…All the graphs used that You can look at are in logarithmic base. In other words, if You pick up any portion at y-axes and take it as an unit, then equal portion of y-axes corresponds to equal profitability. I will discuss another time at another place, but it is important to understand the graphs. Many times somebody shows You graph that looks very pretty, but if You seriously analyze the data involved, You can find deep problems up there. Data and perception manipulation are phenomenon itself, I will return also to this idea another time. However, the purpose of this series of articles is correctly to show You, what is really possible to achieve, if You remain disciplined.
The second drop down was also difficult, time consuming and there were no lights to count to. That time, everybody was trying to sell-off all Fannie Mae and Freddie Mac stocks. It became new fashion wave. Despite huge problems of market, I did believe that the real estates will stay on place and not evaporate. It might take very long time to recover. I was already advised by own experience, that it is necessary to review all information available with respect but keeping own point of view. When massive market pressure to sell-off these stocks arose, I simply held it as long as necessary and softly supported on downside expanding existing positions. Market proved my theory true and later on these stocks were growing in necessary extent so that not only clearing the loses, but generating profits. But already I did not want to count on financial sector solely and was actively searching for additional stocks.
Ideas were as usually simple and easy to implement. My best experience showed me, that any prediction is only prediction and always might happen something unpredictable what changes the game. Virtual funds at Marketocracy are subject to obvious rules for mutual funds as defined by SEC. So You can not invest any portion of fund to some stock. You have to follow obvious rules, fund managers know it, anybody else can simply read for example at SEC or open an account at Marketocracy, where all the rules are available. What is important, if the value of some stock grows, You can not extend the position as You wish, but only in conformance to obvious rules.
This is dramatically other story, when the stock price falls. If You hold for example 8% of fund in one stock and this drops down 75%, You actually hold only roughly 2% of fund in these securities(illustrative, not exact numbers). Now if You extend existing position, You need not to break SEC rules for mutual fund and simply extend position to for example 5%. Then You carefully and patiently wait until market gets to the former positions, but actually You have not 8% but roughly 20% of fund in this stock.
This simple idea is exactly what I have developed up to concrete numbers. The numbers here are only for illustrative purposes and in general I am not going to reveal my obvious thresholds of legibility. These are subject to specific know-how.
Now You know, how I was going to carry out buy side, just it is not clever enough what I wanted to buy. The idea was, that as the production will develop, marketing and business will need obvious advertising channels again. Thus it was possible, that these traditional and new developing advertising channels will grow dramatically. I have studied many available resources on this theme. The point of view was and still is changing. However, there are some predictions what we can count on at this field. Paradoxically, the televisions were already the worst advertising channel. Internet already was one of the best. The radios were relatively down, but were equipped by huge growth potential. After some evaluations and information collecting I realized, that the best one at that time was Citadel Broadcasting. This company was in financial fears. As I could analyze from data available and public information, it was probable that nor this company will fall at all, nor will offer unusual investment dynamics. The last point, that made me believe in this company was management systematically working on broadening own networks of radio stations. However, the success was not 100% sure. As Citadel Broadcasting was falling in value of stock I was systematically buying and extending positions.
I expected, that this company will firstly slowly grow and later on will offer next exponential rally for DMF fund. But reality was other. One day company Cumulus Media(CMLS) merged Citadel Broadcasting under publicly acceptable conditions. Great moment! You suddenly need not to wait many years but the goal steps up right to Your arms.
This merger You can recognize instead of long-time lasting rally or slow growth as a skip-up at following graph.
It is time to discuss more how to evolve the fund after this less frequent moment.
And this is exactly what we will discuss next time…
(To be continued)