but you would certainly learn more. Especially about leverage, stops, exits and price. You are pleased to be up 39% in a week, which is indicative of this since that is based on a 3% move in the stock. That sort of leverage will give you such movements de facto, but imo they are far too high to be sustainable for any long-term strategy.

[drunkincharge]

Red Karma -can I ask you a really personal question?

Which spreadbetting company do you use?

Just wanted to learn from the more experienced among us.

[drunkincharge]

Good thead here guys...Steve, it might be worth using a dynamic stop. By that I mean a stop that follows the direction of the price, when it goes in your direction, ie, short. So by using a stop that adjusts on a daily basis to "current" market volatility your stop can move closer over time to your entry price, if google keeps going down. Lets say the ATR on google is 10, you could multply that 10 by a multiple of 2.5 which would mean your stoploss is 25 points above your entry price, or 25 USD above your entry price.

What the ATR tells you is that over an average (X)number of days the average range between the high and low on daily basis in google is 10 USD. So when google moves 25 USD in your favour lets say after 5 days, and the daily range average is up to 12 USD per day(ie, increasing volatility)your stop loss is adjusted by a mutiple of 2.5*12 moving your stoploss to 30 USD above that days price. That would mean your stoploss is now only 5 USD above your initial entry price, and it is adjusting to changing volatiltiy of the market...therefore giving your position room to breathe.

At this point the worst thing that can happen is that you get stopped out and lose your 5 USD...or on the other hand google could fall through the floor, falling another 100 USD and you decide to take your profit of 125 USD.

I find with using this adjusting stoploss method accommodating market volatility that my losing trades end up losing less than my initial risk. Lets say a position moves in my favour, and my initial stoploss is 20 USD. My stoploss adjusts and moves my stoploss to 10 USD...the position then turns and moves against me and I take the loss. My actual loss is only half of my original risk I assumed. I find by doing this that my losing trades are on average less than my initial risk...

In order of importance from LEAST important to MOST important here are the components of a trading strategy...

1. Entry

2. Exit

3. Trade management during the trade

4. Risk control...

I think entry is the least important part...

sorry for my dimmness ,but what is ATR?