It is true that stocks don't require a panic bottom and it is true that panic bottoms are great entries. The problem is that by the time you observe them, they are already gone. Such price extremes are transient states and my attitude has been that that is the arena of the floor. I don't need to beat the world into submission to do well in stocks and what I miss I have learned to recognize as preservation of opportunity.
Using ATHM with a close of 86 as an example, if you booked limit 80 GTC for x, then you might pick up stock at a steal. It might jump down there, pick you up, and take off. Within several weeks it gets to 105. You can't stand the temptation because you bought so well, you stole, so you feel like you have to blow it out in order to secure the figurative ill-gotten gain. You can't stand to have the market take it back. If you had bought at 93, then you would be indifferent because you joined the herd and bought fat because you waited to make sure it was safe. On the other hand if doesn't stop falling through 80, how smart is the attempt at a steal vs the naive "safe" entry? Because this is all effectively undecidable, the right action is to hold your nose and buy, and just trust that you have a good company. Since you waited prudently and preserved your capital for this fluctuation to create this opportunity, you have already done well. |
