I understand your momentum approach, but it is poorly suited to my personality, and I have serious mathematical reservations about using charts this way (random walk beliefs die hard). When I see a stock that MUST be worth at least twice as much as I am paying for it in 1 to 2 years, and maybe worth 4 to 10 times as much -- and cannot be worth less, then why delay simply to keep money "alive"? During the exact save time your brother-in-law decided WIND was a dog and sold it way too soon, I was excitedly watching every new new item reported by the company, all indicative of probably the best continual, long-term opportunity there is the stock market. Why wouldn't I buy throughout this period, as events kept confirming my beliefs? Your brother-in-law didn't error by buying too soon. His problem was he never knew what he bought in the first place.
SNIC is now $7. You say it will break on the upside if pushes through $8. But at $7 I am up 40% on the $5 purchases already. But the time it starts to break seriously to the upside I will be ahead an average of 10% to 20%, and with a large position secured! Making 20% on "dead" money in a few months is not bad. Even if I have to wait a year or two, I would hope to make a handsome return on SNIC. On the other hand, if I try to time the moves, I screw up all over the place, encounter transaction costs and taxes. If you know there are high profits available, at least buy a significant position. If it drops down more (which I say is just as likely as it will be going up) buy more. When it finally makes its move, you should have a large enough position to make a lot of money, not just a high percentage return.
The problem is knowing the stock must go up in the medium term. You cannot be wrong in this assessment. (This is what Buffet means when he states his first first rule as "Never loose money", and his 2nd rule as "Never forget the first rule"). If I have a problem it is that I do not always investigate new companies enough. The main implication of this for me is taking too long to make a reasonable return, or coming close to failing. For example, I did this with Borland, buying down to $6, and did fine; but I never thought they would get as close as they did to bankrupcy, nor did I think the Lotus suit might actually prevail. Error, even though it has worked out. |
