Red Electrica Española (REE)

Some notes related to Red Electrica Española (REE)

21 – November – 2019

Positive things found:

  • It’s a moat.
  • Protected by the government.
  • Defensive company with good fundamentals.
  • good dividend >5%, dividend growth 5Y 6,75%, so chowder rule >10%

Negative things found:

  • CEO is a politician that was minister and now they have given this role to him.
  • Hispasat acquisition is not in their core business. It looks like a protection move promoted by the Spanish government.

Actions:

  • Buy at 17,26€
  • Sell when RSI is over 70%
  • wait for dividends
  • Wait for a second short.

negative and positive skew tendency

One of the most interesting things that I read on Systematic trading by Robert Carver is the tendency that a trader can have when doing his transactions.

The concept

Basically when you are completing a long-short action (completed transaction), ideally you will have positive outcomes and negative outcomes. If you accumulate all these results and you order it, you will have a Gaussian bell. This bell will not be perfect, it will have different shapes.

The trader with negative skew, will have:

  • high number of transactions are completed positively, with small amounts of profit.
  • Few amount of transactions are completed in a negative way, but with high loses.

The trader with positive skew, will have the opposite situation.

It’s important to understand the way you make decisions, the results they return and identify the pattern of behavior you have.

Once done, you can identify the weaknesses of your behavior and then include some habits on your trades to be able to improve your trading in a systematic way.

I generally act as negative skew trader

For a negative skewed trader, there are ways to minimize the negative skew. The main ones are:

  • Use stop loss to cut the loses.
  • Use stop loss to not directly sell a stock but protect the minimum margin while you let it grow and grow.
  • Divide the longs in 2 moves, to decrease the average cost.

Other times I act as positive skew trader

And these times is when I use to manage better the capital that is involved in the trade.

 

 

 

Chowder rule

I have just realized about this guy named Chowder. He has a guidance method to guide your investments and create habits that enable you to increase the value of your equity.

It starts with basic rules and they increase their complexity with respect you go in deep.

Portfolio diversification

Use the Morning Star classification based on economic sensitivity and divide the equity as follows:

  • Defensive = 50%
  • Cyclical = 25%
  • Sensitive = 25%

High Total return

Chowder defines the concept of “high total return” that is calculated as follows:

High Quality Stock + High Current Yield + High Growth of Yield = High Total Return.

This total return you take the current yield, the minimum value of 3 years, 5 years or 10 years dividend growth and ideally the total return should be at least over 10%

Current Yield + Min(3 / 5 / 10) Year Dividend Growth = Total Return.

The 10% threshold is an initial threshold that can be increased depending on the market situation.

Compound Annual Growth Rate (CAGR) Calculator

He uses this calculator to define objectives: https://investinganswers.com/calculators/return/compound-annual-growth-rate-cagr-calculator-1262

 

General Mills (GIS)

Some notes related to General Mills (GIS)

1 – November – 2019

Positive things found

  1. Strong hand buying (Konkorde indicator)
  2. Cheap by fundamentals PE=16
  3. Stable volatility.

Negative things found

  1. Cyclical consumer business, now on the low side of cycle.

Actions:

  • Buy at 51,25$ (Done)
  • Take a look on the channel
  • Sell on 54$

15 – November – 2019

I have sold it at 52,36$. Why? because the McClellan indicator and the AD line was telling me that a bearish market was coming and I made the short decision.

Bad move. Why? Because I had a clear plan and I have changed it. I should have waited till the value evolved some weeks more as it was expected.

 

Texas Instruments

Notes related to Texas Instruments (TXN)

12 – November -2019

Positive points founds

  1. Fundamentals are healthy
  2. Management team buys stocks at the end of year.

Negative points found

  1. High volatility due to China’s issue with customs duties.
  2. Strong hand selling in the weekly chart (Konkorde indicator).

Lyft

This entry is a set of notes related to Lyft.

12 – November – 2019

Positive points found

  1. Strong hand is buying.
  2. Q3 data improves the date when Lyft will be profitable.
  3. Price < EMA 50
  4. Low debt company.
  5. Future cashflow value of the company estimated in 150$
  6. Individual insiders owns 5% of the company.

Negative things found

  1. Company losing money
  2. Market has low trust on companies as Uber, Lyft and others from same sector.

22 November 2019

I sold them on November 15th, at 43,34$, That Friday I assumed a bearish market and I sold them to protect that minimum margin. I was not patient enough.

O Realty Income, notes

This post gathers notes related to a long position I am working on O Realty Income (O).

12 – November – 2019

Positive things found

  1. Strong hand buying.
  2. SPX continues going up, waiting for a correction.

Negative things found

  1. Entry price over EMA-50.
  2. Very expensive PE > 60

Actions:

  • If price <EMA50 = second long.

Squeeze Momentum Indicator by LazyBear

Squeeze Momentum Indicator by LazyBear is a volatility indicator that I discovered in TradingView.

https://www.tradingview.com/script/nqQ1DT5a-Squeeze-Momentum-Indicator-LazyBear/

This is a derivative of John Carter’s “TTM Squeeze” volatility indicator, as discussed in his book “Mastering the Trade” (chapter 11).

Black crosses on the midline show that the market just entered a squeeze ( Bollinger Bands are with in Keltner Channel). This signifies low volatility  , market preparing itself for an explosive move (up or down). Gray crosses signify “Squeeze release”.

Mr.Carter suggests waiting till the first gray after a black cross, and taking a position in the direction of the momentum (for ex., if momentum value is above zero, go long). Exit the position when the momentum changes (increase or decrease — signified by a color change). My (limited) experience with this shows, an additional indicator like ADX / WaveTrend, is needed to not miss good entry points. Also, Mr.Carter uses simple momentum indicator , while I have used a different method (linreg based) to plot the histogram.