Yes, they have your data (because you gave it to them!)

Friday, 23 March 2018
Melbourne, Australia
By Kris Sayce

  • Why so surprised?
  • How building a watch list can make you a better investor

Today, we have a special guest essayist — Ryan Dinse.

Ryan offers a few tips for how investors can become better investors. In many ways, it’s perhaps not as hard as you may think. Arguably, it’s common sense.

Details below, including details about a brand new and exciting project that Ryan is launching with us on Monday. This is something you won’t want to miss. Again, details at the end of Ryan’s essay.

Before that, let’s check out the markets…

Markets

Overnight, the Dow Jones Industrial Average fell 724.42 points, or 2.93%.

The S&P 500 lost 68.24 points, or 2.52%.

In Europe, the Euro Stoxx 50 index finished down 52.85 points, or 1.55%. Meanwhile, the FTSE 100 fell 1.23%, and Germany’s DAX lost 1.7%.

In Asian markets, Japan’s Nikkei 225 is down 764.07 points, or 3.54%. China’s CSI 300 is down 3.03%.

In Australia, the S&P/ASX 200 is down 118.40 points, or 1.99%.

On the commodities markets, West Texas Intermediate crude oil is US$62.01 per barrel. Brent crude is US$69.58 per barrel.

Gold is trading for US$1,340.90 (AU$1,737.29) per troy ounce. Silver is US$16.63 (AU$21.55) per troy ounce.

Bitcoin is US$8,405.11.

The Aussie dollar is worth 77.18 US cents.

Why so surprised?

We’ll hand over to Ryan in a moment. Before we do, we can’t ignore what has gone on in the markets over the past few days.

First, there’s the Facebook Inc. [NASDAQ:FB] issue.

In truth, we find it hard to be angry or surprised. What did folks think Facebook did with all the data willingly and voluntarily provided to it under the guise of ‘apps’? Did they think Facebook printed it all out and locked it in a safe?

Did they think they just deleted it all, or didn’t even store any of it to begin with?

Of course not. Facebook sells the data. By selling it, we mean that they allow advertisers to select potential audiences based on criteria held by Facebook.

Folks have willingly handed over personal information to social media websites for the past 10 years. Personal info, photographs, even ‘checking in’ to let the website and ‘friends’ know exactly where they are.

One of the reasons you’re currently subscribed to a Port Phillip Publishing newsletter is because you’ve come onto our mailing lists by clicking on an online ad. Most of our customers come to us via Google or Facebook.

We use their advertising platform to select the demographic we would like to see, see our ads. We exclude those we think are less likely to be interested. That’s why Google and Facebook complement advertising, and why their revenues and profits have gone sky-high in recent years. It’s a powerful tool.

And the idea that Facebook users should be outraged by what has happened, and that they should delete their accounts? Nonsense. Now, if they want to do that, fine. We just wonder where all the media outrage was after the 2012 US presidential election, when Barack Obama’s team boasted about their ‘micro-campaigning’ through social media.

Again, how were they able to do that without using personal profile data from social media companies?

So we can only assume that the outrage exists because the beneficiary of the data was the Trump campaign. Simple. That said, this along with the tariffs on imports from China, and higher interest rates aren’t doing much to calm the market.

That said, Ryan Dinse says that regardless of market turmoil, there is almost always the opportunity to make money from the market. Ryan explains more below…

Regards,
Kris

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How Building a Watch List Can Make You a Better Investor
By Ryan Dinse

No matter what the market is doing, there are always opportunities to make money.

Uptrends, downtrends, booms, busts…even boring sideways markets.

Even in individual sectors, there are times to buy and times to sell, despite what the market is doing in general.

That’s why a watch list is useful.

A watch list is a bunch of investments you know you could make money from when the right conditions present themselves.

By analysing an idea ahead of time, you’re ready to invest quickly if an opportunity presents itself. It is a proactive approach rather than a reactive reflex.

And it is a key way you can keep ‘bad’ emotional influences to a minimum.

Today I want to share with you how to improve your own watch list.

How do you know when the time is right to press the button? The time to convert an idea from the watch list into an actual investment?

‘If you like these stocks so much why not just invest in them now and wait?’ you might ask.

That’s a good question, and one I want to address first. Its answer is the key to maximising your investment returns.

Let’s think about how the speculative end of the market works.

I am choosing this sector as an example as there are a wider range of unknowns. This provides bigger opportunities for investors who are prepared.

But the principles are the same for any investment.

Good luck or good management?

The stock market always provides lots of good ideas and stories you can buy into.

Especially in the small and mid-sized company sectors.

Some actually go on to do great things. They fulfil their investment potential just at the precise moment you first discover them and buy into the story. You put some money in and watch them go up, up, and away.

I once met a 25-year-old bloke who’s first ever investment was in Triton Metals Ltd [ASX:TON] at 5 cents in 2014.

He watched as his $20,000 investment became $200,000 in just six months when the share price hit close to $1.

‘The stock market is easy,’ he thought.

He started a web blog advising others how to invest, broadcasting his ‘extensive’ thoughts after just six months of investing experience.

He refinanced his house to invest more into Triton at higher prices, turning a good (lucky?) investment into a bad one.

He told his family to do the same.

The stock is now back to 5 cents. He’s probably still in it. I know his blog gradually stopped after the stock fell from $1 down to 30 cents.

