Tuesday, October 7, 2008

Latest Mr. Hsu's Performance

Original post date: August 7th 2008
Removed copyright content and reposted

Yesterday, August 5th 2008, Mr. Robert Hsu sent his $3.000 Asia Edge newsletter issue to his paying readers.

Since I know some of these readers I was able to read what was in the newsletter. Of course I cannot post here the copyright content of Mr. Hsu's issue. But I can tell you what he decided his paying subscribers should sell.

And, since I like charts, we can quickly analyze Mr. Hsu's performance. Remember: he was a former edge fund manager (although I would love to see the performance of that fund...).

Three sells for Mr. Hsu this week: RIO, CNQ and BNV.

A winning trade: RIO.

On March 14th 2007 Mr. Hsu told his paying subscribers: buy RIO while you can still get it under $36 ($18 adjusted for split).
RIO went up to over $25 (still split adjusted) in July 2007 (+38%). Then it went under $20 in August 2007 (-20%). Then it started a fantastic rally until end of October 2007, reaching above $35 (+75%).

I would have set a stop at around $33 here.

Some sideway for a few months, back to under $30 on January 2008, sky-rocket over $40 in May 2008.
From the top on May 16th 2008 ($43.91) Mr. Hsu waited almost three months until yesterday August 6th 2008 to tell his paying subscribers to sell RIO, that closed at a price of $26.68 (39% lower than the top).

Looking at the trend I would have set a stop at around $38-$40.

Anyway, Mr. Hsu closed this winning trade with a profit of

$26.68 - around $18 = let's say $9 per share that is more or less 50%.

Well done Mr. Hsu. Let's have a look at some numbers now.

  • Mr. Hsu gain: 50% in some 17 months.
  • My 1st stop loss ($33 - gain 83%) violated on November 2008 (8 months).
  • My 2nd stop loss ($38 - gain 115%) violated on June 2008 (15 months).

Let's calculate the Annual return rate now (if I am still able):

Rough Annual Return rate is: (1 + period return rate) ^ (12 / period in months) - 1

  • Mr. Hsu: 33%
  • 1st stop: 147%
  • 2nd stop: 84%
What I actually did was buy in August 2007 at around $22 and sell in October 2007 at around $33.

But not all of Mr. Hsu paying readers bought RIO at or below $18.

On May 16th 2008 Mr. Hsu was writing to his $3.000 paying subscribers: continue to buy RIO when it is below $40. Maybe some of his readers really bought RIO in May 2008 at around $40, just to sell it 3 months later at $27 for a loss of over 30%.

It is time to look at CNQ

On June 11th 2008 Mr. Hsu was writing these words about CNQ:
  1. Investing In The Future
  2. Strong Financials
  3. I like Canadian Natural Resources because of rising crude oil prices and the company's strong growth potential. The stock has been rising sharply in the past two months.
  4. I want you to buy CNQ on pullbacks under $110.
  5. I'm targeting $150 by the year-end, which would give us a nice short-term gain of about 40%.
Now, my beloved chart:

As you see, Mr. Hsu's point 3 is very true: The stock has been rising sharply in the past two months, going from $60 to over $100, more than 60% in 2 months. Tech analysis teaches that usually steep trends do not last long.

A good habit is to immediately set a stop when an investor buys a stock. For a simple reason: we may be wrong. If the market does not go where we go, the the market is always right. Buying CNQ at, let's say, $100 would have been wise to set a stop at $90-$93. Mr. Hsu's investors would have lost 7% to 10% of their investment if they put a stop loss on CNQ.

Yesterday CNQ closed at $75.65 (-30% from the buy below $110 and quite far from the nice short-term gain of about 40%) and Mr. Hsu wrote The company will report earnings on Thursday morning, so I want you to sell CNQ on the earnings report.

Finally let's see BVN
  1. A Golden Strategy
  2. Silver: The Other Gold
  3. A Great Year Ahead
  4. The stock has been on a clear uptrend, showing its strong momentum in the current volatile market.
  5. I expect the stock to continue to do well for us in the coming months.
  6. I want you to buy BVN under $75.
  7. I'm targeting $100 in the next six months, which would give us a nice short-term gain of about 30%.
What to say? Let's have the chart talk.

First, it seems like rather than A Great Year Ahead, BVN had a Great Year Behind, moving from less than $20 to over $35 (split adjusted) that is a +75%.

As in the case of CNQ, a 7%-10% stop loss would have limited te loss of Mr. Hsu's paying readers.

On March 12th Mr. Hsu raised his "buy below" price writing
I want you to buy BVN on dips below $85 ($42.5 split adjusted).

On March 12th Mr. Hsu insisted: A strong Peruvian economy and higher gold and silver prices should continue to boost Compania de Minas Buenaventura's profits. The stock traded hit a 52-week high last Friday and it currently trading just a hair below that level. Buy BVN under $85 ($42.5 split adjusted).

But yesterday, a sad Mr. Hsu had finally to write:

Lastly, I think we should drop our Peruvian gold and silver miner Compania de Minas Buenaventura (NYSE: BVN). We added BVN to the Asia Edge portfolio in February as a way to play the increasing prices in metals. The company performed well along with other commodities, but in recent weeks it has sold off. (it was actually in a down trend since mid-March 2008...)

Partly to blame was its second-quarter earnings reported last week which, while impressive, was under par. Boosted by higher silver and gold prices, net income soared 571% to $122 million, or 48 cents per share, from $18.2 million or 7 cents in the same quarter a year ago. And revenue rose 15% to $216 million from $188 million a year earlier. Though numbers look strong, they were lower than the Wall Street's forecast. As a result, the stock sold off sharply. To cut any more losses, I want you to sell BVN.

Poor mr. Hsu (and poorer and poorer his $3.000/year paying readers) he bought at $37.27 (split adjusted) and sold at $23.65.

The ones who bought BVN at $37.5 (split adjusted) have lost 37%.

Those who bought at the new buy limit of $42.5 (split adjusted) have lost 44%.

I am going to leave you on these (in-famous last) words from Mr. Hsu: I expect the stock to continue to do well for us in the coming months. I'm targeting $100 in the next six months, which would give us a nice short-term gain of about 30%.


VetHost.com said...

Great blog! Are all your trailing stops 7-10%? Wish I did the same. Now sitting on huge losses on commodity stocks. At the same time, I'm happy gas and fuel oil prices are lower now. I might even be able to fill my 275 gallon fuel oil tank.

Anonymous said...

First of all, thanks a lot for your comment and plese invite your friends to my blog.

I usually do not use trailing stops.
I prefere to set a 7%-10% at once when I buy, then calculate new stop losses when specific events (overbought) happen.

E.g., when an overbought condition is found I update the stop to the new price minus 7%-10%. (actually I use an exponential moving average of minimum prices and a coefficient of variation to calculate the exact stop, but I might post my method here in future)

It usually works.

I am setting up a trading system that uses my rules and I think I will publish it by end 2008.

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