New subscriber Carl O asks: Can you please clarify once more for the dummies the use of the 3PTL?

You don’t have to be a dum­my to be con­fused about using the three-point trend line. After a year of lis­ten­ing to Tony talk about it, I still have trou­ble artic­u­lat­ing it clear­ly. Here’s what I have come up with for the upcom­ing “Get­ting Start­ed With QAV” guide (that I’m wait­ing on Tony proof­ing):

• Remem­ber to use a FIVE YEAR chart of MONTHLY prices (which shows what the price is at the end of the month).
• If we don’t own a stock, and the sen­ti­ment is gen­er­al­ly pos­i­tive (eg price is going up over time), it’s a buy­ing sig­nal.
• If we don’t own a stock, and the sen­ti­ment is gen­er­al­ly neg­a­tive (eg price is going down over time), the trend line through the high­est prices indi­cates when to buy (ie when the price goes above / breach­es that line).
• If we do own a stock, and the sen­ti­ment is gen­er­al­ly neg­a­tive, the trend line through the low­er prices indi­cates when to sell. If the price drops below that line for a stock we own, we sell it.

Here’s an exam­ple using FMG.

And check out our video page for some demon­stra­tions of how this works.

We real­ly need a catchy mnemon­ic to make this eas­i­er to remem­ber and use. But I haven’t thought of one yet. If you can think of one, let me know!

Here’s anoth­er chart to con­fuse mat­ters.

Tony says BPT has pos­i­tive sen­ti­ment because, even with the recent decline, the gen­er­al trend of the price over the last five years is UPWARDS. So this would pass the sen­ti­ment ques­tion on our val­ue invest­ing check­list.

The Falling Knife

One more thing to remem­ber. In times where the price has been declin­ing, like dur­ing the cur­rent cor­rec­tion, Tony’s view is that while a stock might be cheap, and bar­gains can be found, one should nev­er try to catch a falling knife. In oth­er words, it does­n’t make much sense to buy some­thing today if its price will con­tin­ue to drop for weeks or months. He feels like he can do bet­ter things with his mon­ey dur­ing that peri­od, ie put it into some­thing that is grow­ing. Just because some­thing is a bar­gain, does­n’t mean you have to buy it today. There might be bet­ter options. Tony would rather wait until a stock shows signs that it is on the rise. He won’t always get the tim­ing right — but at least there’s a strat­e­gy behind it, and he’ll get the tim­ing right more often than he gets it wrong. He does­n’t need to be right every time, just enough times.