So continuing with the theme of 'correlation', which also...

So continuing with the theme of 'correlation', which also applies to why i bought IFL, lets look at how i am using it to select shares to go long or short.

I was very fortunate that CY15 was my best yr on the mkts in ages. Gold stks MML and SLR had hammered me savagely but i was able to turn things around substantially.

I use a formulae to calculate intrinsic vale (IV). For CY17 I have adjusted it such that the size of the dividend the stk is likely to pay has a far higher weighting than previously. Last week i wrote: "But company's with good growth prospects and a yield above a certain level are likely (in my estimation) to see buyers push SPs higher. In 2016 what yield level is required to significantly influence a SP? I reckon anything at/above 8% has a bearing. At/above 10% and the influence rises considerably."

So i am expecting the following to occur. Stks that announce a gross div of 4% for the HY later this month will rise significantly. I expect a correlation of at least 75%. Those posting a HY div gr div of 5% (equates to 10% for FY) will rise even more. In addition the correlation will be higher at about 90%.

I've increased the weighting re divs as the environment today is even more deflationary than that of 12 months ago. Hence, the influence of a high div being announced will be more influencial.

Some examples. 3 weeks ago on DWS thread i noted: "Re-entered DWS for 1st time in yrs paying $1.075. Using the latest info i have FY16 eps at 10.3c, divs 8c ffr giving a gross yield of 11.3%. Recent acqisitions always give cause for concern but 1st 4 months trading was strong and i expect interim in 5 weeks to re-confirm this."
Then 10 days later i posted: "Fortunately i moved my existing buy order down prior to mkt opening. Have doubled my stake at 97c this morn giving me average buyprice of $1.022 for entire holding. Huge ffr divs on the way."

Had i been true to my formulae i would have bought more at 97c than at 1.075. It would have produced an average of about 100c. But i have constraints re available capital. I am hoping in FY16 DWS will pay 8c ffr div. At 100c thats a yield of 11.44c. At 97c its almost 12%.

So i was willing to buy DWS at these prices as i feel the high yield will so a high correlation with gain in SP. Return is always: change in SP+divs. No exception.

On this thread 28/01 i noted: "My guesstimates (IFL) for FY16: eps 61.5c and 55c ffr divs. With SP at 8.07 (my entry price) gives PE of 13.1 and more importantly gross div yield of 9.7%. Keep it for 13mths and total return is 14.2%."

I was willing to stump up my cash and pay $8.07 due to my confidence that a yield of 9.7% will very likely result in a significant gain in SP. ie. show a high correlation. Combining the CG + div will produce a handsome return. We'll know by end of this month.

Do yr sums now.... not a few days before results are released. If they show a stk will pay a FY yield of 8% or more i feel confident you'll do well. If they show yield is 10% or more, I'm very confident you'll be well rewarded.

We are set for a strong day on the 1st day of Feb so I'll leave the subject of causation for another time.