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There seems to be yet another discussion brewing of interest over on the iBC site. This particular one concerns “Value Investing.” The supporter of value investing is rather outnumbered by the traders. There are however some interesting points, which I am going to steal. The discussion has focused on LTUS a pharmaceutical company operating in China.

Josh Says:

Currently, TAST is a paper win and LTUS is a loss. I believe LTUS will be green soon.

I continue to look for better values. If I had found them, I would have sold TAST already.

If my investments rally to +33%, I will consider removing the capital.

In value investment, catastrophe chances appear to be the major consideration (rather than win probability). If I can read the fundamentals correctly, then I win when I buy them. However, if TAST loses its line of credit (recently reaffirmed), or LTUS turns out to be adding weird fillers to their pharmaceuticals, my fundamentals mean nothing. As far as I can tell, my risk remains low.

VIX to 30 is not a prediction. I meant it as shorthand for a consolidation period that ropes in longs.

November 29th, 2008 at 12:00:20 am

Josh Says:

The stock market can be wildly inaccurate. That is the basis of value investing. Continuing to mention stock price and volume does not change the company’s abilities. If you told me you have reason to believe LTUS is falsifying data, or that they cannot meet growth estimates, I would listen.

When I talk about risk, I refer to what the company is doing, not the stock.

I do not need LTUS to do anything in this rally. As I said, a consolidation period will give me feedback on my choices. Right now, there is only volatility.

I mention 33% because I could sell 3/4th, turn it into a zero risk investment, then move on to pick another.

I enjoy this site. I read it every day. It rarely contains advice for long term investors. You continue to give me advice for trading the market. I continue to say I am not trading.

November 29th, 2008 at 12:44:04 am

This is the meat of the argument from the value investor, Josh. The traders, weigh in with the following criticisms;

WeeklyTA Says:

1) You have some shit that’s $0.28 that traded 500 shares today. And you say your risk is low? Please. Don’t even call this a “value” stock. It’s a dumped penny stock.

2) You mentioned “below 30″ on the VIX. That’s not a consolidation point. That is a total breakdown, including a break below the 200-day MA.

3) “Even if my two picks turn out” is another gambling statement. Traders aren’t supposed to even be thinking that sort of nonsense.

4) “I believe LTUS will be green again”. Now you are ‘hoping’ and possibly praying later on. Save that for church.

5) You’re willing to remove capital only when you get a “33%” return. Another part of the gambling psyche. Where did the “33%” figure even come from?

6) If you’re a brand new investor/trader, and you’re buying stuff like #1 starting out, then you deserve to lose every penny.

Don’t bullshit me bro. Stop justifying shit and just listen to what people with experience are telling you.

November 29th, 2008 at 12:32:53 am

WeeklyTA Says:

You’re not listening. You should be asking a lot of questions, not blabbering all these stupid statements. I guess it all depends on your definition of investing. Trust me, you’re gonna be trading those penny bitches. You might not yet know it yourself. This is a trader’s market, don’t forget that. Ask a lot of questions and get some wisdom instead of trying to pitch some textbook shit.

November 29th, 2008 at 2:19:17 am

Yogi & Boo Boo Says:

Josh – Listen carefully to what WeeklyTA is saying. YOU’RE NOT LISTENING!

Just because you can post here does not mean you must. Please don’t take this the wrong way. Go get an education, then come back and and argue with Danny and WeeklyTA. These two gentlemen are in their analytical prime. They’ve presented cogent arguments in defense of their positions.

Statements like the following:
“It rarely contains advice for long term investors. You continue to give me advice for trading the market. I continue to say I am not trading.”

show a complete lack of understanding of trading/investing and insult a site that enables experienced and serious traders to exchange trading ideas and insights.

In the spirit of full disclosure, I happen to be positioned for a much longer duration bear market rally (both in time and price). So I have the “other side of the trade” of Danny, WeeklyTA, WoodShedder, and DevilDog.

I trade long term, so please don’t say there is nothing here for persons of the long term persuasion. EVERY long term position starts out as a very short term one. EVERY long term sale is executed EXACTLY in exactly the same manner as a short term sale.

BTW, what are you doing playing around with garbagio like LTUS? You will learn NOTHING from trading JUNK. Use an ETF, or if you want to trade individual stocks, on fundies, analyze the Dow 30 stocks. There are enough low priced stocks to satisfy your need for junk and action, as well as real values and balance sheets for an investor to take down positions.

November 29th, 2008 at 9:40:30 am

Woodshedder Says:

Josh, you’re missing something very important.

The fundies of LTUS do not really matter. It does not matter if it is trading at a discount to what you have determined is its true value.

