The Journey To Utopia, Tesla Style

Apr 23, 2014   //   by Profitly   //   Profitly  //  No Comments

Tesla Motors ($TSLA) had an outstanding year last year. It was up more than 350%, that’s outstanding even by Profitly standards where we have massive trades with huge percentage wins. Even so far this year it is up more than 30% while the S&P 500 is only up about 1%.

So should you still buy the stock or is it too late? That is a question that has come up quote a bit lately, especially when the stock fell below $200 this past week. That is seen as a key level for the stock, and Tim often points out that big, round numbers are often important. It’s also important to point out that stocks like Tesla are hard to value, since so much of it is based off of speculation for the future rather than hard numbers with more established companies like P&G or McDonalds.

There was a great post by Josh Brown of The Reformed Broker earlier this week titled, “A funny thing happened on the way to Utopia.”

Here is a chart that he made of the stock dating back to the beginning of 2014.

Tesla-Utopia

As you can see, there was a big spike on February 25. That’s because Morgan Stanley drastically raised their price target for Tesla to $320 from $153 that day. The analyst covering TSLA for Morgan Stanley is Adam Jonas. In his note, he said “Tesla’s quest to disrupt a trillion $ car industry offers an adjacent opportunity to disrupt a trillion $ electric utility industry. If it can be a leader in commercializing battery packs, investors may never look at Tesla the same way again.”

If you look at Profitly, there have been more than 3,000 trades on TSLA with 2,385 winners, 1,511 losers, an average gain of $663 or 13.19% and total profits of more than $850,000. The largest gain was from LX21 at $49,632 on August 29.

But Tesla is a lot like 3-D printing in that there is some speculation riding on the stock, which brings risk. If the company does in fact figure out how to store green energy at a low cost, then that is a complete game changer in the auto industry. And if they then master the self-driving car, that brings the Utopia. Here is a video link to the self-driving car concept.

Here is the chart that Morgan Stanley made for Tesla’s path to Utopia.

cotd-130

The analyst at Morgan Stanley went on to say, “Beyond the practical benefits, we estimate autonomous cars can contribute $1.3 trillion in annual savings to the U.S. economy alone, with global savings over $5.6 trillion. There will undoubtedly be bumps in the road as well, including the issues of liability, infrastructure, and consumer acceptance. However, none of these issues appears insurmountable.” He then suggests through various charts that the Utopia could be reached by 2026. We could see far more in terms of gains if this is the case, but Business Insider correctly points out that these types of comments from Wall Street are often signs that we are closer to the top of the market than the bottom.

Josh Brown also points out that “investing based on this kind of thing is portfolio poison. Because eventually, valuation matters. And once it does, wishes and hopes and wild-eyed optimism about the future begin to get discounted really quickly.”

Profitly gurus like Tim often point out that evaluating your risk to reward ratio before entering a trade will help you become more profitable. If you have an equal upside and downside, it probably isn’t a good trade. But if there is far more upside potential than downside potential, it is a great trade. With stocks like Tesla, you have to look for technical levels to evaluate where the stock may be headed. Sure, it could have a huge upside, but it has also run up a lot, as we pointed out in the first part of this post. So if you do want to buy this stock, do so when it is holding support, rather than when it is failing to break out of its resistance.

Use tools on Profitly like stock searches to find out what other traders are saying and doing. Are they shorting it, buying it, staying out of it? Then maybe you can connect with other traders that are looking at the stock and see what is catching their attention. Why are they bullish or bearish? Is it a technical pattern, news that just came out, or something else?  

Weekly Round Up: April 14-18

Apr 23, 2014   //   by Profitly   //   Best Trades, Profitly, Profitly Weekly  //  No Comments

Welcome to part three of our weekly Profitly guru roundup! We all hope you are enjoying these so far and are learning a lot from our amazing gurus and the trades/comments they are posting on our site! This was a shortened trading week because of the Easter holiday (markets closed on Friday), but that didn’t stop many of our traders from making some great trades.

Our winner this week is Tim. Get this, he had ZERO losers this week! Now that is smart and disciplined trading if I’ve ever seen it! Here are the highlights:

First he had a $2,538 profit on TGRO. He shorted 35,000 shares on April 14 at $0.40 and bought them back that same day at $0.32. His comments were: Entry comments: Shorting the failed morning spike, IB & my special broker, shares going quick, goal is to cover for 20-30% gains this week. Exit comments: Closed out TGRO short, captured it on live video but video failed to download as I’m on crappy internet in a NYC hotel, ah man really pissed, it was a great live trade video lesson, oh well, I’ll do a recap now, classic morning panic on 1st red day straight out of my DVDs, LEARN PATTERN #6 FROM MY 7 STEP PENNYSTOCKING FRAMEWORK DVD http://tim.ly/ts7steps gimme setup here, glad several brokers had shares to short too.

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Second, we have a $2,270 profit on NEON. He bought 35,000 shares on April 15 at $5.03 and sold them the same day at $5.10. Here are his comments: Entry comments: Risking a bit that this Seeking Alpha NEON story about being in HP printers and Apple’s new car system will spike this to the mid 5s http://tim.ly/1gASHIh all I want to do is make 40-50 cents/share, limited risk, but definitely speculative, be careful. Exit comments: Got a spike to the 5.20s, now 5.15 but not much more, tons of sellers everywhere…probably played it too safe, decent trade for a speculative buy, tough stock, tougher market, play safe.

