Graphs never tell the whole story.
What about stock graphs and what do I listen more to? Analysis and experience over or along with the graph? Some reflections on stock graphs.
As you all know I select stocks based on fundamentals, valuations, dividends and earnings growth prospects and this all based on good experience here. I also look at stock graphs to further evaluate my investor view decisions. I am time and again asked how much weighting do I place on such graphs....the answer is it just depends on how good or bad the graph looks to me. And of course some of that is the mind of the viewer. When I was younger I looked allot more at graphs but they were more difficult to come by then in the internet age. It used to cost over 300 US$ year in the 1980’s to get a monthly book with all the US stock graphs listed on USA’s NYSE and AMEX.
Graphs are somewhat important on the SET as the market here is ample sentiment driven and many locals trade based on momentum; meaning catching a stock which is moving already. The more there of such traders in a market the more one has to pay some attention to it as it will affect things. Traders always look at graphs and usually don’t know anything else about a company except its drawn out stock price history. Stock traders and graph junkies have all kinds of reasons/theories why stocks move up or down and when the price does not do what they said it would, its called a reversal.
Momentum and day traders are cheered by the brokers here as elsewhere as it creates transactions and so commissions. For the most part Thai marketing officers do not view themselves as wealth creators, instead they just see the job as making a living through inducing stock transactions. If one client trades more then another, that one is viewed better. Investor performance has little to do with it, if anything. It is viewed, if some time later the client looses part or most of his capital, that it was the stock markets fault, never the strategy, client or God forbid, the marketing officer. Stock graphs are so cheered by many and their brokers as they can create a false security along with inducing one to trade. They are also an excuse not to understand the company or its valuation. As a value investor stock graphs are so to be used very carefully -as you get the good with the bad. Surely when cutting losses a stock graph can be very helpfull.
Today I looked at MAJOR’s stock graph. If I did not know anything about MAJOR I would not like it at the current price of around 16. Its graph looks like a rounding top around 16 with recent inability to set a new higher price. Well, neither did the SET index. Yet, it looks fatigued and exhausted as if gravity itself wants to pull it down a few notches. Often a stock does not mark a top if it has a sudden fall after a rise, as it can easily recover and in time set a new high price. But when a stock has reached a certain price level -and then just sits around there for a while and then seems to slowly roll over, it can mean its simply exhausted and a further deterioration will follow. These rounding tops on graphs are often dangerous and one worries about a fallen angel to come? I do believe rounding tops are a sign of danger.
So in MAJOR’s case for us what is one to do?
Major is an important stock choice here for us which has worked well since my table pounding major report around 12.7 Baht per share in mid January. Here is that report original report:
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We know the company relatively well visited them and have done ample research. We know the Thai consumer sector is and remains strong and many Thai consumer stocks have had very good appreciation over say the past 12 months. The sector has a high p/e rating but likely deservingly so for some good reasons, not least that it has less then other sector’s global exposure. Yet as pointed out before, Thai ETF funds own very little of these as they are mid cap’s and away from glamour bank and energy big cap.s. We know with some good conviction MAJOR’s earnings will keep growing this year and next. The company has beat expectations year to date -and many analyst here now see 20 per share as the fair target price. This company is the absolute leader in what it does and about to embark on a road show to New York this week to tell their good story.
Alot of amateur investors like to brag about graphs as they don't understand the fundementals. Whenever an investor tells me he only looks at graphs in making decisions, I start wondering a bit as graphs are at best mostly a trading tool!
So for now, despite its unattractive MAJOR stock graph from a bullish point of view, in this case I am just sticking with my buy view. While holding my breath a bit -as the stock graph does look a bit worrisome.
Best Regards,
Paul A. Renaud.
