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

To: Madharry who wrote (28417)	10/5/2007 10:05:25 AM
From: Paul Senior	Read Replies (2) \| Respond to of 78688

LEV. That's why you considered partial sales. That's why you want to consider keeping stub positions.

To: Madharry who wrote (28417)	10/5/2007 1:49:33 PM
From: Jurgis Bekepuris	Read Replies (1) \| Respond to of 78688

Don't cry. KONG was up 50% or something couple days after I sold it. ;) And let's not look at that pesky RTRSY since 2002. ;) (Which might be a great short now, since I have no clue how the stock is still rising while sales and earnings are declining and the valuation is totally gross, but then I don't short stocks.) If you consider a position fairly valued or overpriced and having no great future, you have to sell it. Otherwise you will cry when it drops back to underpriced level. ;) And even if it rises at some point you have to sell. Partial sales are possible if you have large position and think that stock is fairly valued, not very overvalued and you still see some positive future developments. I will disagree with Paul on stubs. Stubs are nice, but they don't solve the problem. Assuming you leave 1/10th of a position as a stub, even if stock doubles, you get only 1/10=10% gain from original position. Even if it triples, you get 1/10*2= 20% gain. These may be OK, but you have to keep eye on the stub, decide when to sell it - which is in itself very hard, since you already sold the original stock as overvalued - etc. Too much trouble. BTW, realistically if stock just goes up 30% or 50%, you get only 3-5% additional return if you manage to sell the stub at the top... Alternatively, you could sell all position and buy a call for 1/10th of its value. Also not a good solution, since you can lose that money... Unfortunately, it seems that net-nets or cash-nets are the ones that rally past sell-points most of the time. Normal Buffettology/nice-ROE companies usually don't drop as low and don't rally as fast as net-nets. Since I also lose opportunities at selling net-nets below their rally points, I was trying to figure out the price for which I should hold, but I have not reached a good solution. Problem for me is that it's very tough to assign a fair-value to a cigar butt net-net. I know how to assign it to a steady company that earns X%. With net-nets, usually they are not earning anything, so the rallies are usually based on changed expectations, but not actual results. So it's very hard to say whether they will go to 1.5book, 2xbook, 3xbook or some other level. OK enough rambling. ;)