Jo'C's Fundamental Trading Journal of Joy

Jack o'Clubs

Experienced member
1,554 342
What is It?

Using fundamentals to give the trade direction, usually using basic TA (support/resistance) to define targets and stops. Typical R/R of 1:1, with the edge in a hit ratio of around 60%. I've trialled this for a while now and in practice I'm getting the expected hit ratio, and with slightly better R:R figures as it seems that if I get the fundamentals right positions usually run past my initial target, so should be decently profitable. 3% risk per trade, starting capital GBP50k. Instruments: mostly equities or indices, but other things too as the fancy takes me. The idea is to try and keep things relatively uncorrelated so I don't end up with too much beta - so match longs with shorts, vary geographies, etc. I'll try and keep fairly up to date (would normally expect two or three entries a week, but it might get quiet over June when I'm travelling for most of it).

Why Do It?

Full disclosure: this is paper trading only. Why? Because compliance rules at work prevent me from PA trading (ie no going short nor holding periods less than one month). That shouldn't be a problem as will use real prices + costs for entry/exit, and one thing I am good at is trading without emotion: it genuinely doesn't matter if the trades are real money or not in terms of my ability to decide on an action and execute (I've been doing this long enough to know that much is true). As positions will be held for several days usually, whether I'm a tick or two out from where I'd really be filled shouldn't make much difference. Starting 'capital' and risk are consistent with what I'd do in the real world if I were permitted to. Similarly I won't trade anything I couldn't do for real, so no Mongolian government bonds or Indian equities. I hope people might find this informative or useful, but my real reason for a journal isn't altruism, it's self-discipline and record keeping for myself.

I'll explain rationale, logic etc as I go along. Laters!
 

tomorton

Legendary member
8,058 1,180
Should add a nice variety to the site.

Fundamentals in detail have always escaped my but comparing your targets with charts, won't your strategy prove to resemble long-term trend-following (which I do enjoy)?

Will you use a chart for entry trigger points?
 

Jack o'Clubs

Experienced member
1,554 342
Thanks. On the first point, not necessarily - often fundamentals turn before the stock price follows so will be used as much for reversals as trend following. On the second, yes - I do/will use charts.
 
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Pat Riley

Established member
794 178
Well this a welcome breath of fresh air. What with Alexa starting a proper technical based trading thread yesterday and the Bond Bunny starting this fundamental based one today, we'll be havin some real grown up stuff.
 
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Jack o'Clubs

Experienced member
1,554 342
Ooh, the pressure of an audience! That's what I meant about my non-charitable intent, this should keep me honest. Thanks for the encouragement folks.

First up: Cochlear (COH AU), Long.

Interesting company - develops high tech hearing implants, sell side hate it and have been wrong for the last year or so, until April when it corrected on the back of US patent infringement suits and market tilt away from quality. The question is whether it is due a bounce. What's interesting is that the bear story has changed: until a year or so ago it was about cheaper competition, delays to new product cycles and lack of progress in its emerging markets expansion strategy. Then, as those issues started to be resolved, bears switched to 'it's too expensive'. If a year ago it could trade on 25x earnings with a host of structural issues which seem to have largely gone away, and after pulling back and earnings estimates moving up, its still on 25x PE, then that doesn't look too expensive to me. Particularly in the context of globally inflated multiples for healthcare companies as investors rush to QAAP (quality at any price). So the biggest risk going long here is a macro one: data over the holding period that would point to stronger economic growth either in Australia or globally that would tilt investors' preference towards cyclical value and away from 'expensive defensives'. Earnings estimates continue to tick up which is always encouraging when the street is bearish, competitor (Sonova) reported today with figures that suggest stabilising market share at Cochlear. Just to clarify something in the first post - starting funds are GBP50k, but I'm happy to gear that up bearing in mind my 3% risk constraint.

I'll leave a A$79 limit order overnight for 1,000 shares. Initial target $82.50, stop at $76. A$63.2 commissions if filled.
 

