When to start a position

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I’m preparing to start positions in GSY and LSPD. Both seem a little high at the moment but obviously if they just keep going up then I’d be missing out. They are both being recommended by you now. My question is what things do you look at to help guide an initial purchase decision (assuming I use a 1/3, 1/3, 1/3 approach to build that position)? Should I be looking at RSI being below a certain number? moving average crossovers? MACD? I get these are all just tools to help guide decisions, am am interested to know how you guys make your own decisions as I develop my own buying strategies.

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Asked on June 1, 2020 8:17 am
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Hi there,

In my opinion, you are on the right track. We are big advocates of averaging into positions. Personally, i use a 1/2 approach but that is in normal times. Recently, i have been taking a third and quarter chunks in positions. There still exists considerable uncertainty and no one can predict what will happen next. A second pandemic wave can lead to another big downturn, or we may simply gradually recover and not look back.

I always look at the companies in terms of valuations and both GSY and LSPD have good entry points. GSY is cheap as on a historical basis and against forward growth prospects. That being said forward growth prospects may be optimistic.

In terms of LSPD, the expected COVID-19 impacts were less than expected. However, it will be most impacted if we see a second wave which will no doubt lead to a higher rate of bankruptcies for small to mid sized businesses. Estimates have been trending downward, and it is very hard to value this company right now. That being said, once the economy rebounds (and it will) LSPD is well positioned. It has a cash hoard and will be ready to resume its high growth rate.

Personally, I don't use technical indicators too often, I prefer to invest on fundamentals. I do however, have one rule that centers around the 14-day RSI - I'll never buy above 70. I am content to sit back and wait for a period of consolidation or a dip before jumping in to a stock on my watchlist that is sitting with an RSI above 70.

Hope that helps.

Mat

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Posted by Mathieu Litalien
Answered on June 1, 2020 9:07 am