Paul,
<<<If you are so quick to sell for a profit, are you also that quick to sell when a stock goes against you after
you've bought?>>>
If I'm able to spot a mistake quickly enough, my view is the time to correct the mistake is ASAP while the loss is still small. If I've done my homework, that shouldn't happen too often, but it does happen and my experience is a quick stop is a better choice than chasing a bad trade with cost averaging.
The problem is my crystal ball is second hand and somewhat unreliable, so catching the absolute bottoms and tops is a rare event. Even a good trade needs time to work so pushing the panic button too early is the wrong thing to do if everything else is okay. I normally expect to see the price rattle around my entry points for awhile if my timing is anywhere close to being right.
The hardest decisions I make are related to cost averaging. The usual situation is one where I know I want to own the stock, I'm certain it's under valued, and I don't have a fuzzy clue where the bottom is going to show up. It's too much like intentionally entering into a series of bad trades to make me happy, but if an unexpected drop shows up I'll sometimes add to the position if everything else looks okay. Out of around 40 trades last year, I averaged down maybe 3 times and stopped out about the same. I don't have the numbers in front of me but the cost averaging trades came out modestly profitable, but not as well as if I'd waited for the bottom. I beat myself out of a three bagger on one stop, a 70% loss on another and a Chapter 11 on a third. Even though one of the stops was a bad call, I saved myself a really nasty set of lumps on the other 2, and one of those I bought back closer to the bottom for profits. There were a bunch of places where I could have maximized profits by being a little more patient, but I don't feel too bad about less than perfect execution in the market we've been in.
So I suppose the answer is I'll try to bail if I think I goofed, but not if it looks like a matter of being a little off on the timing. If the stock really is under priced, it should tend to correct back to fair value over a few weeks or months. |
