LTB&H, and dollar-cost-averaging, are good ideas, if used with, (not as a substitute for), good stock-picking and constant attention to valuations. I am currently dollar-cost averaging into NTAP. But I only started at 13, with the stock already over 90% off its highs. And I'm doing it with a company that I think is almost certain to be, 5 years from now, #1 or #2 in a high-growth sector. And they have no debt. Using the example of LU, well, LU has never been on my buy-list. Never. I won't begin buying it, no matter how low it goes. I wrote posts years ago, saying that Ma Bell and all her progeny had a corporate culture formed in a highly-regulated era, and therefore dysfunctional. I expect the Baby Bells to go the way of Ma Bell and LU, when someone figures out a last-mile solution that bypasses the Baby Bells. At that point, they have a truly competitive core market, and that will kill them.
Actually, I expect to do OK, even if NTAP bounces along a bottom range for years, and my WAG of 50 in 2005 doesn't happen. Let's say we go to 5, and then establish a horizontal trading range of 5 to 10, and stay in that range for 5 years, and then NTAP goes bankrupt. This is a scenario more pessimistic than I consider possible.
I'll do OK this way: This will remain a volatile stock. If it stays out of favor over the entire life of my LEAPs, it will still make repeated rallies, doubling off its lows (wherever that is). My strategy does not depend on knowing where the bottom is (other than anywhere from here to 5), or on the stock going back into favor. I like strategies that don't depend on me knowing much. I will sell a part of my holding on each of those rallies. I will load back up when (if) we retest the lows. Right now, I plan on selling 1/4 of my holding at 17, and another 1/4 at 27. If the stock establishes different resistance levels, I'll adjust my sell points. I'll sell the 2003s, and add 2004s when they become available. When the 2005s become available, I'll sell the 2004s on rallies, and add 2005s on dips. If the stock remains out of favor for years, I'll make many, many trips. With a stock this volatile, and the leverage of options, I'll make my entire cost back, after 2 or 3 trips. And, at that point, I'm playing with house money. NTAP can go to zero after that, and I'm still ahead overall. The only way I can lose, using this strategy, is if NTAP goes and stays below 5, or if it becomes a low-beta stock, so I can't make money trading the range. Actually, the main risk of this strategy is that it requires a lot of discipline, rigidly following the plan and ignoring the ebb and flow of current sentiment. |
