Category Archives: Articles

DWS bounce from oversold?

DWS Limited (ASX:DWS) or “Ddubs” as I like to call it stopped going down in the past week. By my reckoning, this is about the 50th most fundamentally sound stock (out of 2,000) listed. I previously wrote about DWS in 2014.

Bounce towards a $1 is possible after it broke a five month downtrend this week.

Click to enlarge

Click to enlarge

The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

Sydney House Prices chart

The Australian Bureau of Statistics (ABS) this week released their quarterly Residential Property Prices Index for Eight Capital Cities for the March 2015 quarter.

Sydney Property Prices showing the collective price movements till March 2015. (click to enlarge)
Sydney Property Prices with EMA's
No opinions needed
Upon putting charts together for the capital cities about a year ago (courtesy of ABS data), it has been joyous to no longer need to listen to any noise, opinions or commentary on house prices, bubbles, interest rates, supply/demand, chinese investors, SMSF buyers etc.

Despite being a basic excel chart updated on a quarterly basis, the index price change and the data captures it all.

The price index and the moving averages will roll when they roll.

The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

That’s my Woolies

Three reasons to buy Woolworths (ASX:WOW) for atleast a bounce to the $30-$31 level?

1. Buy the news – On Wednesday, Woolies annouced CEO retirement and reduced earnings guidance
2. Today (Friday) it closed above the intermediate down trend which begun in February as shown on the daily chart
3. Completed five waves up to the $38’s which I nailed here, possibly completed five waves down this week as shown on the weekly chart

Daily chart (zoom)
WOOLWORTHS LIMITED daily 19 June

 

Weekly chart
WOOLWORTHS LIMITED weekly 19 June

Risk is a weekly close below new green up arrow. Risk less than a $1, Reward about $4 per share.

I suspect this call will be unpopular with the majority.

Update 25 June

Seems the call was unpopular. Price closed today back in the downtrend and below my line in the sand $26.50 as per the daily chart below. This means that the probability of a lower share price for Woolworths is now greater than it was just a few days ago. I closed my trade for a 72cent loss. Atleast groceries are getting cheaper!!!
WOOLWORTHS LIMITED daily 25 June
The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

Aussie Banks stopped going down?

The Aussie Banks may have stopped going down today by breaking their respective intermediate downtrends that started in April. A buy for me on ANZ, CBA and WBC today.

Westpac (ASX:WBC) down over 22% from the top in April to the low of 5 June. Is price wrong at this level?
WESTPAC BANKING CORPORATION 16 June
 

Commonwealth Bank (ASX:CBA) if this can get to the gap fill at $90.57 by mid August, it is going straight to The Pool Room. Notes to self from April looking about right so far…A weekly close however below my uptrend (Green arrow on CBA) will render this wrong.
COMMONWEALTH BANK OF AUSTRALIA 16 June.
 

And, ANZ chart although not shown here is looking about the same with a small break of downtrend today.

Update 25 June
Took profit on 20% of my CBA at $87.40 (+$5.00 per share) to lock in some gains and also in case Greece talks aren’t resolved/concluded. Took a bit of profit off the table for ANZ and WBC too. Risk management is key. Still believe that $90.57 if not higher is achievable on CBA.

The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

Share Market Investing Protocol

Simple Investing RulesFive minutes a day in practice
Having spent more than three years investing and trading in the markets on a full-time basis to the end of 2014, I have used that experience to come up with some guidelines for myself that will give me the greatest chance of still generating excellent returns while only looking at the markets for about five minutes a day.

While, I have nominated an hour a day as an average time spent across a year, the practical side of my involvement will only see me check the market for about five minutes a day.

The majority of my accrual of my self imposed 365 hours per year will come from undertaking my fundamental analysis by valuing about 100 of the better quality stocks twice a year at the half yearly (February) and annual reporting seasons (August) over the weekends of these months.

