My reader, km703, pointed out yesterday that my sale of RTP might be premature. Let's see the end of day data. Price opened at $109.02. With the market now closed, Price is 113.82. I missed out on over 11 percent of gain. Obviously, km has acheived a level of Market-Fu mastery that earns my respect and encourages me to press on in my quest.
km 703, my friend, I hope you invested in the stock and kept every penny of that gain.
As I analyse my mistake, I see that I put more faith in the indicators, than in Price.
Ya might have noticed that throughout this blog, I capitalize Price. That is purposefully. In stock trading, Price is king. Whatever Price says is rite. If price is in an uptrend then there is no reason to sell.
On the other hand
When is Price not king? Is that even possible? Yes!
Before my readers think I am contradicting myself, let me explain.
I am holding several positions that are currently Priced below my entry point. There must be a reason that I am holding. That reason is intrinsic value. In my opinion, these stocks are likely to become profitable so the intrinsic value is greater than the actual value.
This can happen in many scenarios, I'll list a few that come to mind.
Fundamentally Undervalued: A companies potential to earn money is the basis of stock Price. If earnings and sales are good, and debt is reasonable and controlled, then there is a chance that current Price is below a fair value for the company.
Fundamental traders look for these gems and buy knowing that some day, Price will catch up.
Book Value: A companies book value is defined as the intrinsic value of the machines, real estate, warehoused stock, and such. Sometimes Book Value Per Share (BVPS) is below the actual stock Price. It can take a while, but sometimes Price catches up.
Short Interest: A company has been doing poorly in a poor market and Price has declined. Short traders have entered postions which, by definition, will have to be re-purchased some day. This short selling drives Price down even further.
There are stocks out there that would require days and sometimes weeks of buying (at average volume levels) just to cover the short positions.
I have made a lot of money on thess paradigms. and hope my readers do also. Especially you.