Nice day today. Appears to be a lot of buying on both Q and JDSU. Look at the Thompson site for details.
Also took this off the Clear Station board. He repeats himself a lot, but his message is very good.
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Commendations and a hearty Amen to what neilcothran and oversaull and kensey (look up his various posts on a number of stocks) have said in recent posts about establishing an entry position with a fraction (you need to decide your own fraction) of what you would be planning to invest in a given stock over a given period of time. Call it 'Drip investing' or 'wading in gradually' or 'nibbling a little at a time'; it works. And you limit your downside if things turn against you right after you take your first position, as has been said. And this does happen, often not for any long term reason to sell out of the stock. You need to judge these things case by case. Maybe a crummy 'economic statistic' or some other piece of temporarily earthshaking but longer term meaninglessness rattles the market the day after you buy into your first position. Are you going to sell out? When you put all your chips in a given stock at a given price which you have ascertained through your analysis as the 'exact buypoint', and then find yourself suddenly down 10 or 20 percent, it shakes your confidence, not to mention your bank account.
I have been at this about 10 years and evolved this gradual buy-in method for myself some time ago. This was after several experiences of waiting for the desired stock in question to "just get a couple of percent lower to the 'right' buy point"....only to have it jump up 5 or 10 % the next session, and then you are still waiting at the starting line, wondering when you will get start to get in, and then deciding whether to get in at the higher price. Then you have to make the same decision all over again, or miss out all together, in many cases. Meanwhile, the stock may go continually higher, and you are left out. You may find that as the stock goes higher and higher, and you have not bought in at all, you will be tempted to finally buy in at what may turn out to be the next near term high point. The longer you wait for that pullback that does not come day after day, the more you may later feel pressured into buying when you are actually late to the party, at least for the near term, if not the long term. Lots of people that jumped into QCOM around the new year because they never got in before, are now in the red for the time being. When you have already established a starting position, you can feel better about buying more of the stock gradually on the way up, gradually working in the full amount of money you have allocated for that stock, within a given period that you have decided in your PLAN for building your position in that stock. Along the lines of what has been said, go in at first with maybe one fourth or one fifth of what you are willing to invest in a particular stock over, say, the next year. When you buy stocks in quality companies like CSCO, MSFT, JDSU, INTC, HD, EMC, QCOM, SUNW, etc, that are market leaders, sometimes you may buy them at what may, in the near term, seem like 'the wrong time'. I call this buying the right stock at the wrong time. But if you stick to your plan and the company keeps executing its plan, you will be ok. In the long run if the company is going to make it big in the long haul, the exact time/price at which you made that first incremental purchase will not be a make or break decision. But do not wait years waiting for the "exactly correct" first time. There is always risk. One of the risks is not investing at all. Each person has to weigh this for him/her self.
And when you have a position in a stock, you are more apt to wait for a pull back to buy your next position, after it gaps up sharply, than if you have missed out altogether.
You do need to have made up your mind beforehand what you would be willing to do if market action caused the price of your new buy to drop 5, 10, 15 or 20 percent. Will you buy more, or get out? It is a stock by stock decision. And when a stock drops suddenly after you buy it, you need to be careful not to throw good money after bad because you are in love with the stock. There is such a thing as 'not fighting the tape'. Be aware that no matter how strongly you believe in a stock, there is always the chance that a lot of people out there know something that you do not. Ask those who kept buying Phillip Morris all the way down, because of its great "value".
Buying a quality company's stock, like Cisco or Home Depot, at a slightly higher price than exactly the price you wanted to pay initially, to get started, is better than buying the wrong stock at the wrong time, which is what I would call a poorly timed leap into, say an extremely risky stock like a third tier biotech stock (my view), or some hyped bulletin board stock (Never buy these at all!!!).
As a stock in a leading company, or a very promising up and comer, with solid financial condition continues to work out over several months or years, be open to gradually buying more incrementally on the way up. This is the way I have built large positions in HD, CSCO, MSFT, SUNW, EMC, AMAT, INTC, QCOM, NT, CMVT, BRCM, TQNT, QLGC, JDSU and several others over the past several years. By buying in gradually, I am now comfortable with what I have invested in each of these companies. And those total amounts of money invested in each of these are by now much larger than I would have ever considered putting in all at any single time.
And you need to be careful not to be too anxious to sell out if you stock doubles or triples. Years ago, there was a time in the mid 1990's when AMAT had run up rapidly, and I thought it was going to pullback a lot, so I sold out, fulling intending to buy back in, and awaited the 40% drop that did not come. So I later bought back in 30% higher than when I sold it, and have held it ever since, adding more in down times. There is always the possibility of outsmarting yourself, which I did then. Taking out your initial investment plus a 50% gain might be prudent, if it makes you feel better, but what you are looking for are those stocks like CSCO, HD, MSFT, QCOM, etc. that will achieve big gains over the years. So don't shoot yourself in the foot by pulling the sell trigger too quickly. These are tough calls. But in general, follow the advice of Peter Lynch who said "Water you flowers, pull your weeds."
But when your stock is going up after your initial position, beware of the temptation of getting overcommitted financially in a short time to any one stock just because it is running up sharply. Go back a few years and look at the sharp runups and subsequent rapid deep falls that stocks like MU and COMS (to name two of thousands) experienced. Stocks that do not work out after your initial position, as has been said, can be closed out, and marked off to experience, without large dollar losses, using this method.
Another thing to remember is that good stocks are usually 'overpriced', according to many standards. (Particularly, they will be termed especially overpriced by those who wish they had bought that stock five years ago). I recall that when I bought my first position in MSFT in 1992, I was going against the advice of many pundits in the media who lamented that MSFT stock was terribly overpriced, because its PE was in the 30's. So, wade in gradually to establish an initial position. Look for leading companies and solid up and coming companies in leading industries, and in industries which appear to have a great future growth ahead of them, and you will be building on solid foundations.. Build your positions as the company continues to build its market position and demonstrates sustained high sales and earnings growth rates quarter after quarter, and year after year.
Look for up and comers, but do not overlook the current market leaders. Don't be so busy looking for the next Cisco, that you ignore the current Cisco, for example. But beware when a large company matures to the point that it is growing its EPS by cost cutting, share buybacks, etc, and not growing the sales revenue by a healthy percentage each quarter. ATT and IBM are examples of mature leaders to avoid, in my view. Their sales growth is not impressive, to say the least. Growth in sales revenue is needed to sustain EPS growth in the long run, and thus to sustain stock price performance.
And when the market is having a big sale on everything, and you are real scared, have some money ready to buy a little more of the solid growth stocks. Remember that two qualities required to make a good investor are patience and courage. Best wishes to all for good investing success!!!. --Ron--- |
