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

To: Stewart Whitman who wrote (19525)	8/10/2004 6:09:55 PM
From: Dale Baker	Respond to of 78622

You can be pretty sure that Buffett doesn't follow that rule. ;<)

To: Stewart Whitman who wrote (19525)	8/11/2004 1:13:57 AM
From: Paul Senior	Respond to of 78622

regarding: "Cut every loss when it’s 8% below your cost..." I may have seen an article a few years ago in Individual Investor or NAIC which summarized and discussed the percentages advocated by some published professional investors who used these figures as part of their sell strategy. I don't recall ever seeing any statistical testing for a justification for doing such types of selling. I checked Dr. Graham's Intelligent Investor, and I don't see any discussion of it by him. Nothing in Martin Whitman's Value Investing book either that I spot. Just pulling a couple more books off a shelf, Seth Klarman ("Margin of Safety") says, (pp. 218-219): "Some investors place stop-loss orders to sell securities at specific prices, usually marginally below their cost...Although this strategy may seem an effective way to limit downside risk, it is, in fact, crazy. Instead of taking advantage of market dips to increase one's holdings, a user of the technique acts as if the market knows the merits of a particular investment better than he or she does." and: "If selling still seems difficult for investors who follow a value-investment philosophy, I offer the following rhetorical questions: If you haven't bought based upon underlying value, how do you decide when to sell? If you are speculating in securities trading above underlying value, when do you take a profit or cut your losses? Do you have any guide other than 'how they are acting,' which is really no guide at all?" John Spooner ("Do You Want to Make Money or Would You Rather Fool Around" (aside: an informative and interesting read- as you might suspect from the humorous title)) writes (pp.55-57), "The key to good stocks that go bad is, do not be frozen at the switch. React to problems; develop a plan." In interviewing an investment pro with more than 40 years experience, this person told Mr. Spooner (himself a money manager), "First of all, you have to really be honest with yourself about what kind of company you're stuck in." One strategy he might use ("if your disaster is basically a good company"): "I accumulate more of the stock at desperate prices to try to cut my average cost per share, and I employ patience, the true investor's greatest asset." Another strategy: "I double up on my disaster stock, and 31 days later, sell the original shares to establish a tax loss." ----- I could go through other books on my investing shelves but I guess that since they're mostly value stuff, there's not going to be much discussion of selling after an 8 or 10 or 20 percent drop. For that, I'll have to go out to the garage and unbox O'Neil's book, I guess. -g-.