Here ya' go Autumn.........
>>>Wouldn't the "ideal" moneymaking system be to ride ZITL up and then when the "back" is broken out of the stock as it probably will following it's predecessors THEN short it and ride it down?<<<
The answer is yes...in a perfect world, and holds true for any stock or commodity. If only it were that simple!!! What you are alluding to is called "riding a trend". There are people who spend their entire lives studying charts of commodity/stock prices trying to spot trends. They use a pseudo-scientific method called "technical analysis". Unfortunately, it doesn't work. The occurrence of rich technical analysts in the general population is probably less than lottery winners. The only things that drive stock prices over the long term are earnings, cash flow, and assets. Everything else is short-term statistical noise - period.
>>>One of the most interesting ideas was from a highly regarded successful woman trader who stated that she learned to cut losses short by deciding to get out of the mentality of "being proved right in the end"-- by ..."being right RIGHT NOW!"<<<
She probably derived most of her success from commissions. Her statement smacks - at the very least - of hyperbole, if not outright hubris. I'll let you in on something....I can't remember the last time I was right "RIGHT NOW" about a stock price (jeez, just take a look at the beating I'm taking on Zitel). I simply try to determine when the market does something moronic relative to the true value of an underlying business. When picking an investment I follow the financials first. Then it just becomes a waiting game until the market finally recognizes value or spits out crap...something which happens with amazing regularity.
>>>...I would have to find you...irresponsible in not capitalizing on the way up and THEN capitalizing on the way down. But then perhaps trading is too active for you but to perhaps ride up 30 or more points in the red and then to have to wait for it to drop 30 or more points...<<<
Consider this: no matter how much public information is available about a stock, and no matter how much hype/pessimism currently surrounds that stock, it is highly improbable that you will consistently be able to pick a short term top, bottom, or direction. I want you to try a little experiment: Pick one stock you are familiar with. Try to stay on top of news releases, Motley Fool chatter, etc. etc. (you may also want to check the daily chart), jot down that day's price and try to guess the direction the price will move for the next few days. Also calculate the difference in price between that day and the last time you checked. Keep a log. You'll see something interesting happen: If you average out these price differences the result approaches 0 as more time passes. You'll also notice that your correct guess rate will approach 50%. What's really amazing is that this works no matter if a stock's long term price movement is up, down, sideways, or zigzag. Now you know why day-traders can't come up with the down payment for a used Buick and guys like Warren Buffet can buy General Motors.
>>>...ego--last laugh versus laughing all the way...
The stuff I do on this bulletin board is all in fun - take it with a grain of salt. I simply enjoy writing and yukking it up. However, I do take investing very seriously. My ultimate goal is to generate a high annualized return based on buying good value at a good price and short selling the stories which - gosh darn it - never quite seem to live up to the claims made by "analysts" and other assorted con artists. Watching the stock wiggle each day is fun for cheerleading and slinging insults back and forth, but I am much more concerned about the performance of my entire portfolio over a lifetime. One super-hot year or one spectacular loss is meaningless in this context, so I don't take public opinion seriously.
Proving yourself correct, either in the interim or in the end is what value investing is all about. The very fact that you found what you consider to be a great value or an overpriced dog *by definition* means that a hell of a lot of people (or perhaps a few people with very deep pockets) disagree strongly with you. One side will be proven correct based on the company's performance - might as well be you. In the interim you may have to suffer astounding fluctuations in the stock's value and more psychological trauma than O.J. Simpson at an Andrea Dworkin lecture. Last laugh or laughing all the way? Well, let's just say that in Zitel's case I'm laughing now, but not for the usual reasons!!
>>>what about the [time] being tied up [in a short position]
Those are the breaks. I don't worry about it. If you are not mentally prepared for the possibility that you can suffer a catastrophic loss or be "locked in" for a long time, you shouldn't invest; otherwise, you will end up letting fear and greed guide you into making really, really dumb moves and your odds of losing money approach near certainty. Do you have the resources and discipline to hang on to a stock you bought at 30 that now trades at 1, even if it takes 5 - 10 years for Wall Street to acknowledge that you own a great company? How about if you short a stock at 10 that Dave Stewart thinks is worth 1000 because they are working on a genetically engineered drug which will cure the inability of certain people to distinguish between the year 1900 and 2000? If you answered no to either question then be good to yourself and stay out of the market.
One caveat about short selling:
Short selling has potentially unlimited downside risk. When you go long you can't get forced out of your stock certificates when the price drops 99%. I mitigate the short selling risk by dollar cost averaging and making sure that my positions are always fully collaterlized. I also keep enough equity on hand to hold postions which may rise dramatically. One of the classic mistakes most short-sellers make is trying to pick a top - at which point they usually short every share they can, stretching margin to the limit. Inevitably, after they get squeezed out, they watch helplessly as the stock proceeds to sink below their entry point. Also...shorting usually has a shorter time horizon than going long. There are companies you can hold for a lifetime, but it is rare to hold short positions beyond a few years.
Regards,
mondoman |
