The STRIDE Blog

Optimised Buying Opportunities with the New Timing Engine

stride-optimised-buying-opportunities-with-the-new-timing-engine-socialWe all know the trick to successful investing is buying low and selling high. We’ve heard this phrase a thousand times and it's classified as common investing knowledge. Doing so sounds quite easy, but there is more to it than just buying low and selling high. It's all about buying at the optimal times.

When looking to buy stocks you should be searching for fundamentally strong businesses that are undervalued. A stock can be undervalued for a variety of reasons and still have great fundamentals. When the market fluctuates, it is important to buy shares that will swing right back from a dip and increase in value over the long term, rather than investing in a share that will fall even further.

When shares dip, you don’t want to buy high up on the down slope. Ideally you want to buy a share when it shows signs of recovery after a dip. By doing so you save yourself copious amounts of stress. Your returns are also much better, because you immediately start earning instead of losing any further. There is no point in buying a stock that shows no sign of recovery. Even though the business may be strong and will recover over time, you don’t need to put yourself on that emotional roller coaster.

Finding great undervalued stocks and determining the timing of its recovery after a dip is not an easy task. That is why we improved our STRIDE engine to do it for you. We believe in making value investing easy.

The New Timing Engine

At STRIDE we make a habit of actively improving our platform. During the last year we have been testing a new timing engine that does two things:

1. Helps us identify the upswing / recovery / momentum in a stock after a large dip.
2. Helps us find good targets that are already experiencing upward momentum and have not suffered a dip.

Unloved stocks making a recovery

The current STRIDE engine targets strong undervalued stocks and gives you a clear view of when to buy, however, sometimes the stock doesn’t recover for a long time. Holding on to a weak performing stock isn’t easy for even the coolest and calmest value investor. Ultimately you want to buy the stock just as it starts to show signs of recovery, which mean the stock is still undervalued and well under its consider buy price but showing signs of growth rather than further decline.

Below is the MSFT - Microsoft chart from September 2006 to September 2011. The light-orange blocks demonstrate where the current timing engine would make purchases and the green is where the new timing engine would make purchases. Remember, the rules are the same, the price must be below consider buy, all the scores must be in place, but instead of buying weakness, we are looking to buy recovery. If we examine this, we see the first purchase would've been in February 2008 at around $28. From there, the stock dropped another $13 (nearly 50%) before starting to climb. Most of this dive represented a buying opportunity under the current timing model, but with the new timing model, the first buy opportunity comes at the end of May 2009 at $20.

The benefits of the new timing engine:

  • It offers an additional upside of $8
  • It saves you 13 months of watching your share price decline and gives you opportunity to deploy capital on other rising stocks.
  • It ultimately offers the same great STRIDE-targeted company with better returns, less stress and it doesn’t waste valuable time.

stride-optimised-buying-opportunities-with-the-new-timing-engine-microsoft_

Good targets that are rising but are still cheap and meet all STRIDE requirements

Below is the TRU - Truworths International chart from November 2002 to November 2008. Again, the light-orange marking indicates the current timing engine and the green marking indicates the new timing engine. The interesting thing is how early STRIDE picked this business as a winner, but using our current timing engine, it waited for a drop in September 2006 before buying it at ZAR23.52. Using the new timing engine, it wants to buy this in April 2003 at ZAR6.15. The new model picks it again at October 2005 at ZAR18.83. The current engine then buys the dip in September 2007 at ZAR32.35 at where the new engine awaits some semblance of recovery and buys it at R26.20. Truworths now trades at over ZAR75 and pays an annual dividend of nearly ZAR4.

Again - this is the same great STRIDE-targeted company and any one of these purchases provides you with fantastic gains on this business. The new timing engine gets you in earlier on outright winners and buys the recovery of unloved shares.

stride-optimised-buying-opportunities-with-the-new-timing-engine-truworths

Interpreting the changes

Currently our three timing options looks like the following:

stride-optimised-buying-opportunities-with-the-new-timing-engine-current-timing-engine

  • Weak - Meaning timed to buy
  • Fair and Strong - Meaning the business is trading strong.

The new model will show the following:

stride-optimised-buying-opportunities-with-the-new-timing-engine-new-timing-engine

  • Falling – Meaning it is looking for recovery
  • Stable – Meaning it is stable
  • Rising – Meaning it is timed to buy

All the STRIDE scores, target lists and screens will take these changes into account. These changes will be active from the 9th of November.

We have compiled dozens of great backtests to show you the difference between the current timing engine and the new one. Our backtests have been run with $100,000 capital, starting in 2000 and buying $2,000 holdings of every business that comes up on the specific target list. If it has deployed all capital, it waits until $2,000 has been accrued before buying another share. All income and capital gains are re-deployed and it does not factor in taxes or fees (as these vary wildly).

stride-optimised-buying-opportunities-with-the-new-timing-engines-backtest-result

I think you’ll agree that these are fantastic results. It just show the major influence that the correct timing can have on your portfolio. With the combined benefit of reduced heartache and worry, more time to act and smaller target lists we are confident that this change will be one of the keys to happier investing.

Want to become a 3D Value Investor and enjoy 19.25% annualised returns? Learn how by downloading our complimentary eBook.

Topics: 3D Value Investing

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