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Last but not least, we have his biggest winner of the week, a $13,716 profit on SPLI. He had both a huge position size as well as a 30% gain in the stock price, so it was a perfect trade! He bought 636,000 shares on April 15 at $0.07 and sold them the next day at $0.09. His comments were: Entry comments: WAY off of its #wolfpack pumped up highs of 40 cents, nice afternoon breakout above mid-day resistance at .064, technical support at .05 so I’m risking a penny or so, upside is 10 cents/share so nice potential gain if I’m right that tomorrow is bounce day, othr weed stocks like ERBB have gone green, VERY small position $-wise though for me since this is speculative, learn my 7-step http://tim.ly/ts7steps rules, possible #5 pattern. Exit comments: Got a nearly 50% winner from my buy alert basically just holding overnight, PERFECT gap up play, maybe it goes more, but I’m happy with my profits, congrats to everyone, be sure to lock in profits though, great video lesson coming. 

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Then InvestorsLive and Superman pretty much tied this week.

We’ll start with InvestorsLive. The first winner he had this week was a $1,218 profit on SPWR. He bought 5,502 shares on April 15 at $26.67 and sold them the same day at $26.90.

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Second we have a $867 profit on SPWR. He bought 5,000 shares on April 15 at $26.49 and sold them the same day at $26.67.

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 Third we have a $816 profit on ORMP. He shorted 2,000 shares on April 14 at $14.76 and bought them back at $14.07 later that day.
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 Fourth, we have a $1,299 loss on INSM. He bought 6,250 shares on April 16 at $12.98 and sold them at $12.78 later that day.

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Lastly we have a $1,636 loss on BAS. He shorted 11,700 shares at $28.07 on April 15 and bought them back at $28.10 later that day.

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Even though Superman had an off week, he’s still up more than $600,000 year-to-date! That’s one of the biggest reasons that you can’t expect to make the same amount each week. There will be some weeks that you do really well and others where there just aren’t any trades.

Anyways, here are his big trades for the week. Let’s start with his big winner first. Superman had a $9,400 profit on UBIC. He bought 15,000 shares at $9.74 on March 11 and sold them on April 14 at $10.37. His comments were: Entry comments: UBIC DO NOT CHASE !! THIN AND VOLATILE ! SWING – this was a $8.38 1.1m float IPO with 3.4mm o/s recently announced a 10 for 1 forward split. They do BI / Big Data for Legal http://finance.yahoo.com/news/managing-big-data-challenges-legal-204212618.html. Exit comments: may go higher but played this wrong and glad to be back.

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Then we have two losers. The first is a $2,085 loss on PESI. He bought 5,000 shares of the stock on April 9 at $5.34 and sold it on April 14 at $4.92. His comments were: Bought on Chart strength but was weakened with overall market. May still work.

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Second we have a $9,436 loss on BOSC. He bought 7,100 shares at $6.58 on April 4 and sold them on April 14 at $5.27. His comments were: Broke Rule and held into earnings. Made tons of $ on this stock last year but bad example here. Follow rules not me as I broke a rule here and lost $. SO basically this was a scratch week.

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3D printing stocks: what is 3D printing and what is it used for?

Apr 18, 2014   //   by Profitly   //   Profitly  //  No Comments

Cube Colors 3D systems

Just last summer, 3D printing stocks were the hottest thing in town. Everyone wanted to know how to trade them and everyone thought they were going to continue to go through the roof.

But alas, they have taken quite the tumble recently. Investors are now thinking twice about buying into these companies that no longer seem to have the appeal that they once did. The last couple of weeks in particular they have been hit hard, as tech and biotech companies have gone out of favor.

“The 3-D-printing industry isn’t revolutionary, it’s evolutionary,” Andrew Left, a notable short seller and chief of Citron Research, told CNBC. “In a hot market like this, you get a good story. It just captures peoples’ imaginations, but in this case it also captures peoples’ dollars.”

Here are just a few examples, via wall street cheat sheet:

  • • 3D Systems (DDD) traded at $10 per share at the beginning of 2012, at $40 per share at the beginning of 2013, and it reached a peak of $97 per share. The company earned just $0.44 per share last year.
  • • ExOne (XONE) started trading in February of last year at about $30 per share. It reached nearly $80 per share last summer. The company is losing money, and it had sales of about $3 per share last year.
  • • Organovo (ONVO) traded at under $2 per share in 2012. It reached a peak of over $13 per share in 2013. The company has no revenues.
  • • Voxeljet went public in October of last year at about $25 per share. The stock quickly rose to $70 per share. The company has just a few million in sales despite a valuation that reached $1 billion.

Pretty crazy, right? Profitly guru Super_trades made two massive trades with 3D printing companies. One for a $94,613 profit and another for a $140,122 profit. Those are actually two of his biggest winners (although other trades were even more profitable).

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So let’s explain what exactly 3D printing is. A 3D printer is a type of industrial robot that can carry out an additive process under computer control. The technology has actually been around since the 1980’s, but these printers were not widely available until 2010, hence why they never really had much attention until recently.

What is 3D printing technology used for? Well, the big uses are prototyping and distributed manufacturing with applications in areas such as architecture, construction, industrial design, automotive, aerospace, military, engineering, dental and medical industries, biotech, fashion, footwear, jewelry, eyewear, education, geographic information systems, food, and many other fields, according to Wikipedia. 3D printing is a process of making a three-dimensional solid object of virtually any shape from a digital model. 3D printing is achieved using an additive process, where successive layers of material are laid down in different shapes. 3D printing is also considered distinct from traditional machining techniques, which mostly rely on the removal of material by methods such as cutting or drilling (subtractive processes).

