As a lurker who has come to regard this as one of the best threads on SI -- both in terms of content as well as civility -- let me offer a few thoughts and seek some advice on an issue that I have been wrestling with.
By way of introduction, let me say that I am not yet part of the gorilla fiefdom -- though I will also say that I am fascinated by the soundness of the concept and have begun studying it. I have, however, been in the markets for many years and am an investor as well as a trader -- stocks, options and futures. I have had my share of stunning successes and abject failures -- all part of the learning curve, I suppose.
I am a "retired" investor/trader -- I was fortunate to achieve this status a few years ago, through a combination of circumstances.
First, regarding the issue of options and their role in terms of whether they would qualify as a LTB&H strategy: I would submit that used properly, it can do just that -- though it is a little more complicated than the simple buying of call options. It is achieved through establishing synthetic long positions -- and I do it quite frequently. I own stocks today that are the direct result of using this approach -- and have now held them for years.
My approach to investing in the stock market, has been rather conventional for the most part. I own a few of the gorillas that have been identified in UF's portfolio, though it has been less the result of a conscious awareness of their gorilla characteristics as much as a sense that they would be good investments. I also own some stocks that are not gorillas today -- nor would they be in the hereafter!!
Now for the issue that I would like to request the assistance of participants of this thread -- something that I suspect would be of relevance to quite a few people . As I commence taking positions in some of these stocks that have been categorized as gorillas and kings, the concern that I have is the impact of any correction -- or bear market -- on the value of these stocks which are high beta and would correspondingly see significant erosion in price in the event of a major decline. I hasten to add that I have read the posts of various people who have set aside funds to cover expenses from several months to several years -- so that they don't have to worry about their core positions.
It is an approach that makes eminent sense -- there is only one thing missing in that approach. It is the gut-wrenching feeling that occurs when one sees a significant decline the value of a portfolio. If it is of brief duration, then one can stay the course -- but if it is long and prolonged like the 73-74 bear market, I am not sure how many people -- even the buy and hold types would be able to withstand it. I am not talking about the funds for living expenses -- which people have set aside. I am referring to the emotional component that will come into play at that time. Let us not lose sight of the fact that when there is a major correction, the declines that occur in even quality stocks like a QCOM have no relationship to the underlying value.
I am only about 40% invested at this point -- and so it is not of overwhelming concern to me. But as I look at the possibility of investing in some of these gorillas, I will admit that the one thing that concerns me more than a little is how I would deal with a major decline. I am not referring to my day to day needs -- since that is not an issue for the most part. It would bother me however, if my portfolio lost 50% of its value -- even if I believed that it would recover in due course.
I suspect that others -- who have made it whether through QCOM or some other means -- must think of this at times. I would love to see some discussion of portfolio protection on this thread. As I read this thread, I sometimes detect a certain light-hearted concern when one sees a sharp decline in the market; it reflects itself in light-hearted comments perhaps indicative of the civility of this thread even as other threads break out into a free for all!
BTW, it is sheer coincidence that I am writing this today as we are in the midst of another decline. I have actually been doing some judicious buying into this decline -- but perhaps the subject will get some attention today as opposed to another day when market is in the midst of a sharp rally!:) |
