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Strategies & Market Trends : Booms, Busts, and Recoveries
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To: Joshua Corbin who wrote (779)11/20/2000 1:30:52 PM
From: tradermike_1999  Read Replies (2) of 74559
 

How do you ever decide when to sell? Or to buy? Because there is always a chance it could go higher or lower.

There are plenty of suggested reasons. See below for a basic list:
better-investing.org;

Lets looks at the list:

"Selling decisions are opposite of those used in buying stocks.
Sales or earnings growth stalls.
Profit Margins are declining.
International markets with lower operating costs.
Labor disputes, e.g., UPS: full-time vs. part-time labor costs.
Current P/E ratio is higher than 5-yr average P/E.
Upside/Downside Ratio is 1:1 or lower.
Projected Total Return is unacceptable to your investment goals.
Management decisions indicate incompetence or neglect.
New management may not necessarily be better management.
A drop in the return on invested capital affects the investor.
Different stocks, as well as different investment vehicles compete for investor money"

The first three, sales and earnings growth stalling describes a lot of companies right now. Especially the tech stocks. Profit margins dumping as the economy comes to a crawl. And P/E's are still higher than 5 year average. Are you violating the selling rules by holding on to these bubbles?

And:

"Wrong reasons for NOT selling.
You're emotionally attached to a company.
You hate to admit that you made a mistake.
You hate to take a loss, and you want to wait until the price rises back to the purchase price.
You don't know how to take advantage of a loss for tax purposes."

That describes most bubbleheads today - emotionally attached to their positions and unwilling to take a loss in hopes that it will come back and they can break even.

One point - I hope that you have a stop loss position on your stocks so that in case they do fall to a lower level you will just say I made a mistake and get out. If you don't and just hold on in hope like a desperate gambler you could lose a LOT of money.

What I want to know why is people are supposed to buy when stocks are expensive and sell when they are cheap. Last year people said we'd never see another bear. Now we'll never see another bull. Isn't it obvious?

No one is saying that. The bull market will return, but this is a bear market and everything is still going to go lower. Stocks aren't "cheap" now either. P/E's are still out of control. There will be a time when it is prudent to come in as a value investor. But buying now means playing Bizarro Buffett instead of Warren Buffett.
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