Here is a video example of a 3D printer in action: https://www.youtube.com/watch?v=8aghzpO_UZE

So last summer, investors believed 3D printers were going to revolutionize manufacturing, as these companies had hopes of printing things like car parts, shoes, etc. Now investors are more weary, and the stock prices reflect that.

We are not saying whether you should or should not buy a 3D printing stock, we are just urging caution like we do with any stock. When people get carried away, they don’t look at things like earnings, sales, expenses, or growth prospects. They just view the companies as a “must own.”

You need to look for the companies that have more than just a story with hype, look for secured patents that aren’t expiring in the near future or pending and perhaps wait until the stock goes down a bit and then holds a support level so you have a good chance of “buying on the dip” especially since these stocks are known for their volatility.

So essentially, the upward run of 3D printing stocks can largely be attributed to hype rather than to an imminent revolution in consumer technology.

3D printer maker Voxeljet saw its stock price rally fivefold to $70 a share about a month after its October initial public offering. But the company sold 3 million shares for $15 each just last week, according to the WSJ.

Through last Thursday’s close, their stock had plunged 74% from its Nov. 18 post-IPO high. By some measures, the pricing was among the weakest for U.S.-listed follow-on offerings this year. The $15 price is 42% below Voxeljet’s close on March 27, the day it registered to sell the shares. Ouch. This is the perfect examples of why you need to be careful trading these stocks. It is also one of the biggest reasons you need to follow the gurus and learn how to trade before jumping right in to the stock market. You can be easily burned if you are not properly prepared.

 

The tool that will revolutionize trading

Apr 16, 2014   //   by Profitly   //   Features, Profitly  //  Comments Off

There have been some very exciting developments at Profitly lately! We have revamped a lot of the features on the site and added plenty of new ones as well. We are always looking for ways to improve our users’ experience as well as keep the site relevant and useful as technology is always changing and giving us more and more ways to help our users learn to trade.

tim wall

One of our newest features is a “wall” (example posted above) for all of the users and the gurus on the site. Now you can do things like give karma to posts and users that you like, comment on posts that you like, reply to comments on different posts, share charts and photos, and share posts and trades on your own wall.

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This is your social hub for all things trading related! Profitly has 42k+ traders and growing, so there is no shortage of people to learn from and talk about the markets with. It’s not easier than ever to build trading relationship, which are extremely important for both those that are just starting out as well as the more experienced traders. A newbie can learn from others and avoid making mistakes that they likely would have otherwise, and experienced traders can continuously remind themselves of the basics and continue to better understand trading by teaching others their techniques.

For example, user “Fat bee trader” posts a ton of charts that can be extremely helpful to people that have the same trading style as him.

.fatbee

By having the wall, you will also be able to interact with traders on the site or find other traders to follow. When you click follow, you will be notified when they post on their wall. You will also be notified when someone comments on your post or mentions you. You can click on a users’ link to see their wall, trades and other information they have posted on Profitly. This has made it easier than ever to help you learn how to trade and better understand various trading techniques. There is an extremely wide variety of traders on Profitly; from short sellers to options traders to long term investors. Now it’s easy to follow the ones that you want to hear from and block out the ones that you don’t want to listen to.

And last but not least, we’re sticking with the social trend and you can set up posts to automatically share on your twitter feed. That way, you won’t have to do posts twice and you will get more followers both on Profitly and Twitter. Before, just trades would be posted by most users rather than commentary.

 

Weekly Round Up: April 7-11

Apr 14, 2014   //   by Profitly   //   Profitly  //  Comments Off

Time for the second weekly roundup of guru trades on Profitly! Last week it was Superman that was the most profitable, but this week we have a new leader! It’s our very own Tim Sykes. Remember that we aren’t going to write about every single trade in this post, since that would be extremely boring. We are just covering the big, exciting trades that you all want to learn from.

Tim had a great week without any big losses but plenty of big profits. First up we have a $4,365 profit on MDBX (http://profit.ly/1MolQC). He shorted 4,000 shares on the 11th at $23.25 and exited his position that same day at $22.10. His comments were: Entry comments: Reshorted after the COO quit this morning, this tweet http://tim.ly/1kQCeiK meaning a new expose is coming likely next week; the stock took out 23.80 two-month support, goal is to make $1-3/share, same author who I shorted ICLD at 10.60 due to his expose before it dropped to the 6s. Exit comments: Got my $1/share goal, could drop more, but mid-day trades are scary, I only shorted because of that tweet that just came out about a new expose coming.

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Second we have a $2,050 profit on GOGO (http://profit.ly/1MokNn). Tim bought 5,000 shares of the stock at $18.45 on the 9th and sold it at $18.86 later that day. His comments were: Entry comments: As I said in chat I might buy given the contract with Air Canada today, this is at the bottom of its recent range, if it starts spiking on this news, it can jump $1-2/share quickly, good risk/reward although by no means a gimme given the chart pattern. Exit comments: Got a nice breakout past the day high and it could keep going, but I’m taking my nearly 50 cents/share and going as I don’t trust this stock, now 19 as I type this so played it a bit too safe again, but more important to teach u to buy contract winners on intraday dips.

