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Strategies & Market Trends : Gorilla and King Portfolio Candidates
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To: chaz who wrote (47260)9/29/2001 2:06:19 PM
From: RobertHChaney  Read Replies (3) of 54805
 
A stop as an investment tool?

IMO, a stop is really a stock trading tool, not an investment tool. I can't remember reading of any great fundamental investor who uses them as a basic part of their approach. In fact, Warren Buffett recommends that you should not invest in a company if you are not prepared to hold on and later invest more if it falls significantly. This would also take into account the Peter Lynch "dollar cost averaging" concept.

There are many successful fundamental investors and many successful stock traders. But, I think each approach requires very different skills and mindsets which are difficult to blend together. Therefore, it would be hard to create a successful approach that attempts to combine fundamental investing with the art of stock trading. In particular, I would question if stops would work well over the long term in conjunction with a Gorilla Game fundamental investment approach.

Stops mainly appear to have fundamental validity based on trends like we have witnessed over the last 2 years. However, I would suggest that the superior "stop" mechanism would have been to stop playing the market when it reached absurd valuation levels and sell out. Then, when valuations become historically cheap again (which IMHO they are not yet), make fundamentally sound investments in Gorilla and King companies, and have money in reserve to dollar cost average downward. And, don't attempt the impossible task of trying to pick the exact bottoms for the market or individual stocks. I think stops would only complicate this basic process.

JHMO, as this is what I plan to do.

Robert
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