For technical analysis, I will spend about an hour typically on a Saturday morning looking at charts on a weekly timeframe to determine possible buy or sell signals for the week ahead.

I will then do a quick review on a Thursday evening of these charts to confirm any of these potential buy or sell signals and act accordingly for five minutes typically on the Friday.
*As of mid June 2015, I have averaged one buy or sell transaction a week during calendar year 2015 to date using this protocol*

What stocks will I be buying?
The same high quality businesses I have been buying for years. Quality being based on:

1. Balance sheet strength
2. A history of consistently good cash flow
3. A history of earnings generating an above average return on equity
4. Stocks with a consistent history of paying dividends
5. The likelihood that these economic traits will continue into the future

**If these companies are good value and/or growth stocks even better**

What timeframe will I use?
Weekly charts

When will I buy?
When these good quality stocks stop going down.

When will I sell?
I will partially sell when these same stocks stop going up. That is, I will sell to a free carry position and leave the capital gain in the market to accrue dividends for free and take my initial capital back to put into the next opportunity.

In summary
Timing my entry and partial exit of good quality stocks on a weekly timeframe should do the trick.

A Time for the Inner Scorecard

The Edge7 and Edge Fund projects have been very much focused on presenting the Outer Scorecard. This Outer Scorecard has shared stock analysis, updated investment performance graphs, stock valuations and my general thoughts on many matters investing and the market over the last three years.

A Time has come where it feels right for me to focus on the Inner Scorecard.

So, I leave you with this passage from Ecclesiastes chapter 3 verses 1 to 8:

ecclesiastes3-1-8-11

This article is published by Dean Mico.

The ASX All Ordinaries Rocking Horse

rocking_horseThe ASX All Ordinaries closed:

October 28 2013 at 5437
October 28 2014 at 5434

Just like a rocking horse, in the past 12 months, the Aussie share market has seen plenty of movement but made no progress!!!

 

Daily Chart
ALL ORDINARIES INDEXdailyOct


Weekly Chart

ALL ORDINARIES INDEXweeklyOct

This article is published by Dean Mico.

The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

The Aussie – Where you at?

The Aussie Dollar is at an interesting juncture at the moment.

September / October correlation

International institutions in part were responsible for the fall in the Australian share market since September into October as these institutions sold out of Australian based assets and the currency with it.

With confirmation around mid September that international money was vacating the area, I have been watching the Aussie more closely than usual.

Threat vs Opportunity

A lingering threat to the Aussie equity market is the potential for a continuation of a falling currency.  If international money collectively decides to pack up its Australian bat and ball (so to speak) and find assets to buy off of our shores, than the risk is a lower Australian share market as a result.

However, this could set up a nice opportunity for locals to buy quality Australian assets (shares) at attractive prices in the intermediate term.

Weekly Chart
AUDUSD

Zoomed Daily Chart
The zoomed in daily chart shows Friday’s short squeeze.
AUDUSDshortterm

Crowded Trade Squeezed
Each of the currency traders I follow that cared to share via social media last week were all short the Aussie Dollar sometime between Wednesday and Friday morning of last week.  They were all seeing the same thing, a break to the downside of the triangle was imminent. Well the break down came albeit temporarily.  As quickly as the Aussie dollar broke down it moved back above support.  Surely upon confirmation of the fake break, many covered.

Interestingly, the currency also faked to the upside Saturday morning Sydney time before settling back inside the triangle.

The Question Remains
Which way will the Aussie dollar and potentially our share market move from here?

I suspect if those squeezed traders from Friday get the slightest hint that another wave of international money is leaving Aussie shores, they will be back for another try.

Either way, I will continue to give a little more credence to the Aussie Dollar for  clues about which way the Australian share market will resolve itself.

This article is published by Dean Mico.

The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

A case study of a great business with a history of paying dividends

At the Edge Fund, I especially like to buy a piece of businesses that demonstrate a history of paying dividends. And, it is even better if the trend of the dividend stream is rising over time.

