re:"A better strategy I have found by watching stocks I own is to add/buy ones with a positive surprise if the price is still reasonable... "
For cratered stocks not already owned where a person is thinking of establishing a position:
There are at least two essential questions that might be asked when a stock tanks as Xerox has:
1. Will the stock price recover in a reasonable enough period of time to allow a decent profit from an investment now? Or perhaps, is the stock price now well enough below intrinsic value?
2. Will the stock continue to decline? Either through general selling or the discovery of more "cockroaches" in the company's business.
If the answer to both is the affirmative, and a person's tolerance for pain is low and experience and confidence with these types of buys are also low, then the person will just naturally want to refrain from buying. Until there's some confidence and some evidence that the stock has bottomed. Which assumes the person will monitor the stock and will have a decent buy-in point when/if a positive event occurs.
For me, a basic premise is to buy value when value shows. If Xerox at 31 is a buy because it it undervalued and offers a margin of safety and is a good/great opportunity, then buy. Buy some. Lag in. When Xerox drops to 28, buy a little more. A little more at 25. So when the positive event occurs and everyone has figured it out, and the stock is back to 29-31, you're already on your way with a profit. And of course, do this within a diversified portfolio. Perhaps one drawback to all this though is that, imo, the investor has to have enough capital--- to be diversified and to be patient and tolerate temporary price drops.
In my opinion, making it a practice to refuse to buy well situated value stocks (#1) because they might drop further in price (#2), incorrectly focuses way too much on temporary price drops to the exclusion of very good profit opportunities.
Paul Senior
(I have no favorable opinion about Xerox) |
