re: why 30?
There are things that I have to get right, to make money, and other things that are less important. There is also an order, to when the decisions need to be made.
Of the 4 numbers (12-17 buy range, 20-30 sell range), 30 (top of the sell range) is the number I am least certain of, and the number most likely to change. It's also the number that, at the moment, matters the least to my decision-making.
It's also not all that important, which semi-equip I choose. They all go up and down together, mostly based on sector and market sentiment, rather than anything company-specific. If I choose the best stock in the sector, and buy as the sector peaks, I lose money. If I choose the worst stock in the sector, and buy as the sector troughs, I make money (assuming I'm clever enough to sell at least some of my position, before the sector troughs again). The main difference is their volatility, so I choose (AMAT vs. ASML vs. KLIC vs. 2010 options) based on how much risk I feel comfortable with.
First:
What's important, today, (and probably for the rest of 2008, and maybe 2009) is to accumulate a good-sized position, without running out of cash before the bottom.
Second:
After taking an initial position, the next important decision, is when to start selling. If we bounce right here, I'm now holding 3 equal-$ AMAT lots bought at $16, $16.5, and $17.
Since the 2000 peak, I'm counting 5 rallies in AMAT:
+76%, $17 to $30, in 5 months, 11-00 to 4-01
+115%, $13 to $28, in 6 months, 10-01 to 4-02
+189%, $9 to $26, in 13 months, 10-02 to 11-03
+45%, $14.10 to $20.41, in 9 months, 4-05 to 1-06
+62%, $14 to $22.64, in 13 months, 7-06 to 8-07
(are these numbers accurate?)
Assuming today is a short-term bottom (low $15.94), and assuming a 45% rally (equalling the weakest of the 5), the stock will reach $23.11, on the following rally. I don't assume today is "the" bottom, so I'll probably plan on selling about half my current position, by the time the stock reaches $23.
If, instead of bouncing here, the stock plunges to $12 this month, and then fails to break above $17 for the rest of 2008, I might be willing to start selling at $17.
My basic principles won't change, but the specifics may, depending on the chart and the fundamentals (market, sector, and company).
Third: Re-loading:
Assuming we don't go straight up from the bottom, (a safe assumption, as all bull markets have corrections, and all bear markets have rallies, and "a" bottom might not be "the" bottom), I may get a chance to re-load. Once I've guessed "the bottom is in", I'll probably start buying back, on any 20% decline from my initial sell-points. For instance, if I start selling at $20, I'll buy back those shares if the price hits $16.
Fourth, when to finish selling:
A year from now, if the economy is still in recession, and semi-equip bookings haven't turned up, and AMAT hasn't gotten above its 2007 high of $23, I'll probably lower my final sell points. Not below $20 (even a bear-market rally will take us that far), but maybe to $22 or $25.
On the other hand, a stock price of $30 is less than a doubling, from today's levels. If the valuation increases by 40% (P/S goes from today's 2.59, to 3.63), and the sales also goes up by 40% (from today's $B8.45 to $B11.83), that equals a doubling of the stock price. For the quarter ending in July 2007, Applied's sales were $B2.56. Multiply that by 4, and you get an annual sales of $B10.24, so sales of $B11.83 isn't an unreachable number, for the next cyclical upturn. The time frame when this happens is extremely uncertain, which is why I'm leaning against using options, even LEAPs. In addition, this stock always overshoots, in both directions (which is why I'm not loading up today).
And if, a year or two from now, in addition to a market and semi-equip sector upturn, Applied's solar business takes off, I might just hold some of my position till AMAT is hitting all-time highs. (That's not a prediction, just a contingency plan, if everything that could go right, does). |
