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

To: Shane M who wrote (6577)	4/3/1999 10:13:00 PM
From: Michael Burry	Read Replies (1) \| Respond to of 78652

To be wrong is OK, but to persist in being wrong again and again by averaging down repeatedly doesn't sit well. Averaging down can be both wonderful and deadly. I found a simple rule that helps me, at least, deal with this (or at least give me confidence that I think I know how to deal with this ;)). I have the utmost confidence in Deswell still, by the way. First I had to decide that I wasn't going to average down more than once in any stock. And once I decided that, I decided that if I were to average down, it would have to make a significant difference in my basis, enough to offset the increased risk signalled by being wrong once. And a 20% drop doesn't do it - my cost basis is still 90% of original. I've decided on a 33% rule - a stock I have the utmost confidence in must fall at least 33% before I will even consider it again. And if I can I'll try to hold off for a 50% drop. A corollary to this is that I won't buy a stock again at the same price or at a higher price unless significantly material new information is discovered by me. These rules have caused by default, but also by design, the number of stocks in my portfolio to grow and grow. The days of saying, "wow, this is cheap" "wow,it's still cheap" "wow, it's even cheaper" "wow, now it is really cheap" and buying at each of those "decision" points (and thereby concentrating my portfolio by default), are behind me. Mike

To: Shane M who wrote (6577)	4/5/1999 4:33:00 PM
From: geoffrey Wren	Read Replies (3) \| Respond to of 78652

Shane: Your observations are well put. Here is a problem I have had, and am only now getting better at it. It is selling the stock I own when they have a big run-up in price and I sense the momentum is dying out. Usually when I get the feeling that the price is too high, I am right. Usually in the past, I have not sold (having a buy and hold philosophy). Now I am better at selling. I often have sold 1/2 or 2/3 of my holdings in these circumstances. From now on, I will force myself to sell all. I think I have a pretty good sense of when my own stocks are overpriced, because usually I have been following or owning them for months or years, whereas stocks I look to buy often I have followed only for weeks. I cannot say exactly how I have this feeling, but it is like when you are playing poker and the other player is betting big and you just know he has a hand, but you stay in the pot, sort of like a frog who is frozen by a flashlight. You feel you should be out, but you stay in. Geoff Wren