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Third we have a $4,340 profit on MY (http://profit.ly/1Mok9W). Tim bought 65, 265 shares at $2.97 on the 8th and sold them the next day at $3.03. His comments were: Entry comments: Bought this earnings winner on afternoon consolidation 15 cents/share off its 3.10ish higher, goal is to sell at those highs or ideally if it can break it tomorrow morning in a spike like it had today, next resistance at 3.10-3.15 is 3.30ish so that’s my ultimate goal, cheap play in hot alternative energy sector, not gonna be a huge winner, but only like 5-10 cents/share of risk if I’m wrong given the news; price action. Exit comments: Got a puny gap up/morning spike so I play it safe and get out, no0w 3.06 so I played it too safe, it might very well spike more but it might not, I want to teach you to be methodical with your trades, go into trades with a thesis, if it doesn’t play out, get out and cut losses quickly….yesterday’s big spike was RIGHT at the open so no go today I’m out…congrats to those who get it.

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Last but not least, we have a $2,897 profit on ITKG (http://profit.ly/1Mojsn). Tim bought 75,000 shares of the stock at $0.34 on the 7th and sold them the same day at $0.38 for a nice 10% gain. His comments were: Entry comments: Added a short-term position on top of my longterm position on news today with Hanwha expanding their upcoming revolutionary plastic, LQMT gets all the press/rumors but this company has the big contracts, goal is to sell in the .40s. Exit comments: Stock spiked a bit, but overall market is VERY weak and smallcaps especially like YOD, SMSI, EKSO are getting wrecked…not the time to be speculative, taking safe profits here, still holding longterm position though.

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Next up we have InvestorsLive. The first trade we’ll cover is a $3,052 profit on ISR (http://profit.ly/1Mok61). He shorted 40,000 shares of the stock on the 7th at $3.22 and bought them back later that day at $3.14.

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Next up we have a $8,369 profit on PBR (http://profit.ly/1MokMj). He shorted 20,000 shares of the stock at $14.42 on the 8th and bought them back at $14 later that day.

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Third we have a $4,230 profit on FB (http://profit.ly/1MolOr). Nathan shorted 4,000 shares of the popular social network on the 10th at $62.86 and bought them back that day at $61.80.

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Then we have two losses. First is a $2,415 loss on BAS (http://profit.ly/1MokwC). He shorted 4000 shares at $26.70 on the 9th and bought them back on the same day at $27.29.

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And his second loss was a $8,917 one on FB (http://profit.ly/1MokwA). He shorted 17000 shares on the 9th at $61.10 and bought them back at $61.62 that same day.

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Last but not lease we come to Superman. He’s still averaging a $20,000 weekly profit over the past two weeks, so I’d say he’s doing pretty dang well. He had other stuff gong on this week and there just weren’t as many plays so he wasn’t trading as much. That’s smart since if you try to trade when you have too much going on in other parts of your life, you can easily step away from the computer and miss a key entry or exit point and lose money. Make sure you focus on your trades, especially if they are large positions. There is also a major lesson in this: some weeks there are tons of trading opportunities while others there are very few. Many people go into trading thinking that they will make roughly the same amount each week, and that is far from the case. For example: last week Superman made around $40,000, while this week he made about $1,000. I also remember a week around Thanksgiving where he made something like $100,000. You have to have patience in this business and let the opportunities show themselves rather than forcing trades.

Anyways, like I said he made about $1,000 this past week according to Profit.ly, and that came from this trade on VTNR (http://profit.ly/1Moiqy). He bought 10,000 shares at $7.32 on April 3 and sold them at $7.45 on Monday April 7. His comments were: Entry comments: TRADE – personal stop loss around 7 and i will sell if it goes against me ….personal target 7.75-8 plus if it keeps going…former watch list pick from 5′s. Exit comments: was underwater 6k and made small profit may very well still go higher as chart in play.

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What is “BRIC” and why should you care?

Apr 11, 2014   //   by Profitly   //   Profitly  //  Comments Off

Over the past five years, the average return for the funds in the Investment Management Association’s Global Emerging Markets sector was 65.7 per cent. They underperformed the MSCI Emerging Markets Index, which rose by 69 per cent over the same period.

Nothing new here, you might well think – the average active manager underperforms the benchmark, often owning so many shares that the fund becomes a “closet index tracker”, replicating the performance of the index but with the added drag of fees and dealing costs. Far from being a surprise, underperformance is a near-certainty.

You could avoid it by investing in an index fund instead. Had you bought a fund that tracked the MSCI EM Index you would indeed have fared better over the past few years.

But you would still have done significantly worse than if you had bought a fund that tracks a developed-world benchmark; the FTSE 100 is up by 102 per cent and the S&P 500 by 124 per cent over the same period. Faced with this experience, it must be tempting for investors to conclude that the assumption of superior returns from emerging markets is just plain wrong.

But the peak of disappointment would be if you had bought into one of the most popular themes of emerging market investing over the past decade and put money into a Bric fund. The acronym Bric was coined by Jim O’Neill, then an economist at Goldman Sachs, in 2001 and stands for Brazil, Russia, India and China. It was supposed to identify the four economic powerhouses of the future, and plenty of passive and active products have been constructed and promoted around it.

Surely few EM investments can have performed better than a Bric fund? Wrong again. First off, in economics BRIC stands for the countries of Brazil, Russia, India and China.

Why group all of these countries together? Well, they are all deemed to be at a similar stage of newly advanced economic development. Jim O’Neill, an economist at Goldman Sachs, coined the term in a 2001 paper “Building Better Global Economic BRICs”. The thesis of his paper was that the economic potential of Brazil, Russia, India and China is such that they could become among the four most dominant economies by the year 2050. These four countries are among the biggest and fastest growing emerging markets, and the term has continued to be used as a symbol of the seeming shift in global economic power away from the developed G7 economies towards the developing world.

