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Welcome to the Fat Prophets User Manual. We suggest you take a few minutes to read this document as it will assist you in maximising the benefit of your Fat Prophets Membership.
The User’s Manual is a guide for Members on how to apply the Fat Prophets report to a share portfolio. The manual also contains useful information regarding the website, archives and how to access the report on a weekly basis. Fat Prophets is different to most other services in that every recommendation is branded with a particular ‘label’ to assist Members in determining the suitability of a particular stock. You will find an explanation of these ‘labels’ within the manual, along with a description of the different risk profiles that accompany each recommendation.
The User’s Manual also establishes the ground rules for the Fat Prophets Portfolio, and what happens after a recommendation is made. Every recommendation made by Fat Prophets can be easily referenced in the FAT archive section of the Members area. It is our intention to make our recommendations as transparent and accountable as possible, regardless of whether a stock is profitable or not. We believe that Fat Prophets is one of the first advisory services in Australasia to achieve ‘transparency’ of this clarity.
Stock Market Fluctuations
Members should note Fat Prophets predominantly applies a value oriented investment style, with the typical holding period often being more than twelve months. From both a fundamental and charting perspective, we generally adopt a medium to longer term horizon when making recommendations.
On occasions the timing of our recommendations is wrong, and a stock could typically fall by 10 percent or more. In most cases this is of no great concern, provided the underlying fundamental value of the company remains intact. In these situations, we aim to maintain exposure to the stock (with a hold recommendation) until such time as the price action improves. In many such instances, further buy recommendations will be made if we perceive the opportunity as being favourable.
When a company’s underlying financial position is sound and intrinsic value is obvious, the share price will typically recover at some point in time to reflect fair value. We generally only recommend selling an underperforming stock if the value assumption no longer holds true.
As famed stock market investor Warren Buffet has often said, “You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.” Caltex is a prime example of this. After our initial recommendation in 2001, the oil refiner traded lower for an extended period losing 50 percent in value before going on to more than double from the initially recommended price.
Despite the sizable loss that followed the first buy recommendation (other buys followed at opportunistic lower prices), we remained firmly of the opinion that Caltex was trading significantly below fair value. This view was ultimately vindicated during 2002 and 2003 when Caltex went on to become one of the best performing stocks on the ASX. In our experience, patience is a key element to successful investing.
It is worth highlighting that buy recommendations are only made when the right opportunities surface. In the event of there being no suitable buy recommendations for a given week, we will provide Members with both updates to existing stocks within the Fat Prophets portfolio and macro overview pieces. Being patient and waiting for the right opportunity is important when investing.
When a buy recommendation is made a price level will always be given where we think the stock should be bought up to. This level represents the maximum price that Members should pay when placing buy orders. If you are unable to buy the stock at the recommended level we suggest leaving a bid with the broker and being patient.
Most stocks will trade above and below the recommended buy price over the short term. With patience however, in most situations Members should be able to purchase stock at the recommended price.
On occasions, when a stock is thinly traded, we may use the terminology ‘Buy around $XYZ’. In this instance, Members should use discretion in fine-tuning their entry level. For hypothetical performance calculations, Fat Prophets will use the opening price the morning following the recommendation.
Once a sell recommendation is made, Members should aim to sell as closely as possible to the recommended price. For the purpose of tabulating our performance, in instances where the recommendation is to ‘Sell around $XYZ’, Fat Prophets will use the opening price the morning following the recommendation.
In order to indicate what action you should take on a stock, Fat Prophets uses the following symbols