Jack o'Clubs

Experienced member
1,554 342
Cochlear up 5%+ overnight as it reacted to the competitor report I mentioned. Didn't get filled and I'm not chasing so scratch this one for now: plenty more fish in the sea.

Still, it makes the point that unloved stocks only need a sliver of good news (in this case a hint from a competitor) to react strongly. Ditto on the downside for popular stocks.
 

Jack o'Clubs

Experienced member
1,554 342
So we won a moral victory but only fired blanks on Cochlear.

Onwards and upwards : PPL US

Two major catalysts, a re-rating of its UK utility assets as US based investors realise i) self help restructuring will help cash repatriation which has been a weak point to date, and ii) that the future regulatory outlook for these assets is much clearer under the new UK government and US analysts start to update SOTP models with more aggressive valuations for the UK business when they see how UK utilities have re-rated post-election. As importantly, the spin off of Talen Energy on Monday will crystallise a transparent market value for this asset and since PPL retains a 65% stake, an uplift in the valuation of the parent. Valuations are not obviously cheap, but like Cochlear yesterday, these kind of assets have been bid up globally and it will take some very positive macro news to get them to derate now, while the dividend provides some support in a low yield world (4.4% divi yield).

Will look to buy around yesterday's close ($34.60) - first target $36, stop $33.55 (just below 50 day SMA). 1700 shares ($58,820), comms $8.50.
 

Jack o'Clubs

Experienced member
1,554 342
A really quick update here, so apologies for relative lack of explanation on what's supposed to be a fundamentals thread.

First, from yesterday, PPL never came back to the previous day's close so I'm assuming an entry level of $34.85 (VWAP). Other parameters unchanged.

Also entered two new trades today, first: short Turkey - I've used ETF TUR US. Turkey has had a real tailwind despite FX and current account concerns due to ECB easing, and to be fair, reasonable earnings trend helped by low oil and FX. But... it's also being assumed that the election results in June will be pro-market. While that's still the most likely outcome, its not the only one and Turkey risks being priced for perfection. In reality messy alternatives like hung parliaments are also a possibility. Other emerging markets, even when results have gone as expected, have seen governments struggle to implement reforms as quickly as the market had hoped. In local currency terms, the market is near all time highs. In summary the risk/reward looks negatively skewed. So short TUR US at 50.13, target 49.1, stop 52.

Also sell JPY. This is both fundamental (portfolio flows hitting record levels as domestic investors seek foreign yield) and technical - upside breach of 120. Entry at 120.93, looking for 122, stop just below 119.5.
 

Jack o'Clubs

Experienced member
1,554 342
Back to the yen. Basically there is a real tussle going on here on the short and long side, but for the time being I think the short side will win. Looking at the economic data Japanese portfolio flows represented 1.8trn Yen of equity investment (from investors and companies) and about half a trillion of foreign bond investment, with other bits and pieces this represented about 2.5 trn of outwards investment in March alone. While the current account surplus is the offsetting factor as Japanese companies repatriate cash, with the US likely to start raising interest rates this year and Japan showing no inclination to stop its own QE, the portfolio flows are likely to continue. If oil prices tick up any from here they will reduce the CA surplus further, driving additional yen weakening. While I've set an initial target of 122, and I'll reassess when we get there, my inclination would be to look for 123 before taking profits.
 
