BHP Billiton. The bird has flown, but never say never

I don’t know whether to laugh or cry.

Regular readers of Take Stock will know I placed a buy below price on BHP Billiton (ASX: BHP) of $30, hoping to pick up more shares in The Big Australian at a knock down price.

Yesterday, the stock hit $37, a far cry from my desired buy price. For months I’ve been confident that BHP will fall below $30, but for once, I’m now having serious doubts

All is not lost… BHP $30 is still a possibility

Still, it’s not all a big empty hole in the ground…

1) My family’s existing, long-held position in BHP has appreciated very nicely in recent weeks. In fact, since late June, the stock is up close to 17%. Not bad for a company capitalised at $195 billion.

2) I didn’t lose anything by not buying shares in BHP at say, $31. Sure, there’s an opportunity cost, but there’s an opportunity cost in every investment… from term deposits, to property, bonds, fine wine, stamps and stocks. I missed buying Billabong (ASX: BBG) too… in the same period BHP stock is up 17%, Billabong shares have rocketed 350%. It’s no use crying over spilt milk.

3) Successful investors are patient. They wait for the stock price to come to them rather than chase it higher. Have the last few weeks materially changed the outlook for BHP? There still a potential iron ore glut ahead, given the new supply coming on stream in the coming months and years. And China’s future growth prospects are still uncertain. Bottom line — I still want a decent margin of safety before buying more BHP Billiton shares.

4) Market volatility is hibernating during this northern hemisphere summer. But like night follows day, and one Australian batsman quickly follows the other back into the pavilion, it will return. Although BHP $30 appears out of the question, in this stock-picking business, when markets wobble and irrational investors panic and sell at any price, never say never.

On that latter point…

Earlier this week, the chief analyst at one CFD provider gave me hope that I’d yet see BHP at $30, saying the ASX was set for a correction.

In The Age, the analyst was quoted as saying…

“From a technical point of view, the S&P/ASX 200 index now looks to be in a downward correction after peaking at 5118 last week. Near term support is at 4958 represented by a 38.2 per cent Fibonacci retracement of the rally from 4703.
Below that the 50 per cent retracement level coincides closely with the 50 day moving average at around 4900 and also looks a possible support level. Similarly the 61.8 per cent retracement is close to the 200 day average at 4860. Looking the other way, it would take a move past last week’s peak at 5118 to indicate resumption of the uptrend.”


All that mumble jumble, all the preciseness of the numbers, including decimal points, all for nothing, given the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has already moved “past last week’s peak at 5118.”


Yesterday’s correction is today’s bull market

Uptrend resumed. Correction cancelled, or perhaps postponed. BHP $40 more likely than $30. S&P/ASX 200 6,000 more likely than 4,000.

Or not.

Or until the next “Fibonacci retracement”, if that’s the correct terminology.

If you’re getting the feeling I’m not a fan of technical analysis, or charting, you’re on the money.

For one, they’re backward looking. It’s like driving by looking through the rear view mirror. It doesn’t work.

For two, looking at charts couldn’t be further from business focused investing, something we call Foolish investing. More on that a little further down…

For three, as shown above, short-term predictions are just as likely to be wrong as right. The above prediction of a coming stock market correction was spectacularly out of date in a matter of hours.

Beware of geeks bearing formulas

Pity the poor CFD trader who sold out on Monday hoping to get back in today, next week, month or year.

Or, more to the point, pity the poor CFD trader, period. Trading in those highly leveraged, high risk products is a one way ticket to the poor farm.

And then there’s the stress of it all… watching the Ashes is enough stress for me for one winter. Trading CFDs and watching share prices rise and fall would send me over the edge.

Although he wasn’t directly talking about charting, or CFDs, Warren Buffett did have this to say in his 2008 letter to Berkshire Hathaway (NYSE: BRK-B) shareholders…

“Investors should be skeptical of history-based models. Constructed by a nerdy-sounding priesthood using esoteric terms such as beta, gamma, sigma and the like, these models tend to look impressive. Too often, though, investors forget to examine the assumptions behind the symbols. Our advice: Beware of geeks bearing formulas.”

In case you’re wondering about Warren Buffett’s credentials…
Source: Forbes

As I mentioned above, here at The Motley Fool we’re business focused investors.

To give you a flavour of what we mean by that, below I’ve reproduced the first two of Motley Fool Share Advisor‘s eight investing principles…

Principle No. 1: Buy Businesses, Not Tickers.

This one is straight from the mouth of famed investor Peter Lynch, who generated 30% annual returns while at the helm of Fidelity’s Magellan mutual fund. At The Motley Fool, we buy into a company’s prospects, its future, and its management. We’re not interested in trying to divine value from a stock chart, and we don’t blindly invest in a hot industry. We prefer to put our money in companies that we believe will generate shareholder value over the long term.

Principle No. 2: Be a Lifetime Investor.

We’re long-term investors, and we view a long-term perspective as the biggest edge we retail investors have over a short-sighted financial industry. But we don’t just buy our stocks and forget about them. We keep tabs on them, follow the news, study the earnings reports, and strive to learn more about the industries. We also add money to our shares each month, so we’re continuously saving and investing.

If it’s good enough for Warren Buffett…

Needless to say, there’s no mention of Fibonacci retracements, Bollinger bands, CFD or forex trading or even the Ashes debacle.

At Motley Fool Share Advisor, we like to keep things as simple and as stress-free as possible…

— Buy good companies.
— Collect and reinvest the dividends.
— Add to your winners.
— Cut your losers.
— Invest for the long-term.

In my 25 years of investing, I’ve found it’s a formula that’s worked well, big winners for our family over the years including stocks like Commonwealth Bank (ASX: CBA), Woolworths (ASX: WOW) and Wesfarmers (ASX: WES).

I’m no billionaire, but if it’s an investing philosophy that’s good enough for Warren Buffett, it’s good enough for me.

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Of the companies mentioned above, Bruce Jackson has an interest in BHP Billiton, Berkshire Hathaway, Commonwealth Bank, Woolworths and Wesfarmers.

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