I bought a stock that put in a low of $.60 at $1.21 it proceeded to drop below a buck and then turned around and gave me 250% return. It was mighty painful holding through that month or so where it was underwater, but it was the right thing to do from a fundamental perspective and a strategic perspective (buying at an intermediate top a stock that has broken out of a base) besides the risk reward ratio was very favorable. I wound up buying more as it passed my original buy point and all the way up. Now I could have said to myself, damn, I wish I would have bought it all under a buck, but I'd never let that kind of thinking keep me from a favorable investment because I'm a pro at this and that's strictly amateur thinking. Trying to buy a stock at its absolute low or sell it at its absolute high is a fool's game, the last eighth is the most expensive. What you do is buy it when you think the potential return is sufficient to the risk level and you sell it when the potential return is no longer sufficient to the risk of holding it. In between those two points you hold on.
Stocks can take a long time to bottom. They bottom internally first before price puts in a bottom. This is why tracking money flow pays off, because it shows when there is a trend change sometimes long before price shows it. Just as money flow shows a top sometimes long before price backs down. Bottoming is a process not a point on a chart. Breakouts can be false and bottoms can fall out. Sentiment usually doesn't change until the stock is at a point where it is obvious to even the most casual viewer that it has risen and even then it is viewed with skepticism if the sector has been scorned for long enough. This is why a real bull shakes a lot of people out. Just today I read an article in the local paper that was negative on gold even while acknowledging the gains in the sector. I expect we'll see negative articles about the PC, semi, Internet, optical, networking and communications sector for years to come even if the stock prices recover somewhat. Why? Because the public always thinks of stocks in the past tense, in terms of what they did in the past. The negative sentiment caused by the Naz index dropping like it did over the last two years has masked a bull market in small cap stocks. Now Cramer says small caps are a buy and the Motley Fool wants you to buy the gold producers.... while everyone swears off tech.
The more things change the more they stay the same. |