They have taken steps to increase their political cooperation, mainly as a way of influencing the United States position on major trade accords, or, through the implicit threat of political cooperation, as a way of extracting political concessions from the United States, such as the proposed nuclear cooperation with India.

The projections for the future of the BRIC countries has quite the variance, however. Some suggest that they might overtake the G7 economies by 2027. Goldman Sachs has argued that, although BRICs are seeing rapid development, we shouldn’t see their combined economies eclipsing the combined economies of the current richest countries in the world.

South Africa later joined the bloc despite economists at the Reuters 2011 Investment Outlook Summit dismissing the prospects of South African success . O’Neill actually told the summit that South Africa, at a population of under 50 million people, was just too small an economy to join the BRIC ranks. But after the BRIC countries formed a political organization among themselves, they later expanded to include South Africa, becoming the BRICS.  On June 16, 2009, the leaders of the BRIC countries held their first summit in Yekaterinburg. Since then they have met in Brasília in 2010, met in Sanya in 2011 and in New Delhi, India in 2012.

Following O’Neill’s report, the BRICs received increasing attention. The FTSE BRIC Index is below:

Year-on-Year Performance – Total Return
Index % (USD) 2009 2010 2011 2012 2013
FTSE BRIC 50 94.4 9.1 -19.5 12.7 -2.5
FTSE All-World BRIC 99.5 11.7 -22.9 14.0 -4.1
FTSE Emerging 82.6 19.8 -19.0 17.9 -3.5
FTSE All-World 36.2 13.2 -7.3 17.1 23.3

 

As you can see, their performance in 2009 was absolutely outstanding, especially compared to the Dow Jones Industrial Average, which returned 19% that year.  But when looking at the other years, it hasn’t done as well. And this has caused many to leave these funds focusing on BRICs behind.

Even though it looks like the BRICs will account for almost a third of the world economy by 2020, up from 20 percent now, applying the concept to equity investments has proved less rewarding. In indices, there are just certain companies in those countries that are in the fund, so you can’t just pick and choose which companies or sectors within those countries that you think will do well and buy them.

So let’s go back and look at some returns. From 2001 to 2007, MSCI’s BRIC index returned over 500 percent, which was a significant outperformance versus emerging markets. Then, over the past 10 years, MSCI’s BRIC index has returned 450 percent, according to Thomson Reuters. That is outstanding compared to 320 percent on emerging markets and 98 percent on developed markets. But when you start digging into the data, you realize that much of those gains came from early on in the cycle, just like the table above for the FTSE Indices.

Over the past five years, the MSCI BRIC Index is up just 44 percent, which is underperforming both emerging markets generally and developed markets such as the US and UK.

Obviously, this has taken a toll since 2001, with the funds’ asset base being nearly cut in half from the peak in 2007 to around 12 billion euros, according to data from Lipper. There were also outflows of $1.1 billion from the funds in 2012, extending last year’s $5.4 billion loss, according to EPFR Global.

Comparatively, broader emerging funds still have plenty of interest, taking in $18 billion this year.

So is this the time to buy? No one is saying for sure, but with disappointing economic reports continuing to come out of China, you may think about putting your money in something else.

 

Earnings Season: How to Play It Like The Gurus

Apr 9, 2014   //   by Profitly   //   Profitly  //  Comments Off

Even though many of the Profitly gurus go by technical analysis rather than fundamental analysis, they love playing earnings. Why? Because stocks can become very volatile during earnings season! That means they will have bigger movements and there’s huge potential for profit. The stocks are also likely to move past technical levels like support and resistance, so trading on technicals comes in to play.

So what exactly do earnings represent and why can they cause such volatility? Below is a primer on earnings that comes from several websites including Investopedia and The Street.

First things first: earnings are essentially the company’s profits in a given quarter, so it comes four times a year. Think of it as their report card. Take their revenue from selling something, subtract all the costs to produce that product, and you have earnings. This gets more complicated once you dive deeper into it, but we’re going to keep it simple for this post. Earnings=how much money they make. The confusion often comes from terms that get thrown around like bottom line, net income, and profit. These are all synonyms of earnings, according to Investopedia.

So let’s talk about another earnings measure: earnings per share. EPS is a common ratio used by analysts when comparing companies. In order to get EPS, you take the earnings left over for shareholders and divide by the number of shares outstanding. Since every company has a different number of shares, comparing only companies’ earnings figures does not indicate how much money each company made for each of its shares.

Example:

ABC and XYZ each have earnings of $2 million. ABC has 500,000 shares outstanding while XYZ has 1 million outstanding. ABC has earnings of $4 per share while XYZ has earnings of $2 per share.

Before earnings are reported, analysts have estimates on what they think any given company is going to report. This is then compiled into a “consensus” that many look at as the target for earnings. When a company comes out with a number that is higher than the estimate, it is known as “beating estimates” or an “earnings surprise” and the stock usually moves higher (although guidance is a huge part of the report as well). If a company releases earnings below these estimates it is said to be an “earnings disappointment,” and the price typically moves lower. Earnings season is all about expectations, both for the numbers they report as well as the guidance for the future. One of the biggest mistakes people make is not paying attention to the future, and we’ll dive into that a little later.

When a company has cash from making money, it can do one of two things. It can improve products and/or develop new ones, or it can send that money directly to shareholders in the forms of a dividend or buyback. There are pros and cons to each. If they send the money directly to shareholders, you obviously make money, but it can also signal that the company doesn’t have anything better to do with the money itself (running out of ideas). So, more mature companies typically send out dividends or do buybacks, while younger and growing companies tend to reinvest their profits.

