LON:SOM | Trading To Improve Investment Returns - A Review Using Somero Enterprise SOM

27th Jan '22 by Revs8

7 comments 949 reads

One of my largest and most successful holdings is Somero Enterprises Inc (LON:SOM) . Over the last few months I have traded the peaks and troughs and it has been successful in improving the return on the holding. I share this example for interest and maybe to help some investors improve their returns.

Between 24^th Feb 2021 and 21^st May 2021 I gradually acquired the holding that I am comfortable committing to Somero Enterprises Inc (LON:SOM) over a longer term. I still hold a similar number of shares today (my second largest holding).

Since the 21^st May 2021 I have bought when it appears the share is being oversold due to sentiment and then I have sold again after sudden price rises, often driven by over exuberance (in my opinion). Sometimes my holding has varied depending on what else is going on in my portfolio. Since accumulating the initial investment, which I use as a base line, the holding has varied in size from 80% up to 140%.

The longer I have held Somero Enterprises Inc (LON:SOM) the more confident I am trading within my holding. I am also comfortable being overweight temporarily because the company fundamentals are good and the long-term trends are strongly positive. Trading has lead to a significant improvement in the return so I thought I’d share my experience as an example.

Example using Somero Enterprises Inc (LON:SOM)

The number of shares I had on 21^st May was very similar to the number I hold today. I had paid an average price of 390p for the shares and today they trade at approximately 550p. A gain of 160p or 41% in 8 months.

By trading the highs and lows, the gain in the holding has been increased to 60.6% (a 50% improvement in the return). The chart above shows my trades over time. Over the whole period I have bought approximately 223% of my current holding and sold 123%.

The 50 and 200 day moving average (dMA) and rising channel

Somero Enterprises Inc (LON:SOM) often finds support on the 50dMA and only once penetrated the 200dMA (very briefly). Somero Enterprises Inc (LON:SOM) is also in a rising channel. The share price relative to the channel helps to…

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AnonymousUser1822519

27th Jan '22

Revs. interesting method you have there that clearly works for you. I personally would find that number of trades in the 3 month period quite exhausting. I do day/swing trade the indexes (mostly Dow), and that can be exhausting as well so now I only trade long on a correction, which has just happened- doing quite well in fact.

For stocks though, due to commission costs, I wouldnt trade as frequently. If I found a quality stock and in the beginning of a strong trend, I would hold as long as the trend holds,i.e to let profits run. Trading in an out using trend channels could lead to misssing out on channel upside breakouts. I do on occasion trade contrarian quality commodity stocks in less than perfect trends though, such as SLP, as commodity price charts fortell their stock price charts.

I find the combination of day trading and stock trading complementary. I know I need some burst of action with day trading from time to time to get the juices flowing, and that activity helps me to hold on longer to stocks which can move painfully slow at times for me.

However, the best traders "Follow their own light" so each to their own.

Revs8

28th Jan '22

Hi GuyBrush

Thank you for the feedback.

The commission costs on trades are relatively small with AJ Bell £4.95 per trade. The figures above include trading costs. (Although they don’t include dividends which are significant for £SOM ).
Combining the RSI with the price relative to the channel reduces the probability of missing an upside breakout. (It’s always a probability at the end of the day).
If the RSI approaches a high (I trend the RSI) as the share price approaches the upside of the channel then there isn’t the momentum required to break out. Much more likely it is a top.
I agree that my method is for active investors, although the above example is an 8 month period so it is around one trade per week on average.

Thanks again.

rmillaree

I think there are certain stocks I would be happy holding or not holding and are probably perfect for such tactics - the obvious danger here is that you sell out and the price forges higher so let’s no fool ourselves that these cunning plans can’t leave you worse off than doing nothing. It does seem though that with some shares they do Bob up and down and therefore may present sn opportunity. Fevertree seems so be a similar one that has been bobbing up and down over the last year or so I sold out on recent spike but unfortunately have squandered money elsewhere so do t have the cash to buy back in - doh

Hi rmillaree

Thanks for your thoughts

Of course there are no foolproof systems and I agree some stocks are better for trading than others.

I’m always holding a significant holding in Somero Enterprises Inc (LON:SOM) just trading around the channel. The only way I’d sell out is if the price dropped significantly below the bottom of the channel.

Will look at Fevertree. Thanks again

lpreidster

Hi Revs8, good write up. I've tried trading this share, but the spread is always really wide on II. At the moment, bid at 530, sell at 550. I have used the MAs & RSI to trade other shares successfully that I have as long term investments also, such as Lloyds. Good to keep a small pot for trading.

Hi Ipreidster

You've hit on another difficulty in trading small cap shares. Somero Enterprises Inc (LON:SOM) price spread varies from 6% to 0.5% on AJ Bell. I have seen it with a spread of just 2p and as wide as 30p (the spread gives clues which way the price is going and the sentiment hidden within).

I'm a cyclist and I see the price spread as analogous with what happens in a peloton when there is acceleration or deceleration of leaders. When the share price is accelerating (up or down) the spread widens. When decelerating there is a concertina effect and the spread narrows (another clue for a turning point).

To give me a fuller picture I therefore combine:

1. Price relative to MA's and channel

2. RSI relative to past trend

3. Spread narrowing or widening

Even then its only a probability but it have worked for me in this case.

Hi Revs8. In hindsight, I think your strategy of trading around a core position is an excellant one. I'm aware that some market wizards use this strategy as it helps to manage ones trading positions and one now I will be using a lot more in trading stocks - i do this already with my spreadbets but oddly never thought about doing it with stocks, probably the spread and commission costs that put me off.

With trading around core positions, if I took an oversized position on a strong stock on low risk(price is near support or breakout level) and the stock rallied I may sell the excess to bank some profit. However I would be less inclined to add large amounts on the way up especially if its gone too far up as it raises the average costs, such that if the stock were fall sharply, I may be forced have to sell the entire position. Of course, if the trend changed for the worse that would be the right thing to do. I think that scaling in to a full position early on and reducing position gradually by banking partial profits on the way up(selling into strength) to selling all by the third or fourth base is my preferred strategy, rather than constantly topping higher up on pullbacks because of the higher average cost risk that would lead to as noted. If one is quick to manage risk then should have no issues though that may not always be possible with gap downs. Just my thoughts and opinions.

Thanks for posting about this topic. It's made me think about my own trading strategies. I'm far from being a market wizard, hopefully one day I'll get there :) I'm enjoying the learning on the way there, it never stops which is a good thing!

Trading to Improve Investment Returns - A Review using Somero Enterprise SOM

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Revs8

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