Lonmin – what I should have done

Wednesday, Sep 30 2015 by
6

I bailed out on platinum miner Lonmin a while ago at around 26p – a huge loss on my original purchase price of 173p. I see that Lonmin is now around 15.4p, which is a very significant further fall. My decision to sell looks “good” right now, insofar as taking a hefty loss can ever be “good”.

It is entirely possible, of course, that we are in a capitulation phase for resource stocks, and that bottoms are being put in as we speak. Or, it could be that the old adage “it’s never too late to buy, it’s never too late to sell” holds firm. I simply don’t know.

But I will tell you how I could have played this far better. It’s simply this: stop trying to catch falling knives. Just because something looks cheap doesn’t mean it can’t get cheaper. Way cheaper. I think it is better to try to catch a share on the rebound, when there is some market strength, rather than guess (and let’s face it, it is a guess) where the bottom is.

I have been thinking about how one might do this:
* use Stockopedia to look for near year-highs. You can create a screen where “% vs 52w High > -5”, for example. That should be close enough. 52-week highs have been shown to be a good proxy for momentum.
* just use the Stockopedia Value-Momentum screen for a list of candidates. The screen has an annualised return of 22.2%. What are you waiting for?
* look for shares that are in the top quintile for momentum over a 6-month period, but appear to have bombed out over a longer term, say 5 years. A good rule of thumb is that if a company has a relative strength of 20% or more over a 6-month period, then that should put it near to the cut-off point for the top quintile. As near as, anyway.
* look for shares on their 52w lows (e.g. at http://www.investorsintelligence.co.uk/uk-equities/uk-equities-52-week-lows/), and then set an alert on Stockopedia or IG for when it hits its 52 week high. That way, you’ll obtain a list of candidates that are “bombed out”, and then you just wait until they are in recovery mode.

None of this is guaranteed, of course; it’s just an approach for what is hopefully a better strategy than catching all the falling knives. It should definitely…

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Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. The author may own shares in any companies discussed, all opinions are his/her own & are general/impersonal. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


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Lonmin Plc is a producer of platinum group metals (PGMs). The Company is engaged in the discovery, extraction, refining and marketing of PGMs. The Company's segments include PGM Operations, Evaluation, Exploration and Other. Its geographical segments include The Americas, Asia, Europe and South Africa. The PGM Operations segment includes operational mines and processing facilities, which are located in South Africa. The PGM Operations segment's activities are integrated and designed to support the process for extracting and refining PGMs from underground. The Evaluation segment covers the evaluation through pre-feasibility of the economic viability of newly discovered PGM deposits. Its evaluation projects are based in South Africa. The Evaluation segment relates to the Akanani asset, which is located in South Africa and is in the evaluation stage. The Exploration segment covers the activities involved in the discovery or identification of new PGM deposits around the world. more »

LSE Price
75.6p
Change
 
Mkt Cap (£m)
n/a
P/E (fwd)
n/a
Yield (fwd)
n/a



  Is LON:LMI fundamentally strong or weak? Find out More »


1 Comment on this Article show/hide all

shauniekent 30th Sep '15 1 of 1
1

One of my lessons learnt, moving from well-read but inexperienced investor to a more battle hardened (weary) investor is to never buy on a clear down trend. Several times i've bought with conviction believing fundamentals to be compeliing, only to see the chart continue downwards. Why wouldn't it - chart doesnt care that i just bought in.

I think you may give up 20 - 50% of gains from the bottom by waiting for a base or a change in momentum, but in doing so you could easily save 50 - 98% of downside experienced right before hand :-) I may not 'like' the fact that momentum is important, but i've learnt to respect it.

Or if you believe a sharp turnaround is possible then i've learnt to drip into a position - as im trying to do with oil companies atm.
Shaun

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About Mark Carter

Mark Carter

I am a private investor living in Scotland. I am a computer programmer by trade.

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