But as you dive into this report, keep in mind that because it is such an important document, and because it is released by the company itself, it is in the company’s best interest to present as rosy a picture as possible without violating any Securities and Exchange Commission (SEC) regulations.

So what are the different sections you’ll find in the report? First, take a look at the press release. Then, here are components of the quarterly 10-Q filing:

Part I: Financial Information

  • Item 1: Condensed Consolidated Financial Information
  • Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
  • Item 3: Quantitative and Qualitative Disclosures About Market Risk
  • Item 4: Controls and Procedures

Part II: Other Information

  • Item 1: Legal Proceedings
  • Item 1A: Risk Factors
  • Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
  • Item 3: Defaults Upon Senior Securities
  • Item 4: (Removed and Reserved)
  • Item 5: Other Information
  • Item 6: Exhibits

There are several ways to go about looking at this report. Some skip the financial data to read about management’s take on the market and the risks facing the company while others jump right into the numbers.

When looking at the financial information, keep the following questions in mind:

  • How did the company perform over the last quarter?
  • How did the performance compare to the previous quarter, or to the same quarter in previous years?
  • Have revenues improved or taken a hit?
  • Is the cost of sales increasing, meaning that it is more expensive to bring in revenue?

You’ll also need to get a feel for risks the company may face in the future. Check out things like legal proceedings. Outstanding lawsuits have to be reported along with a brief description of what the lawsuits are about. Also review Item 1A (Risk Factors). Information here will be detailed and straight to the point, primarily because this is a document filed with the SEC and companies have to be honest and forthcoming.

 

Weekly Roundup: Our Gurus’ Best Trades

Apr 7, 2014   //   by Profitly   //   Best Trades, Profitly  //  Comments Off

Welcome to the first weekly roundup of guru trades on Profitly! Now it will be easier than ever to see the big trades that gurus Sykes, Superman, and InvestorsLive are executing on a weekly basis. We’ll include both the wins and the losses, since Profitly is all about be fair and transparent.

Each week we will start with the guru that was the most profitable, and this past week it appears that Superman takes that spot. We aren’t going to write about every single trade in this post, since that would be extremely boring. We are just going to cover the big, exciting trades that you all want to learn from.

Alright, so let’s talk about the super hero guru on Profitly who is up $124,360.33 in the past 30 days. (http://profit.ly/user/super_trades/trades?filter=date:30days)

Starting out with a bang, we have a $46,674 profit on WATT (http://profit.ly/1MoiH1). Superman posts notes on many of his trades so you can get an idea of how he decided when to get in or get out of a position. Superman bought 10,240 shares at $8.75 on the Friday before this week and sold them on Monday at $13.32, which is a 52% increase in share price! He definitely earned his name with this one.

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Next we have a $6,025 profit on ATRM. (http://profit.ly/1MojGD) Entry comments: DO NOT CHASE LOW FLOAT HUGE SPREAD – history of runs, did odd acquisition but no immediate shares……personal stop loss 5 area personal target 6-8 if it works….small position. Exit comments: SUPER TRADE! He bought 3,500 shares at $5.55 and sold at $7.27 for a 31% gain, boom!

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Lastly, we have a loss. (http://profit.ly/1Moe5H) This is a trade he has been holding on to since the middle of March though, so it’s not like the loss was just based this week. It was just realized this week since he exited the position. This was a $9,400 loss on OBCI. Entry comments: SWING – personal stop loss 3 area ….personal target 4-6 plus if it works ..they said last year new product that kills all germs launched in Q1 or Q2 Aug 14 PR – Peter Dornau concluded, saying, “We are in the final stages of development of packaging of our new Performacid products. We have started initial presentations to several national chain retailers. As previously announced, we are on schedule for a first or second quarter 2014 full product launch.” Exit comments: out for loss for now will keep on watch I wanted more bullish statements from mgmt.. He bought 20,000 shares at $3.37 and sold them at $2.90.

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Second we have Tim, who also had a fantastic week and is up $44,812.23 over the past 30 days, according to Profitly. (http://profit.ly/user/timothysykes/trades?page=1&size=25&fromDate=3/7/14&toDate=4/6/14&filter=date:30days)

Earlier in the week he banked a profit of $6,236 on PSID (http://profit.ly/1MohyO). Tim posts entry and exit comments on each of his trades as well, so here are some notes that are extremely helpful and can help you learn how he decided when to get in and out of a trade: Entry comments: Buying this as it’s chipped away a big seller at .085 on news of a contract with US government contract, read press release http://tim.ly/1hUoRuR sketchy company, but it might really run if people read this news, good risk/reward, goal is to sell in the .10-.12 range, nothing huge but not much downside either. Exit comments: Sold for quick $5k+ profit due to this ridiculous villa not having great internet http://instagram.com/p/mLK3HkDVmB/ same type of problem as the $12 million yacht when we found EKSO, funny how these luxuries can’t have good wifi, this might still run but I wanna teach you to take profits when your trading environment isn’t ideal. He got in at $0.085 with 350,000 shares and out at $0.103. That’s more than a 20% move and he did this trade in one day!

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Second we have Tim’s big loss of the week. He took a $3,865 hit on YOD. (http://profit.ly/1Mohzi) Entry comments: Bought some ahead of earnings. Too many potentially exciting announcements possible later today after market close. It is definitely a risk, but the reward outweighs the risks, especially given the 30% drop off the highs. EXTREMELY SMALL POSITION GIVEN INABILITY TO CUT LOSSES QUICKLY. Goal is 6s or the 7s. This is true gambling as I will be flying during this trade. Exit comments: Cutting losses quickly as best I can from the airport. I broke my own rules about guessing on earnings and paid the price. Great video lesson coming. Tim bought 6000 shares at $4.86 and sold them at $4.21.

