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Strategies & Market Trends : Value Investing
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To: Paul Senior who wrote (19520)8/12/2004 9:34:10 PM
From: jeffbas  Read Replies (1) of 78625
 
"Cut every loss when it is 8% below your cost. Make no exceptions so you can always avoid huge, damaging losses. Never average down in price."

I could not disagree more IF YOU REALLY KNOW YOUR COMPANY. That requires a concentrated investment strategy (to know each company well), which is not possible for many people.

The reason for my view is very simple. Ask yourself (1) do stock prices vary wildly around a much less volatile fundamental trend line, (2) do fundamentals vary wildly around a much less volatile stock price line, (3) are both relatively stable, and (4) are both quite volatile. Those are the only choices.

I have no difficulty choosing (1). That means that if you have a very good understanding of the fundamentals you are in position to make a good assessment of when a stock has become "mispriced". That is when you can make real money. The opposite conclusion, that when the price has dropped a bunch it means the fundamentals have as well (and you sell) is in my opinion a much poorer odds strategy.
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