The fact of the matter is that nobody wants LTUS. 500 shares traded on Friday.

The danger of your assumption is that you, and only you, have this ability to determine what is value and what isn’t.

Man, it isn’t that hard. It is not like you are privy to some information that no one else has. You have the same thing everyone else has. And do you really think that you are the only one on the planet who has noticed that LTUS may be a value?

The problem is that it appears that you are the only one on the planet who think LTUS is a value. Only 500 shares traded, when it is at or near 52wk low. Obviously, no one else shares your assessment.

So again, it doesn’t matter if it is a value or not, as there does not seem to be anyone else who is willing to bid up this “value” stock.

My advice to you is the same as it was last week. Start with a stock like X, or AA, or any of the stocks that have been knocked 80-90% off their highs. They will have participation from institutional investors, who are likely using the same metrics as you to determine value. Then, your work will be rewarded when the stock gets bid back up, instead of your $$ languishing in a name no one knows or cares about.

November 29th, 2008 at 11:23:22 am
Woodshedder Says:

I should add that investing is a multi-faceted game. One facet of the game is participation. You need to add a minimum volume filter to the stocks before you treat them to your analysis.

November 29th, 2008 at 11:25:31 am
Woodshedder Says:

Josh, one more thing. Also, I hope you continue to post here as I think these discussions are probably helpful for a broad group of folks.

You wrote:
“When I talk about risk, I refer to what the company is doing, not the stock.”

Josh, the stock price is the proxy for risk. How else is risk quantified in a given company, if not for the price of the stock?

November 29th, 2008 at 12:02:40 pm

I haven’t seen any analysis for LTUS from Josh, so really can’t comment on any analytical style that he may have employed within his valuation.

What I will do however is run the numbers on LTUS myself to get an idea of the valuation that I would place on this common stock.

I think we can simply dismiss the Yogi & Boo character and his comments quickly. Simply his understanding of a fundamental analysis is extremely shallow, thus we can discount his assessment. We can also dismiss “Weekly TA” as an empty drum beater. Thus we are left with “Woodshedder”

The fundies of LTUS do not really matter. It does not matter if it is trading at a discount to what you have determined is its true value.

Really? Why is that?

The fact of the matter is that nobody wants LTUS. 500 shares traded on Friday.

Really? Here are some holders;
Holder Name Shs Held $ Market Value %Out Fully Diluted Shs Rpt Date
Liu (Zhong Yi) 11,346,853 11,914,196 26.7 11,346,853 04-24-08
Song (Zhenghong) 6,772,483 7,111,107 16.0 6,772,483 04-24-08
Genesis Technology Group, Inc. 3,250,000 3,412,500 7.7 3,250,000 04-24-08
Tan (Shaohua) 3,170,304 6,578,381 7.5 3,170,304 03-25-07
China West, L.L.C. 2,589,358 2,175,061 6.1 2,589,358 01-08-08

The danger of your assumption is that you, and only you, have this ability to determine what is value and what isn’t.

This argument seemingly is thrown at every fundamental analyst at some point. That it almost invariably originates from non-fundamental analysts might provide a clue as to the usefulness of the argument.

Man, it isn’t that hard. It is not like you are privy to some information that no one else has. You have the same thing everyone else has. And do you really think that you are the only one on the planet who has noticed that LTUS may be a value?

The information however is not, and is never clear cut. The truth is almost always hidden under layers of accounting chicanery, both good and bad.

The problem is that it appears that you are the only one on the planet who think LTUS is a value. Only 500 shares traded, when it is at or near 52wk low. Obviously, no one else shares your assessment.

I think the 5% ownership disclosure has dispensed with that chestnut. I shall also have a look at this stock, who knows, maybe the number might rise to two.

My advice to you is the same as it was last week. Start with a stock like X, or AA, or any of the stocks that have been knocked 80-90% off their highs. They will have participation from institutional investors, who are likely using the same metrics as you to determine value. Then, your work will be rewarded when the stock gets bid back up, instead of your $$ languishing in a name no one knows or cares about.

Here I actually agree. The problem that hasn’t been mentioned with small capitalization stocks is that in a recession, it is their ability, through the strength of their Balance Sheet to survive the storm. Larger capitalization stocks, with stronger Balance Sheets tend to survive, this is an intangible value that is important in any analysis.

Josh, the stock price is the proxy for risk. How else is risk quantified in a given company, if not for the price of the stock?

Interesting assessment of risk. Incorrect, but interesting. Which carries more risk, paying $5 for every $1 of earnings, or, paying $0.50 for every $1 of earnings?

I’ll be following along sub rosa.

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