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Third we have his best trade of the week. (http://profit.ly/1MoiLk) Tim made $7,147 on VEND. Entry comments: Surprising earnings winner, PR says high est sales ever in March http://tim.ly/1e9nIi4 and 30%+ year over year growth, I don’t believe them, but the stock has gotten crushed and no real resistance until 5ish so I’ll dip buy, the beauty of pumps, they can bounce nicely too! Goal is to sell in the low to mid 4s later today and tomorrow. Exit comments: Got a little gap up/morning spike, but wall of sellers at 4.30ish, no thanks, got the 50 cents/share of upside I wanted, taking safe profits, good trade! Tim bought 24,023 shares at $4.94 and sold the next day at $4.24.

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Lastly we have another big win on WATT. Tim made $4,357 on this trade. (http://profit.ly/1Moiuq) Entry comments: Buying for end of the day spike/morning gap up/spike, this has gapped/spiked in the morning roughly $1/share every day, key breakout level is $15 so even if it only spikes 50 cents/share, it’ll be a breakout and should squeeze some shorts…even if it tops at 15 I have some decent 40 cents/share profits, GREAT risk/reward buying here, don’t chase it though, it moves quick, goal is to sell into a 50-75 cent/share spike. Exit comments: Sold PERFECTLY INTO MORNING GAP UP…trade couldn’t have gone any better…video lesson documenting the whole thing coming, this still might run, but there are big sellers everywhere so I’m taking profits and lockin it in safelyyyyyy, congrats everyone. He bought 12,000 shares at $14.62 and sold them the next day at $14.98.

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We’ll round it out with a great week from InvestorsLive as well. This guy is up a total of $112,005.65 over the last 30 days, according to Profitly. NICE! http://profit.ly/user/InvestorsLive/trades?page=1&size=25&fromDate=3/7/14&toDate=4/6/14&filter=date:30days

First we have a $7,852 profit on PLUG. (http://profit.ly/1MojRz) This was a one day trade as well. Nathan shorted 20,000 shares of PLUG on April 4 at $7.552 and closed his position at $7.15 later that day. Remember, when you short a stock, you want the price of the stock to go lower.

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Second we have a $3,001 profit on PLUG that day before. (http://profit.ly/1Moip9) This was also a short sell. He shorted 31,900 shares of PLUG at $7.84 and closed his position at $7.74.

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Third we have a $1,819 profit on GNK (http://profit.ly/1MojS1). This was yet another trade betting on the fall in the price of the stock. Nathan shorted 5,000 shares at $2.65 and bought them back at $2.28.

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Fourth we have a $2,229 profit in BIOF. (http://profit.ly/1Moip2) Nathan bought 10,200 shares of this stock at $6.50 and sold them at $6.72.

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Lastly, we have Nathan’s only big loss for the week. (http://profit.ly/1Moip0) WIN wasn’t such a winner for him, taking a $1,780 loss. Nathan bought this stock at $8.68 and sold it at $8.51. Too bad he didn’t short it like the rest of his great trades for the week. Oh well, still a great week where he earned more than the majority of people do in a month! Not bad!

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HFT – What is it? Why it doesn’t matter!

Apr 4, 2014   //   by Profitly   //   Profitly  //  Comments Off

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It’s the phrase that has been said more in the past week than in the rest of history combined, “high-frequency trading.” This seemingly unknown tactic has been around for several years, but it took a bestselling author such as Michael Lewis to write about it for it to get noticed. And seeing that some of Lewis’ previous novels have turned into movies, (see: Blind Side) perhaps “Flash Boys” will hit the big screen some day as well.

“Flash Boys,” as the book is called, was released this past Monday and came roaring out of the gate thanks to a headline grabbing 60 Minutes interview where Lewis claims the stock market is “rigged.” It gained even more attention after it was reported that the SEC and FBI are looking into HFT and there was this heated debate on CNBC (http://www.cnbc.com/id/101544772).

So what exactly is high-frequency trading? It’s very fast, computerized trading in the stock market used to get an advantage. Investopedia gives a in-depth definition as well as a laid out example:

A program trading platform that uses powerful computers to transact a large number of orders at very fast speeds. High-frequency trading uses complex algorithms to analyze multiple markets and execute orders based on market conditions. Typically, the traders with the fastest execution speeds will be more profitable than traders with slower execution speeds. As of 2009, it is estimated more than 50% of exchange volume comes from high-frequency trading orders.

High-frequency trading became most popular when exchanges began to offer incentives for companies to add liquidity to the market. For instance, the New York Stock Exchange has a group of liquidity providers called supplemental liquidly providers (SLPs), which attempt to add competition and liquidity for existing quotes on the exchange. As an incentive to the firm, the NYSE pays a fee or rebate for providing said liquidity. As of 2009, the SLP rebate was $0.0015. Multiply that by millions of transactions per day and you can see where part of the profits for high frequency trading comes from.

Lewis says in an interview on the Daily Show that stock exchanges in the United States sell the right to advance information to high-frequency traders. It gives them a couple of milliseconds of an advantage, and that’s enough to add up to billions of dollars over an extended period. “It’s an unnecessary Wall Street intermediation,” Lewis adds.