Businesses that possess such a history of paying steadily increasing dividends do so because of the positive cash flow generated from the operations of the business. With ARB Corporation announcing a special dividend of $1.00 per share this week (when share price was $12.30), that seemed a good enough reason to highlight why businesses with economics such as ARB Corporation make great long term investments.

ARB Corporation (ASX:ARP) – Quick case study
Do you see a correlation when comparing the annual total dividend with the glacial speed of the yearly price chart?

The Yearly Chart
ARB CORPORATION LIMITEDyearly

Dividends Paid since 2004

Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Total Dividends 9.5 cents 10.5 cents 11.5 cents 13 cents 15 cents 17.5 cents 19.5 cents 24 cents 25 cents 28 cents 29 cents
Special Dividend 20 cents 40 cents $1.00

Time is the friend of a wonderful business
The correlation between rising dividend payments and rising share price in this instance is quite easy to see.

At the Edge Fund, I am continually assessing Australian businesses looking to find those with characteristics like ARB Corporation. That is, businesses that have investment characteristics that make them safe, reliable and profitable over time.

This article is published by Dean Mico.

Disclosure: The Edge Fund owns shares in ARB Corporation.

The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

Northern Star Resources Limited (ASX:NST) – Just an observation really

Northern Star Resources Limited (ASX:NST) is an Australian gold producer. The company has recently expanded from operating one very high-grade low-cost mine producing around 80,000oz gold per annum to a business that now operates four mines with a production profile in excess of 500,000oz gold per annum.

Paulsens
Paulsens the original mine contains gold mined at ridiculously high grades resulting in it being very profitable.

Management
I first researched this business in early 2012 and was immediately impressed with the CEO Mr Bill Beament. A couple of presentations watched online showed an extremely articulate and well organised individual. And the knowledge about his mine and industry was easy to see. The message presented at the time was about maintaining profitablility, spitting out cash and keeping things small and simple.

Acquisitions
Northern Star has made four acquisitions in quick succession since the end of 2013.

  1.  December 2013: Plutonic acquisition
  2. January 2014: Kundana acquistion
  3. January 2014: Kanowna Belle acquisition
  4. May 2014: Jundee acquisiton

With the acquisitons came a new message about being a ‘global mid cap miner’ that appealled to ‘international investors’. Upon reading this change of direction, what immediately stood out to me was a phrase known as the institutional imperative.

Institutional Imperative
As human beings, it is easy to understand the motivations for each of us to strive for bígger, better and more. Warren Buffett coined the phrase the institutional imperative in his 1989 letter to his shareholders which explains this human desire for bigger and better. It is a motivation which is hard to avoid. However, he also warned at the same time that when it comes to operating a business, bigger is usually not better. From Warren Buffett in 1989:

“the tendency of executives ….. to (make) acquisitions (that) will materialize to soak up available funds”

Is this case any different?
In studying this business since early 2012 and then being a shareholder in varying quantities in Northern Star since June 2012 until about a month ago, this is what I see in terms of the quality of the business and its profitability.

Year 2012 2013 2014 2015
Rank Gold 1 Gold 1 Gold 3 Gold 4
Profitability 56% 29% 19% 14%

*Forecast estimates of profitability are are subject to change on a daily/weekly basis.

In short, the maths suggests for the foreseeable future that a bigger business in this case does not produce higher profits or a better quality business.

The Chart
For now, the market appears to agree with my view about the effects of the institutional imperative being at play.
NORTHERN STAR RESOURCES LTD click to enlarge

Summary
Northern Star Resources has been an excellent gold mining business run by an intelligent manager. I do wonder if the company has bitten off a little more than it can chew with four acquistions in quick succession.

This article is published by Dean Mico.

Disclosure: The Edge Fund no longer owns shares in Northern Star Resouces Limited. However, my view is that this business has been the best gold producer in Australia over recent years and if I am ever to come back looking to own shares in a gold miner in the future, Northern Star will be my first port-of-call.

The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.