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Strategies & Market Trends : Value Investing

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To: Paul Senior who wrote (16186)	1/18/2003 10:40:09 AM
From: Dale Baker	Read Replies (1) of 78748

On stops - value investments are based on a given set of facts about a company, and conclusions about future value based on those facts. Very often a sagging share price is a foreshadowing of bad news to come. In other words, the facts the investment was based on initially could very well change. In addition to limiting losses in general, stops can be a good way to get you out of an investment that is deteriorating, before you get the bad news. A stop never prevents you from buying back an investment if you believe the fundamentals are still intact. And if you buy back lower than you sold, the "certain loss" actually gives you a net gain in the long run compared to pure buy and hold. Look at a three-year chart of CPN. If a long-term investor had stopped out at 50 and waited for a better chart and better news to buy back, they could have saved a huge amount of money. I consider myself a value player most of the time. I wish I had used stops much more often last year. I certainly have them in place now, not in every stock but enough to limit my overall portfolio losses in the event of another major market meltdown.

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