MadDog...<1>
Am late as I had some guests over for dinner. House is a bit quiet now and I have time to go into a sane discussion.
As usual, your thoughtful post needs soul searching for actions which are intuitive to me. I will try to analyse them though.
Controlled experimentation - you hit the right words. One needs to experiment with a small amount till comfort levels are achieved. I played with 50 shares of YHOO bought @68 (though it was an expensive learning curve - by the time I was comfortable, it had hit 125 !).
As for valuation models, I am more inclined to TA. Fundamentals are usually factored into the price, its the human sentiments which guides stock movement. Now if someone feels comfortable with fundamental analysis, I would say "Good on ya" (Aussie phrase for "more power to you"). I believe FA to be good for long term valuation of the company, it rarely has any effect in short term fluctuations.... that once again, is in my opinion.
Problems with ISFPs ;) is that they get so hung up on frames, tools, methods that they lose sight of the end. (I have lived with an ISFJ for 12 years now). Its simpler than you think it is. Its all about objectives and goals. The details are important to S&Fs. The mere fact that this stock would return good value is not enough, you need to be convinced about the means too. Should someone guarantee you a return on YHOO, you would still hesitate !
If your goal is **rational investing**, then by all means, do that. Buy MSFT, CSCO, GE, DIS - nobody ever went wrong investing in these companies and over long period they return great profits. One can keep hoarding and forget about selling. Warren Buffet BTW made his first few millions buying shares - not selling them.
If the goal is simply **investing for prosperity**, then it doesn't matter what means you choose within a legal and ethical framework. I have a portfolio of rational AND irrational stock, and the mix changes over time...
I admit to less loftier goals than the first...investment for me is a vehicle for creation of wealth. And making my behaviour consistant with what I want to achieve, I have improvised on the repertoire of tools currently available - I have created my own yardstick to measure the success - for the time being I have succeeded (as per your comment).
It all boils down to individual personalities and traits.
Perspectives, strategies and tools need to change dynamically with every stock, every trade and every news item. So you're correct in that my current perspectives may not work next time....unless there are similarities (commercial trips to spacestations would have future potential, may require similar strategies). Most people do not think outside the box. Humans have a tendency to compartmentalise events and apply lessons learnt in the past to every situation. We tend to simplify things by breaking them down into comprehensible units. But we forget that our knowledge is not absolute, its incremental. Lessons need to be continuosly learnt not only from the past but from the present as well. Sometime in the future our present will be a past..and if you care to see, pasts have different patterns at different points in time. History does not merely duplicate itself, problems from the past repeat themselves, the solutions are different at each point. We are constantly improvising. Yes, we need to have a sense of the moment.
Due to implied situational nature of investment strategies, the AOL-NSCP deal concerned me. I would be insane if I had not been affected. Either that or deaf, blind, mute and living in a jungle. I try to be strong and have the strength of my conviction...but even that has boundaries. As you yourself explained earlier, protection of a gain, however small, is part of human nature.
Besides, our faith in any stock should be subject to constant revision all the time - we all live and learn. Who could have envisaged a AOL-NSCP merger ? Our thinking pattern, our holding pattern should change dynamically. I sold off a portion today while I wait for some good news. It isn't skeptism, its just rational investing to me. (Of course the term rational is relative...what seems rational to me may seem terribly irrational to you). I do believe YHOO will be a survivor in the long run, but I'm in a prisoner's dilemma. For ease of understanding my dilemma, consider your situation. You believe there will be a correction. Can you at this point put your money on that conviction ? You also believe the stock will go to 250 before going to 150, could you put your money on that conviction ? Everything seems so easy in retrospect though.
Economic theories are founded on assumptions of bounded rationality. If the underlying assumption fails, the theories no longer work. To refresh the subject, bounded rationality is a term which implies that the people, framework and environment (under which the fundamentals of economics are expected to work), are rational. Under conditions of irrationality, economics will not work the way it should. To give you an example - During the cold war, in a UN security council meeting, USSR wanted US to agree to certain terms and conditions which were unfavourable to the rest of the nations involved. (May have been an arab country instead of USSR). I forget the name of the foreign minister involved - but he became so offended that he took off his shoe and started pounding it on the table saying that USSR would start a nuclear war if these conditions were not met. He then climbed the table and reiterated the threat. US agreed. Much later, after Mikhael Gorbachev's reforms unlocked some political diaries, it was revealed that this had been a carefully orchestrated act...well rehearsed. You see the world statesmen had to change their behaviour in the face of irrationality - the minister knew very well that rational discussions would get him nowhere with the security council. And the security council catapaulted because of his irrationality, they didn't want to call his bluff.
In case of YHOO, I have long advocated that the irrational behavior of investors necessitates that we consider this as a learning opportunity and build a better inventory of tools to understand the phenomenon...rather than stand in the sidelines and make comments as does Major Frank Burns of M*A*S*H (this is wrong, it shouldn't be, its not supposed to be like this, nobody told me it would be this way).
Just My Humble Opinion. And what do *I* know, I'm just a girl after all ! |
