| | | Time horizon is the most critical factor you must decide on. Most people don't understand this or the impact it has on everything else.
I don't distinguish between trades and investments, except through time horizon. The longer the time horizon, the more margin of safety you need. If I am after a quick buck, I don't care if the company is may fall bankruptcy next quarter. But if I am planning to hold it for a decade, then not only it needs to have superb financials and amazing management, it also needs to be on the right side or demographics and technology and commerce wave.
However, by and large most of us, professional and retail alike, suck at predicting anything beyond next weekend. Remember how copper was to be the future because everything was going to be electrical? Or how lithium was the white gold because EVs were going to take world over? Or how oil was a once in a lifetime chance to build "generational" wealth? I can go on. Without exception all these predictions flopped, some rather rapidly.
So my timeframes tend to be on the shorter side. However, this doesn't mean that I will not carry losses or not keep things longer term (my long term is a lot shorter than most). BUT, when I do such things, I make that decision ahead of time and valuations needs to be at extreme. For example, I was a month or 6 weeks early to the bottom of oil in 2020. That didn't bother me. I kept buying and doubling down on it. Ditto for XBI. I will fight the tape should INTC go to 15. And I bought CGEN all the way down to $0.58.
One of my guiding rules for these is this: "What will you do if you the stock falls 50%? And what will you do if it falls another 50% after you doubled down?"
IF, and only if, my answer to above is I would double my position if it drops 50%, and will double it for every 25% drop after that, Then it's a candidate for "investment". |
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