Joe,
I like your analysis and thoughts you put forth. I agree with your approach, and as you say, there are 100 valid strategies to make a lot of money.
While I agree in general with the long term holding strategy, I still question if that is the best or only approach when dealing with technology stocks. They are so volatile! In both 1995 and 1997, many semi-equip stocks doubled or better in the matter of a few months. Then within a fairly short period, a few weeks to a couple of months, they went down faster than they went up. (That is always the way of course). Then from 95 you had to wait a year or two until the next big runup - and as the data shows - some of them didn't make their old highs. FSII being a good example.
Let's first look at a technology stock - pick FSII since we are on the thread. Let me make some summary observations (don't hold me to precise numbers and dates). The stock was at $6 per share in June 94. It went to $38 by September 95 - a period of 15 months. By buying and selling at those points, the annual compound growth rate was 340 percent. On the other hand, if you bought at $6 in June 94 and held until now, December 97, a period of 3.5 years, and sold at $15 per share - this is an annual compound growth rate of 30 percent. Not bad, but not good either, considering the opportunity to do better by doing some selling and buying during the interim. As you know, it went down to $10 per share in the middle of 96 and went back to $23 in October of this year - now we are down to $15 and probably lower before it turns around.
Now let's contrast FSII with a real growth stock that I believe is "essentially perfect" for a buy and hold strategy. I could have picked several, but I will choose Coca Cola. It's a nice stock to use because there is a long term history easily available. Picking some points on the curve, first start in July 86 at $5 per share. It stayed there until Jan 89, a period of 3 years before it started to move up. It moved up in a straight line until Jan 92, a period of three years when it hit $20 per share. Then it stayed at $20 until July 94 when it started to move up (in a straight line). It kept going until July 97 when it hit $70 per share (since then its turned a little volatile). This entire period spans 11 years. The compound annual growth rate over that period is 27 percent - very similar to FSII when it was bought and held.
My point is, the stock action of KO was so smooth that very little, if any, extra gain could have been obtained by trading KO over any of that 11 year period. Not so, however, for FSII. Here a lot of money was left on the table with a buy and hold strategy. I am not trying to be a day trader or even a "week" trader, but I am interested in finding techniques that would let me identify periods of high gains and swift losses in order to take advantage of the volatile swings in stock prices in the technology sector. Having some of those techniques that would have allowed effective participation in the 95 and 97 runups and rundowns should have netted a 200 percent annual compound growth rate in FSII over the 3.5 year period instead of 30 percent without buying or selling.
Regards,
Don W. |
