POST OF THE DAY
Post of the Day - The BMW Method
A Newbe On DIS And WMT

Related Links
Discussion Boards

By zauberstefan
January 5, 2007

Posts selected for this feature rarely stand alone. They are usually a part of an ongoing thread, and are out of context when presented here. The material should be read in that light. How are these posts selected? Click here to find out and nominate a post yourself!

At first, I would like to introduce myself. I am a German musician / composer, I live in Greece (so please forgive me my possibly sometimes strange English), I was a TMF during the tech bubble and am since struggling to find my personal investing style. From time to time I had a look at this board, but as soon I saw the graphs, my inner Pawlow - conditioned TMF-dog made me run away (assuming that I am watching some esoteric chart readers at their obscure work)!!!

But on the other hand... I found myself looking at the charts more and more often, besides doing my DD. It simply feels natural to look at the growth curves. So, when I finally dived into the BMW method, it felt as if I had found the missing link to what I was trying to achieve. Over the last few weeks I went through somewhat 5000 posts on this board. I think this is a fantastic community and I have to highly compliment you all for what you are doing... the old Fool spirit is still alive!

This said I will try to jump right into cold water, although I am still in the process of digesting all the new information. Actually, I would like to share a few thoughts (or lets say my confusion) about WMT and DIS. The following is not meant as a critic, I am just trying to understand and to develop my CAGR - learning - curve :-)

I had bought DIS a few months ago because I thought I had found a company with a long, reliable history which has the potential to go into a phase of new growth. When I saw that it appears on the BMW screen I was excited. But a glance at the BMW charts showed me an obvious contradiction between the long term and the shorter term CAGR charts.

http://invest.kleinnet.com/bmw1/stats16/DIS.html
http://invest.kleinnet.com/bmw1/stats20/DIS.html
http://invest.kleinnet.com/bmw1/stats25/DIS.html
http://invest.kleinnet.com/bmw1/stats30/DIS.html

Only the 30 year chart matches the BMW screening criteria. As the timespan becomes shorter the picture literally reverses itself:
30 years RF 2.96 RMS -2.09
16 years RF 0.89 RMS 0.42

Intuitively (and supported by wishful thinking) I would have thought that the most relevant indicator should be the 30y data and the shorter time span presents an aberration which now can be used to our advantage. But then I read a message by BMW himself who said (after commenting the inconsistency and especially the shorter "slices" of the recent past) that in his opinion DIS is a shorting candidate!

http://boards.fool.com/Message.asp?mid=24950045&sort=whole

No, I did not sell the stock yet, I still see some upside momentum from here. But I am very insecure now, and I start to understand that the glance at a BMW chart implies a rather complex, maybe intuitive approach. On the other hand this story shows, that the charts can be "bent" into either direction if used in an over-simplifying way. In this case bulls and bears could each support their view by either using the 16y or the 30y chart. In the meanwhile I am having a hard time to make up my mind what to do with my position.

The other stock I would like to rant about is WMT. When I looked at it from a BMW standpoint I felt that I had found a perfect stock for my portfolio in order to start my first BMW type position, so to say. But again, some comments on this board (expecting rather poor performance from this stock) made me insecure.

http://boards.fool.com/Message.asp?mid=22895659&sort=whole

Still I cannot see why this one is not the (almost) perfect BMW candidate related to what I have understood about the BMWM. I have looked at M.Kleins charts for all four time spans:

http://invest.kleinnet.com/bmw1/stats16/WMT.html
http://invest.kleinnet.com/bmw1/stats20/WMT.html
http://invest.kleinnet.com/bmw1/stats25/WMT.html
http://invest.kleinnet.com/bmw1/statsdjia/WMT.html

Other than at the charts for DIS this time all four charts show a consistent pattern: the current CAGR is considerably low in respect to its average CAGR. Of course, the shorter the timespan, the smaller becomes the gap between average and current CAGR. This points at declining growth, which I would not expect otherwise from a giant like WMT. But, as I understand the BMWM (and please correct me if I am wrong) the basic assumption is, that a BMW stock should reverse to the mean sooner or later, no matter how the all over growth prospect presents itself (provided the company is not on its death bed). So, maybe the decisive question is exactly this: sooner or later?

My opinion would be sooner, because WMTs EPS are steadily rising, whilst the stock price goes sideways for five years now. But, from what I have read here I got the impression, that some of you expect the up-trend to happen rather later than sooner (or extremely slow), which makes me confused, especially as I am trying to understand how to use the BMWM.

Greetings
Stefan

 


Become a Complete Fool
Join the best community on the web! Becoming a full member of the Fool Community is easy, takes just a minute, and is very inexpensive.