I hope his family didn’t take him up on his advice…

But this example is pretty rare.

Most people lose money first before they make money.

And that is not a bad thing…as long as you learn from it. Early success can breed false confidence, as my short lived investment guru acquaintance found out.

The tales of ‘overnight’ investor success are compelling enough to keep a lot of investors interested in all of the speculative opportunities, though.

You just never know which stock will turn out to be the next ‘big one’.

(And there will be one.)

Most of the time though, actual day to day business plans take a lot longer to play out in reality than news hungry investors and traders on the stock exchange have patience for.

Sometimes a good story fails in the short-term but succeeds in the long-term as the business gradually hits its goals.

Sometimes the opposite happens.

A stock rises quickly on a seeming breakthrough, only to fall back over time, leaving long-term holders sitting on losses that were once profits.

Both types of outcome create strong, negative emotions in investors. Emotions which often influence the decision making process.

The price you buy at is therefore crucial, as it provides an emotional feedback loop which affects your judgement.

And this buy price does not have to be just ‘the lowest price’.

Frequently, a stock can be a better buy at a higher price if it means that the business has achieved some fundamental goal crucial to its success.

When the charts and the fundamentals collide is the investing sweet spot.

The fundamentals tell you what to buy, and the charts tell you when to do it.

Which brings me back to the original question.

How do you recognise this buy point? This moment when a great idea turns into a (hopefully) great investment?

Well you need a framework to work off. 

And that’s what a watch-list provides.

Here’s what I do to build a watch-list of speculative growth stocks.

Big potential

First of all, I look for companies with massive potential to add to my watch list. Ones that could feasibly make at least 10-times your money if it all goes to plan.

To do this I build a rough profit model and look at a few key factors.

How is this company going to monetise the opportunity? How big is the potential market? Is the management any good? Who are the competitors?

I’m not interested in small gains as I know that my assumptions are always going to be imperfect. The 10-times figures provides a margin of protection from my own ignorance.

It might only make me five times my investment!

But if all looks good I move onto the balance sheet.

Low cash leads to corporate shenanigans

This is crucial to timing an entry point.

A company with no money in the bank, no matter how great its future prospects, will have to raise capital to fund its operations.

And unless you are in boom times, the share price usually drops pretty low to attract new investors in return for ongoing funding.

Management have their own salaries to look out for. So funding becomes their main priority. The share price at which funds are raised is a secondary consideration.

Incidentally, management can always issue themselves new stock options at a lower share price later on.

So they win either way, as long as the company gets funding…at any price.

But don’t think I am just being cynical…

Take a look at the behaviour of iCar Asia Ltd [ASX:ICQ] before it raised more cash from investors in August 2016.

It fell by almost 50% in the two months before the capital raising as the market knew it was running out of cash. And the raising price was 32 cents. So the price dropped quickly to 45 cents pre-raising…and then down to 20 cents post raising.

Ouch!



chart image

Source: Incredible Charts’
Click to enlarge

But if the balance sheet is looking OK and the company has at least 12 months of cash to cover predicted expenses, the third thing I look at is the money flow from investors.

Go with the flow

Money flow is an indicator that I use to see if big investors and insiders are moving into or out of a stock.

You can use this indicator on entire sectors as well to see which industries are slowing down and which ones are starting to pick up in terms of investor interest.

This continual flow of investor funds can draw my attention towards new opportunities that are starting to get attention.

‘Why is the big money moving into bio-tech? Who’s on my watch list there…?’

This system has the benefit of not leaving stale money just sitting in an investment for years, even when you are right and it eventually comes good.

Early in my investing career I once held a speculative investment for three years. A small-cap miner sitting on a pile of cash with a big zircon mine waiting to be developed.

I calculated I could make 50-times my money once the mine was up and running.

Three years later, nothing had changed except I had $50,000 of wasted money just sitting there.

I missed out on a few good opportunities because of this. Eventually I sold out at a small profit and doubled my money six months later on in other investments.

(That company is still sitting at around the same price even today…and the mine has not been developed yet either!)

The cost of stale money can be very real if you are missing out on other opportunities. The money flow indicator helps me avoid this outcome.

Money flow also ensures you don’t overpay.

If a stock or sector is not getting any investor interest, stock prices can drop really low before buyers start to get interested again.

If you buy too early, you can still see a cheap opportunity fall a lot further before it picks up again.

If I like a bargain at $10, I love it at $5.

And that’s why you have a watch list.

A go-to list of research completed in different industries that you can quickly move into when the timing is right.

You can use whatever information you like, as long as you have thought about it in advance and know what you are waiting for to happen.

It could be a certain share price level, it could be a world event, it could be an announcement or it could be anything else that is going to be crucial to the company’s prospects.

Remember, it pays to be pro-active rather than reactive in investing.

And a good watch list can really benefit your overall investing opportunities.

Regards,
Ryan Dinse

Ed Note: On Monday, we reveal an exciting new project from Ryan Dinse. It has the potential to unleash his most profitable trading ideas yet. What’s more, we’re not talking cryptocurrencies. This new project involves making trades right here on the Aussie stock market, using your existing brokerage account. But, as with any new trading idea, you can’t just jump in. You must understand the process first. In order to do so, and to be among the first to check out Ryan’s new project, go here for details now. But be quick, this opportunity opens soon.