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A Canadian Natural Resources pump jack pumps oil out of the ground near Dorothy, Alberta. (© Todd Korol / Reuters/REUTERS)
A Canadian Natural Resources pump jack pumps oil out of the ground near Dorothy, Alberta. (© Todd Korol / Reuters/REUTERS)

Schizas' Mailbag

Legacy Oil + Gas Inc. is not for everyone. Add to ...

Hi Lou,

I always look forward to hearing your business updates on AM 640 and reading your posts on globeinvestor.com. I am hoping to have your thoughts on Legacy Oil + Gas (LEG).

I bought this stock perhaps prematurely at around $9.50 a week ago without consultation from a professional. I have a lot riding on this investment as I have already lost a lot of money on my other investments (with the advice of a professional, no less). I am not sure if I should just cut my losses or stay the course with this company? Do you see a short term upside for this company in in a month or two? If not now, when do you think would be a good time to invest in a company like this?

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I hope to read your reply soon to ease my worries.

Nervously waiting your response.

Arunn





Hi Arunn,

Thanks for the assignment. There are a number of factors that need to be addressed from your email that are not about Legacy Oil + Gas Inc. . It seems very clear that you become agitated when sustaining a loss which tells me you are working outside your comfort zone. I am going to send you a presentation that I created in 2010 that should help you identify your investor profile and the level of risk you are willing to accept. If anyone else would like a copy send me an email and it’s yours just send me an email.

Regarding the performance of your portfolio and your dissatisfaction with the advice you have gotten I think it’s time for a review of what your stated objectives were when you opened your account. Every advisor has to fill out a know your client form which idenitifies appropriate investments for each individual.

Finally I think that you need to better understand the basics of technical analysis to help you reduce risk and improve your profits. Trend, support, and resistance should be added to your investment lexicon.

Let’s examine the case for LEG and see how best to proceed.



The three year chart identifies the lift that the shares were enjoying from the summer of 2010 to the late winter of 2011. However the advance stalled in early March of this year and then reversed itself. LEG has given up a lot of ground from the 52 week high of $17.47 on Mar. 04, 2011 and what we can observe is that a new down trend has been established and that a death cross formed in June.

The six month chart provides a number of examples of resistance along the 50-day moving average. Every attempt to advance has failed. When you jumped in at $9.50 you were fighting a downtrend line that will not be easily breached and established resistance. Also evident is that the MACD is turning lower indicating that the shares are not ready to move higher.

LEG is scheduled to report Q3 on Nov. 9, 2011 so be prepared for that flex point.

In my honest opinion I do not believe that you are in the right investments for your individual investor profile. It seems to me that you would be better served with more conservative vehicles such as large cap dividend paying stocks.

Make it a profitable day and happy capitalism!



Have your own question for Lou? Send it in to lschizas@globeandmail.com.

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