$100 in 9 Days

 

Welcome to another edition of 100 Dollar Club – the purpose of these case studies is to review the fruits of hard labour – and the best fruit is that initial taste of a winning trade, which I like to call, “$100 Dollar Club”, when you make your first $100 dollars.

 

This trade took 9 days to make it’s first $100 profit … not bad! But to be honest, this was a tricky setup.  Firstly, I love the narrow band; you can see how the price touched the top and bottom of the channel.  Also, the trend going into this band was textbook – each of the lows touching the trendline.

 

But what’s so tricky then?  The trickiness comes in the whipsaws within the channel.  You can se the fake breakout at (1) in early 2018.  Which many would have taken as a solid entry trigger – broke out of the resistance level and maintained some days before retracing back into the channel.  And should you have taken this breakout signal, you also would have been shaken out of this trade because shortly after the fake breakout, the stock fell through the mid point, and then broke support.  For many of us who use automatic stops, failure of the support would have triggered execution of the trade!

 

The only reason I didn’t enter the stock in beginning of 2018 was probably because I didn’t find this chart setup till March or April.

 

My entry was nearer to the end of May.  And being a little more conservative, I chose to wait for the price to breakout above the high of the January fakeout.

 

But always remember, making $100 bucks is good, but always keep in mind the 3-step system:

  • Pick a great company
  • Wait for a setup and breakout
  • Exit when the trend is broken

Perfect setup, still fails – Part 2

The first sign that got me a little nervous was how the price fizzled and pretty much retraced the entire breakout candle.  But then, there seemed to be some signs of life since price rebounded, only to fade again.

 

I’m not sure what the learning lesson here is, or if there is one here at all.  But the take away I took was that sometimes you can do all the homework and find ta text book setup – and it can still completely fail.

 

You just never know.

 

Plan your risks accordingly.

Perfect setup, still fails

Sometimes, the charts don’t always work out in your favor.  This was a setup that should have been a lay up of a gem.  I love the trendline, it’s very clean, the lows were never tested.  So, when I see the setup in 2015-2016, I start to get excited.  It’s super clean – it hits the tops and bottoms of the channel just clearly – I mean there were a couple instances when it looked like it was going to breakout but didn’t.  Finally, the moment I was waiting for – a strong breakout.  I can’t remember the catalyst, news of some sort, but strong bullish candle – and immediately things start going sideways.

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The Reward of Being First to the Party

Just like any business, the payday comes when selling an asset for higher than what was paid. All our day to day efforts to increase marketing, to reduce housekeeping costs, staging to attract more potential tenants … are just efforts to make margin as wide as possible. At the end of the day, we want the maximum sale price.

One part of the equation is buying the house at a low price. There are a variety of ways to drive down price, but let’s look at three common ways: if the seller needs to sell, if the overall market has been beaten down (like in the real estate collapse in 2007-2008), or if you happen to buy somewhere before it becomes a popular tourist destination.

One of our firm’s first clients loved taking his family on cruise ship vacations. One particular trip, about 20 years ago, the vacation was to hop from one Hawaiian island to the next. Unfortunately, the whole family falls seasick, but luckily the ship happened to be docking the next day on Maui. The family decides to end their cruise adventure and stay on solid Maui ground for the rest of the time.

Maui, 20 years ago, was nothing like what you see now. You could actually get a spot on Kaanapali Beach to tan! These days, that beach is so popular that even if you are from a small town in Finland, you’ll still manage to run into 3 of your neighbors while you walk between the golf course to the nearest Starbucks.

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Kaanapali Beach now… can’t even walk

The family falls in love with the Maui, and the dad buys a property – not for investment purposes, but rather, to lay the foundation for their annual trip to the then-quiet island of Maui.

Today, that same property has appreciated 168%.

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This is literally the view from their vacation home overlooking the beach.

And the rental income is roughly 17.4% net income return to original asset cost… per year. And it’s completely turnkey – there is a very capable management company, the reservation rate is very high, and the expenses are running very lean. There are ways for him to increase the net, however, for his current lifestyle; he is perfectly content with doing absolutely nothing except for cashing in the cheque every month.

This is a wonderful story of being first to the party. However, the takeaway is not about buying properties in undervalued markets – because there is certainly risk that comes with this (see “The Risk of Being First to the Party”).

And yes, to this day, the family (with some additional family members) still goes to Maui on their annual trip.

When to Sacrifice Net Income for Peace of Mind

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