Posted by: JavaBeans December 29, 2012
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Good points from a viewpoint of a trader tyrannyoflogic.
However, for a long term fundamental investor there are subtle explanations:
Illiquidity - this depends on the amount of total capital available for investment in relation to trading volume - for instance, volume of 1 million shares trading daily (with a price of $10) might qualify the stock as illiquid if you have $1b to invest (given that stock is the only suitable investment at the time) whereas someone with $10K, liquidity isn't of concern. One of the leading factors of illiquidity is when greater percentage of shares are closely held and the float is only a tiny fraction of it. There are exceptions, of course, if the firm is not trading at all - the best course of action in this case would be to buy / sell via private placements.
Market - fundamental investors almost always disregard the market sentiment. The simple reason is that market price does not always value the firm accurately - within the economic cycle gyrations there are times of over and under valuations (there are many reasons for this but I wont' go into them here as they are too lengthy for our discussion). Most astute investors find that going long the undervalued firms and short the overvalued ones have more inclination to beat the market over the long term (and this is obviously not possible if the investor buys the market, i.e. long an index - on the flipside, 80% of mutual fund mgrs weren't able to beat the market last year - some of this is due to hindrance around mutual fund regulation and most of it due to the manager's stock picking skills).
Most fundamental investor's holding period varies from 3-4 yrs with 2 to 6 yrs at the extreme ends. A few technical indicators, such as moving averages, can be used before deciding to invest but they are not a deal-breaker or a required necessity - as long as the fundamentals have been checked off with a longer term investment outlook.
-JB
However, for a long term fundamental investor there are subtle explanations:
Illiquidity - this depends on the amount of total capital available for investment in relation to trading volume - for instance, volume of 1 million shares trading daily (with a price of $10) might qualify the stock as illiquid if you have $1b to invest (given that stock is the only suitable investment at the time) whereas someone with $10K, liquidity isn't of concern. One of the leading factors of illiquidity is when greater percentage of shares are closely held and the float is only a tiny fraction of it. There are exceptions, of course, if the firm is not trading at all - the best course of action in this case would be to buy / sell via private placements.
Market - fundamental investors almost always disregard the market sentiment. The simple reason is that market price does not always value the firm accurately - within the economic cycle gyrations there are times of over and under valuations (there are many reasons for this but I wont' go into them here as they are too lengthy for our discussion). Most astute investors find that going long the undervalued firms and short the overvalued ones have more inclination to beat the market over the long term (and this is obviously not possible if the investor buys the market, i.e. long an index - on the flipside, 80% of mutual fund mgrs weren't able to beat the market last year - some of this is due to hindrance around mutual fund regulation and most of it due to the manager's stock picking skills).
Most fundamental investor's holding period varies from 3-4 yrs with 2 to 6 yrs at the extreme ends. A few technical indicators, such as moving averages, can be used before deciding to invest but they are not a deal-breaker or a required necessity - as long as the fundamentals have been checked off with a longer term investment outlook.
-JB
Last edited: 29-Dec-12 04:46 PM