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

To: Bob Rudd who wrote (17004)	5/7/2003 3:34:07 PM
From: Bob Rudd	Read Replies (2) \| Respond to of 78523

AOL/Lessons - I found this article useful - It starts out about AOL, but moves to sell discipline [CAPS are mine, not meant to be preachy - it's how I highlight in text files for my own notes] 5/7/03 12:22 ET Ahead of the Curve: AOL (AOL): 13.33 +0.04 (+0.3%) Ted Turner sold half his shares in AOL over the past few months and announced it yesterday. Much is being made of the implications for AOL, all of which are negative. There are a few people arguing that the incredible new supply of shares available is creating a buying opportunity, on the theory that they are not enough good stocks to go around. We don't buy that, because WE DON'T THINK THAT A GOOD INVESTMENT PREMISE CAN BE CREATED FOR AOL (other than short term trades). The primary reason for this is that WE BELIEVE ENTERTAINMENT COMPANY STOCKS, THAT DEPEND UPON THE VALUE OF THEIR ARCHIVED COPYRIGHTED MATERIALS, FACE A SERIOUS AND LONG TERM THREAT FROM DIGITAL COPYING TECHNOLOGY AND THE GROWING CULTURAL ACCEPTANCE THAT COPYRIGHT THEFT IS ACCEPTABLE. It is a STRONG ENOUGH THREAT TO MAKE US AVOID ALL OF THESE STOCKS, of which AOL is one of the biggest (because of Time-Warner). THE ARGUMENT ON WHICH THE MERGER WAS BASED - TAKE TW CONTENT AND SELL IT ALL OVER AGAIN USING THE AOL INSTALLED CUSTOMER BASE AND THE INTERNET - HAS PROVEN WRONG. Today, THERE IS NO GOOD LONG TERM INVESTMENT PREMISE AND A SERIOUS THREAT EXISTS. Why hold? Ted obviously feels the same way. Nevertheless, there are THREE EXCELLENT LESSONS for other investors in any stock that Ted's actions demonstrate. ONE: THE NAME OF THE GAME IS TAKING MONEY OFF THE TABLE. Eventually, you sell. The objective, of course, is to sell at a profit, but TAKING MONEY OFF THE TABLE IS MORE IMPORTANT. Much is being made of the amount of money that Turner failed to make by not selling at the peak. That misses the point. Now that he has reached the decision that going forward is not the right move, he took money off the table. We get emails all the time from readers who have lost faith in their investment premise, but refuse to sell because the stock is either below what they paid or below what they expected. WHEN YOU LOSE FAITH, YOU MUST SELL. Whenever your money is on the table, it is at risk. TWO: WHEN A DECISION IS TOUGH TO MAKE, A HALF-STEP IS AN EXCELLENT WAY TO GO. You NEVER HAVE TO MAKE AN ALL-OR-NOTHING DECISION. A half-move has the following emotional benefits: a) if the stock continues to go up, you did the right thing by keeping half; b) if the stock continues to go down, you did the right thing by selling half. How often can you make a decision where either outcome proves that you were right? Rarely. (If you take the opposite viewpoint that either way, you did something wrong, you have a serious problem. Success in investing (and perhaps in life) requires a resilient positive attitude, we believe. THREE: WHEN YOU MAKE A DECISION THAT THE FORWARD PATH IS WRONG, THE PAST IS IRRELEVANT. Taking action is more important. The media is focused on how much Ted has lost since the peak of AOL. At one time, Ted Turner's stock was worth more than $10 billion. He made headlines when he pledged $1 billion to the United Nations ($500 million of which has been delivered - the rest will be delivered over 10 years, instead of the original remaining five years). All that is not important now. Ted probably spent some time moaning the loss and probably spent some time being upset with Steve Case, who bears the blame for the failed merger. But it is irrelevant. Any emotional attachment to the past that prevents you from acting today is a negative factor. Ted Turner clearly has plenty of reasons to be upset and angry, but none of them prevented him from selling. We see emotional attachment preventing action by investors all the time. It usually only causes more losses. We have great respect for Ted Turner. He is one of the true individual entrepreneurs who can serve as a real example for other entrepreneurs. His recent action can also serve as an example to other investors. Disappointed? Lost faith? Lost money? So what, take action. Not easy, we admit, but you have to do it. Ask Ted. - Robert V. Green, Briefing.com