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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (16143)	1/11/2003 12:57:19 PM
From: Spekulatius	Read Replies (1) \| Respond to of 78594

Paul, i do much of the same thing that Don Earl does. In my nontaxable accounts am quick to sell for a profit (20%+) if a stock runs up fast and without news. So i guess this makes me somewhat of a trader. However i am also very value conscious because this allows me to average down when the share price goes down without obvious reason too. This has worked well for a couple of years except this year where I got killed in a couple of value traps (EP, ELN etc). The rationale behind this strategy is to convince your self that there is good value in an investment so one has conviction to average down if warranted, and make a bad trade a long term investment <g> this way. The risk with this strategy is that one may have many small wins and get sucked into big losses, which is exactly what happened with my investments this year <ng>. So I have adjusted my strategy and take a much closer look at the underlying risks of stocks (asbestos, balance sheets etc.) and pass up on many investment that I would have done in less treacherous market.

To: Paul Senior who wrote (16143)	1/11/2003 7:46:21 PM
From: Don Earl	Read Replies (1) \| Respond to of 78594

Paul, <<<If you are so quick to sell for a profit, are you also that quick to sell when a stock goes against you after you've bought?>>> If I'm able to spot a mistake quickly enough, my view is the time to correct the mistake is ASAP while the loss is still small. If I've done my homework, that shouldn't happen too often, but it does happen and my experience is a quick stop is a better choice than chasing a bad trade with cost averaging. The problem is my crystal ball is second hand and somewhat unreliable, so catching the absolute bottoms and tops is a rare event. Even a good trade needs time to work so pushing the panic button too early is the wrong thing to do if everything else is okay. I normally expect to see the price rattle around my entry points for awhile if my timing is anywhere close to being right. The hardest decisions I make are related to cost averaging. The usual situation is one where I know I want to own the stock, I'm certain it's under valued, and I don't have a fuzzy clue where the bottom is going to show up. It's too much like intentionally entering into a series of bad trades to make me happy, but if an unexpected drop shows up I'll sometimes add to the position if everything else looks okay. Out of around 40 trades last year, I averaged down maybe 3 times and stopped out about the same. I don't have the numbers in front of me but the cost averaging trades came out modestly profitable, but not as well as if I'd waited for the bottom. I beat myself out of a three bagger on one stop, a 70% loss on another and a Chapter 11 on a third. Even though one of the stops was a bad call, I saved myself a really nasty set of lumps on the other 2, and one of those I bought back closer to the bottom for profits. There were a bunch of places where I could have maximized profits by being a little more patient, but I don't feel too bad about less than perfect execution in the market we've been in. So I suppose the answer is I'll try to bail if I think I goofed, but not if it looks like a matter of being a little off on the timing. If the stock really is under priced, it should tend to correct back to fair value over a few weeks or months.