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Forexmospherian

Legendary member
39,928 3,299
Back to the yen. Basically there is a real tussle going on here on the short and long side, but for the time being I think the short side will win. Looking at the economic data Japanese portfolio flows represented 1.8trn Yen of equity investment (from investors and companies) and about half a trillion of foreign bond investment, with other bits and pieces this represented about 2.5 trn of outwards investment in March alone. While the current account surplus is the offsetting factor as Japanese companies repatriate cash, with the US likely to start raising interest rates this year and Japan showing no inclination to stop its own QE, the portfolio flows are likely to continue. If oil prices tick up any from here they will reduce the CA surplus further, driving additional yen weakening. While I've set an initial target of 122, and I'll reassess when we get there, my inclination would be to look for 123 before taking profits.
Morning Jack

Spot on with the Yen pairs and UJ now testing 122 87 after an approx 100 pip rise from the European Opens

I am intraday trading both UJ and EJ today - all purely on TA - but your FA certainly helped back up the assumptions

Nice one (y)


Regards

F
 

Jack o'Clubs

Experienced member
1,554 342
Morning Jack

Spot on with the Yen pairs and UJ now testing 122 87 after an approx 100 pip rise from the European Opens

I am intraday trading both UJ and EJ today - all purely on TA - but your FA certainly helped back up the assumptions

Nice one (y)


Regards

F
Thanks.

Out at 122.9. Looks oversold now, so it may go further (124?) but I"ll book this one. This seems to be more dollar strength driven than yen weakness, but I'll take the money anyway...
 

Jack o'Clubs

Experienced member
1,554 342
Time for an update, so far so good.

I exited the yen trade at 122.90, it was looking a bit toppy on RSI and I was decently in the money with it - fundamentally it may be good for 124 but things rarely move to fair value in a straight line, so happy to book profits on this one.

I also closed the short also Turkey (TUR US) at 48.40. Early on this one given how it's sunk since the open , but as I expected as we near the election there's increasing press (this time over the weekend) on how messy the outcome might be (coalitions, etc), and that and the stonger dollar took it's toll.

That leaves PPL US which is moving in the wrong direction on soft US markets, but two out of three is ok (three out of four if you include Cochlear, where I was a dick for a tick), and I'm still inside my stop loss there.

So in total, returns of £3,780, or 6.5% on starting capital.

Plus a new trade. Long 2,000 shares in CHU US (China Unicom) at $17.83. Ideally I'd have liked to have used the underlying HK line, but comms are too high so I'm buying the US listed ADR instead. Reasons for this one are related to flow (the ongoing liberalisation of Chinese financial markets is massively increasing demand for HK listed stocks from mainland investors) and fundamentals - by Asian standard the Chinese telcos are cheap, yet CHU has several distinct catalysts: i) demand for mobile data services fuelled by the new wave of sub$100 smartphones; ii) future regulatory attention is almost certain on market leader China Mobile to try and better distribute market share and improve competition and iii) CHU as a relatively small operator is disproportionately benefitted by plans for a national towerco that will improve coverage for all three operators. The shares have pulled back recently on worries about price competition (the government recently enforced a tariff cut), but the sector is still young enough that tariff cuts drive positive price elasticity. All in all, a cheap way of playing tech trends in China. Target $19, stop $17.30.
 

Jack o'Clubs

Experienced member
1,554 342
Nice to see Unicom up today in HK and the US ADR given generally weak Asian markets this morning.

New trade. This one a bit esoteric but can be done through IB, and since I have quite a bit of conviction on this, I would try and find a way of getting it on. Short Samsung Life Insurance. For some reason it seems to be hard to trade the equity, but SSFs are ok. So short the June expiry at 114,000. Stop 118,500, initial target 110,000 (but would probably let run). Bottom line is that Korea is a terrible market at the moment for life insurers, as their liabilities increase as bond yields fall. The business is in a really bad way unless you think Korea is about to raise interest rates, which it's not because it's already worried about keeping the KRW competitive with the JPY, to keep its exporters in the game. But, Sam Life has run up on expectations of positive restructuring of the group holdings to make sure the family stay in charge of the chaebol when the venerable Mr Lee passes on. One line of argument is that should have been positive for SLI as it realised stakes in other group companies, but the first leg of restructuring has just occured at another level in the group. That leaves SLI looking expensive given awful fundamentals, and not much likelihood of imminent M&A. Strong sell!
 
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