Action Otec Corp

[PloutosNX]

Hello Jerome,

I am trying to understand and fill in my gaps by taking Otec Corp as an example.

The first point that concerns me is the volume and average volume (100 – 524) which seems to me to be very low. The current being around 2300JPY (22UDS) is there not a risk of moving the market by buying for a few thousand CHF?
Is this a micro cap? (12B JPY, so 110 million in USD, I'm right?)
I think that you have to take this kind of parameter into account when buying such a stock and not overload the order book at the risk of making the market yourself, right? But isn't there a big risk of not having a counterpart when you want to sell this type of stock? I think that a market order is not the best way to sell or buy?

That's already a lot of questions and I haven't even tackled the part that seems to be the most stumbling block!
Let me know if my questions start to saturate the forum (or your patience 😉 )!

Good day,
Xavier

[Jerome]

Yes, you're right, it's a micro cap worth about 110 million USD. Small companies have the advantage of doing a little better than the market over the long term. For the past ten years, it's the big ones that have done better, but there will be some catching up in the future.

Regarding liquidity, it is indeed better to place a limit order, with the bid value if you are stingy, the offer if you want to put the chances of trading on your side, or a value between the two to make a compromise. You can also use the current price.

I have never had any problems with the counterparties, I have always been able to buy the number of shares I wanted. To ensure this, I place a GTC-Good to cancelled order, which means that if the order does not go through completely during the session, it will continue the following session(s). But this has almost never happened to me.

The good side of these low volumes is that for once on the stock market you have a competitive advantage over institutions! You might as well take advantage of it.

[PloutosNX]

Hello Jerome,

Thank you for these details, so I am starting to better understand certain themes and mechanisms, I am going in the right direction.

This is what I always thought I understood about micro and small caps, as an individual it is an alternative and advantage in not having competition from institutions, but there is also more risk of bankruptcies if we make a bad selection I think.

A practical question, I think that in the case of a micro cap it is wrong to reason in percentage of the portfolio?
How do you go about defining an allocation at this level so as not to influence the market too strongly?

Looking forward to reading you,
Xavier

[Jerome]

Of course there can be bankruptcies, hence the importance of doing your homework. And be careful, even the big ones can go bankrupt. How many have been had with Swissair, Kodak, GM…? In many ways, big companies are riskier than small ones because they are less reactive when it is necessary to change strategic direction due to environmental, technical, human, legal, fiscal, etc. changes.

I don't change my approach for small versus large caps. I always invest more or less the same amount. In fact, it's more the volatility that guides the amount I put in. I obviously invest a little less in a very nervous stock and a little more in a quiet stock.

I don't claim to be able to strongly influence the market 🙂

[PloutosNX]

Good evening Jerome,

It is true that there are many large companies that have not been quick enough to change or have stuck to outdated management.

In your experience for this kind of action what would be the minimum and maximum?
It is linked to each person's capacity and the number of shares that one wishes to have in the portfolio, I know that well, but there must be a range between what is the minimum, the reasonable and the maximum not to be exceeded, either as a percentage of the capital, or in absolute value because we risk moving the market too much.

The volume was 100 (per day I guess) and the average was 500, so we have a range of 2'000USD to 10'000USD. I think that below 500USD it is not interesting to position yourself, because the fees are too high and around 20-25k we risk waiting a while to buy/sell at limit price.

By the way, do you take this kind of action through PostFinance or Interactive Brokers?

I'm trying to think whether it's better to set a percentage of capital (including rebalancing perhaps?) or a fixed value per position.

Sorry I'm straying again from the basic topic which was to be able to analyze this company and to be able to draw my own conclusions. I would say above all to understand all the different ratios and other values.

Good evening,
Xavier

[Jerome]

The minimum depends on your transaction fees. It's clear that if you have to pay 50 bucks in fees for an order at 500.- you can forget it. In any case you won't be able to trade Japanese stocks via Postfinance, so that brings you back to the IB solution and therefore the fees are more reasonable.

Personally, for my shares, I always place orders worth around 10,000 CHF on average and as I told you, no problem negotiating at the desired price. The Tokyo Stock Exchange is the second largest behind NY and therefore it is liquid.

[PloutosNX]

Hi,

Thank you for these remarks.
I will try to concentrate on understanding and interpreting the different values.

Good evening,
Xavier

[PloutosNX]

Hi Jerome,

I come back with a question regarding the type of order to use to buy stocks with low volume.

I tried to buy a fairly liquid ETF (GOLD) and between a market order and a limit order I still had a fairly significant final price difference (order 2-4% unless I'm mistaken).

I am therefore wondering what is the best method for buying shares that are not very liquid (small CAP for a strategy like QVM3 or James O'Shaughnessy). Do you have any feedback on this?

Good day,
Xavier

PS: Sorry, I haven't had time for the article yet! I hope to get there before the Greek calends...

[Jerome]

Normally on liquid securities the difference is insignificant between a market order and a limit order. On which ETF did you get 2% difference?

Otherwise you have already given the answer to your question. On illiquid securities you must of course use a limit order.

 

[PloutosNX]

Hello,

Yes almost sure with the AUCHAH on PF, I was also surprised that the difference was so big (and I didn't buy for millions 😛 ).

OK with a limit order, but how do you set the price if you place an order outside market hours and to be sure to be executed? I think the order goes through in several days?

Xavier

[Jerome]

Surprising for AUCHAH because it is still quite liquid. I think I tested the market and limit orders and I don't remember noticing this phenomenon. I will keep an eye on it next time.

For your question, I had already answered it (see my very first answer on this same topic). Otherwise, don't forget that one of the filters of the QVM strategy, which I will not mention here since we are in public, already largely answers this liquidity problem.

 

[PloutosNX]

Hello,

Damn I forgot about that part! Sorry for the redundancy of the question, it will come back eventually!

A+
Xavier

[PloutosNX]

Hi Jerome,

I was able to discover the joys of not paying attention to liquidity and especially execution over several days with the associated costs!

NEVER confuse 5k and 50k average per day…

I also had a surprise with Interactive Brokers, I am unable to buy certain stocks in Norway, Finland, etc.
It seems that this evening linked to the type of account (I have a cash account at the moment), I made a change to a margin account. I will let you know if this had a positive effect.

I think I will have one or two questions regarding the margin account, because I believe you have this type of account Jerome and I want to avoid doing stupid things (leverage and borrowing money in other currencies)

Good day,
Xavier

 

[Jerome]

Hello Xavier

It must be the residue of the end of year celebrations but I don't follow you on the first part of the message.

Surprising for Norway. I think I could trade there even with the cash account. But that was quite a while ago… Are you sure you enabled that country in the settings. For Finland I never bought anything there and I can't find it in the settings.

Yes I have the margin account (Portfolio Margin). Which one did you take?

 

 

[PloutosNX]

Hi,

I certainly wasn't specific and clear enough.

I tried to buy shares with a daily trading volume of only €5k. My short limit order was executed over several days at a rate of a few shares per day. This is reflected in the fees and therefore the PRU of the acquisition.

I applied for the simple margin account (through Portfolio Margin), I don't think it's useful for the amount.

I checked and enabled everything for stocks. We'll see if the margin account helps, otherwise I'll contact their support.

Xavier

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