How exactly did we get here? Basically, the computers won. We used to use manual markets with trading floors and people, but now we have moved on to automated. The process has been going on for roughly the last 10-15 years. Now, there’s an algorithm for a pension fund for it to place its orders rather than a broker who would spend all day slowly buying 100,000 shares.

So now, what are the cases for and against this whole process? First let’s start with the pros. HFT has essentially made it so we don’t have to pay as much in commission when we buy or sell a stock. HFT will never cause you to pay more than an extra penny a share, so in the grand scheme of things it isn’t costing you a lot of money in terms of raising the cost of the stock you are trying to buy. Now on to the cons of HFT. Basically, this makes it possible that the markets are more fragile than they were before, since it’s all computers talking to each other and the quality control isn’t always there. Remember the “Flash Crash?” Lewis has said that we could see something even worse than the Flash Crash if we don’t do something about HFT, and he may be right.

Does it impact Tim and the other gurus? Not really. “HFT trade big-time stocks, I trade penny stocks, as I’ve said many times before my niche is like playing midgets in basketball, I don’t want to go one on one with Michael Jordan or worse some robotic all-star (to complete the HFT basketball analogy),” Tim said.

And is there anything that can be done about it? Well, Felix Salmon states in his Reuters article that Michael Lewis would like to see something done about it and welcomes the way in which the FBI and the New York attorney general are launching investigations into HFT. But Salmon says his feeling is that “if you want prosecutions, then law-enforcement should launch investigations — but that if you really want to fix things, then creating a highly adversarial relationship between HFT shops and the government is not going to help and is in fact almost certain to hurt,” and he has a point. The SEC had been looking at HFT since at least last year, and the firestorm that this book has set of may have simply done more harm than good by creating this conflicted relationship. Do you really think they will cooperate with each other now?

The Activist’s Strategy

Apr 2, 2014   //   by Profitly   //   Market, News  //  Comments Off

Activist investors have been popping up in the news a lot lately. Not only for targeting massive companies like Apple, but because guys like Larry Fink, the head of Blackrock, are speaking out against them. Learning about all types of investment styles and watching guys like the ones we’ll discuss in this post will help you learn to trade and become more profitable. One saying we love on this blog is “Knowledge is power,” embrace it and learn, learn, learn!

First, let’s make sure everyone knows what an activist investor is. According to Investopedia, and activist investor or shareholder is:

“An individual or group that purchases large numbers of a public company’s shares and/or tries to obtain seats on the company’s board with the goal of effecting a major change in the company. A company can become a target for activist investors if it is mismanaged, has excessive costs, could be run more profitably as a private company or has another problem that the activist investor believes it can fix to make the company more valuable. Private equity firms, hedge funds and wealthy individuals are types of entities that might decide to act as activist investors.”

Now that you know what they do, let’s talk about three of the most notable activist investors.

(All images via businessinsider.com)

CARL ICAHN SPEAKS AT REUTERS SUMMIT.

First we have Carl Icahn. “Uncle Carl” as they call him has attempted to make major changes at Yahoo!, Blockbuster, Time Warner and RJR Nabisco, among other companies. As of late, he has target Apple and eBay. As of this month, he is estimated to have a net worth close to $25 billion, according to Forbes. Yes, that’s billion, not million.

His business philosophy focuses on targeting a business that he believes is badly managed and whose stock price is under-valued. He’ll then secure a large ownership position to gain entrance for a position on the company’s board of directors. Not all activist investors work that way, and we’ll learn more about them later. Wall Street experts say that most of the time he is triumphant, since he is frightening and unyielding. He has been viewed as such a dependable gold mine that investment managers will buy the company’s shares, and whether Icahn is victorious or not, he does leave with vigorous stock price profits.

Carl has had his hand in almost every major story in corporate America over the last year, from battling with Michael Dell, making a killer trade on Netflix, continuing to fight with William Ackman over Herbalife, to lobbying for Apple to repurchase more of its stock. Shares of his publicly-trade Icahn Enterprises have climbed by more than 50% in the last year according to Forbes. Icahn’s investment fund returned 31% in 2013. Icahn’s brand of activist investing is as popular as ever. In August of last year he took to Twitter, setting both the Web and Wall Street on fire by announcing that he had acquired a large stake in Apple.

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Next up we have William Ackman, or Bill Ackman. Even though it doesn’t come close to Uncle Carl’s, Bill’s wealth is nothing to frown upon at $1.5 billion. Ackman is the Founder and CEO of Pershing Square Capital Management. At age 47, it’s unlikely this guy will be going away anytime soon, even if he has had a tough couple of years. Despite one of the biggest rallies in history, his hedge fund’s performance has been anything but impressive, up a measly 9.7% net of fees in 2013, while the market was up roughly 30%. The fund was weighed down last year by one of Ackman’s most recent targets: Herbalife, the nutritional supplements company. Bill has been shorting the stock and continues to believe it is a “pyramid scheme.” Shares of Herbalife were up nearly 140% in 2013, ouch Bill!

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Finally, we have Daniel Loeb. His net worth falls in between or prior activists at $2.2 Billion. Loeb is the 52-year-old Founder of Third Point, a hedge fund that manages roughly $14 billion according to Forbes. All three of our activists were playing Herbalife as some point. Loeb sided with Carl Icahn and bet on the stock’s rise for a short period of time. He sold at a profit. Another company that has been one of his targets is Yahoo, where he played a large role in a change on the board before getting out of his position with a large profit. Loeb’s flagship hedge fund posted net returns of 25% in 2013, better than Ackman but still trailing the market. In their defense, many hedge funds underperformed last year.

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