Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Chuzzlewit who wrote (45563)	5/31/1998 5:20:00 PM
From: dougjn	Read Replies (1) \| Respond to of 176387

Chuz, two things about the discount broker study. One is that the study period is during a strong and unbroken bull market. 1991-6. The second is the average case does not prove all cases. During a strong bull market with no even 10% index corrections, buying and holding will in general do much better than trading. Of course it depends on what you buy and hold. One will do much better buying and holding a high consistent grower than an auto company, for example. And I fully agree that the very best returns are obtained that way during such market periods. Also, the fact that most people trade the wrong way does not mean that it is impossible to do some intermediate trading that makes sense. I.e. most people sell winners as so as they show any significant gain, and hold losers until just after they break positive. No matter how long it takes. On the buy side many buy and hold advocates (in which camp I largely, but not entirely, place myself) will advocate buying during market or issue dips. It was perfectly clear to me a little over a year ago in April of 1997 that much technology was being bid way too far down, and that it was a great time to get into great technology. Star example Cisco systems. But lots of others. I think it was possible this past Monday to see that some tech was again becoming quite relatively attractive. E.g., much software, incl. Psft, Neta, Ctxs. In fact, much of it is still relatively attractive. I think you tend to agree on the buy side. That is, from what I can tell you seem to recognize that it is best to buy tech growers on pullbacks. Not to wait forever for some ultimate pullback, but to wait for a pullback. I think reviewing charts of tech suggests this is true. Of course it all depends. If one has just missed a pullback, and the issue in question is not overvalued by its own historical standards, waiting for the next signficant pullback might be quite unwise. So now the question remains, should one ever sell after a strong run up to lighten up and free some cash to buy in the next pullback? This is a bit trickier, but my conclusion is yes. At the margin. While leaving most of one's portfolio, and especially deep profits in still strong growers, undisturbed. I think this is particularly true if one uses moderate amounts of margin, as I do. What I tend to try to do is to go to zero margin after a strong run up in the market in general and my stocks in particular. I'm not saying zero equity, I'm saying full or nearly full equity investment, but sell down to zero margin. And then to add in some prudent amounts of margin on strong pullbacks or as individual issues have big pullbacks for reasons that leave undisturbed their long term story. By prudent levels, I mean levels which, after taking into account one's average portfolio beta, are very unlikely to lead to any margin call even during a correction which is on the severe side of what could reasonably be expected given overall market conditions. There is built in safety by going off margin at intermediate level market peaks or plateaus (such as in early May after the sharp run to Dow 9200), and adding some margin only on pullbacks of 5% or more in the Naz. This takes some considerable discipline. Note this leaves a 90-100% equity position undisturbed for long term holding. Doug