Crispin, one other thing - re: "if you are absolutely sure that microsoft is always going to go up".
First, I never said, MSFT is "always" going to go up. There are stocks which theoretically always have gone up THUS FAR. The example would be K - it's gone up for 75 years thus far. But that's irrelevant. My point was, that an integral point of my method is to do fundamental research, so that when MSFT starts declining, you are not caught by surprise. You say I "seem confident that it can't happen without you knowing about it." I don't need to have a crystal ball - all I need to do is to react once a trend is CLEARLY established.
Scenario: MSFT is in an uptrend. I've been trading successfully with the trend for some time. Suddenly, the trend changes and MSFT goes into long term decline - imagine that I'm brain dead and my FA completely worthless, and I don't notice the trend has changed. Using my method is actually PROTECTIVE. I am actually BETTER off than ordinary daytraders, who take their losses. Why? Because if I bought high, and now MSFT *never* comes back, and actually goes bankrupt, then all I lose is the entirety of my last trade. Meanwhile, I've made much more by trading successfully in the uptrend. So, I took advantage of the uptrend with 2000 good trades (all profit) and I made one bade trade (all loss). I'm still ahead - even if my FA is not worth a hill of beans. Now, an ordinary daytrader can still lose - because he will keep trading in the downtrend - keep taking small losses. I am protected, because I BY DEFINITION can only take ONE loss (the final one) - as long as my profit is bigger than my one loss, I am ahead (and since I only use 1000-2000 shares per trade, at this point I cannot have a loss bigger than all my profits).
So, bottom line - even if I'm an FA idiot, I cannot lose with my method.
Now, notice how unlikely that is - first, I would have to be very unlucky - the stupid chart on MSFT is very simple, up, up, up, always up, for years up - but I, the world's most unlucky trader, buy at the very height, and soon after, MSFT actually goes bankrupt. Statistically, very, very unlikely - and even in that dire scenario, I come out ahead. And like I said, there are stocks which have been going up for decades. Which brings me to my most important point...
Let us not lose sight of what started this whole discussion. My point to Ken was PRECISELY that you have to look at VALUE, long term value. You DO have to try to find a company that you can be REASONABLY certain is in a uptrend, and you have to do FA to make sure it is in an uptrend. My point was, that his "principles" of taking a small loss, not holding on to a losing trend, not looking at fundamental value, not thinking like an investor, but as a trader... may work for him - OK, fine. But I think, at least for myself, that those principles are dangerous - because you can end up with a string of "small" losses which add up, because you have to be right about every little move in the stock every time, because you have to assume that you can always execute your trade with no technical or market difficulties - guess what, many if not most those who try to daytrade lose, and lose big. Now, my stupid principles, which are an exact reverse of his, work for me, are safe, and profitable, and pretty easy - I *DO* look for fundamental value (and chose only the best), I *DO* think like an investor, not trader and I do FA, I *NEVER* take a loss, "small" or big, I *DO* hold on to "losing trades" (because if I paid attention to the dread fundamental value, and did my homework as the dread investor and not trader, that "losing" trade will turn into a winning one), and I am not as dependent on technical, execution, market and trading perfection... if my computer crashes, I'll just hold on - and not be stuck in a really losing trade (like a normal daytrader frequently is - and so is forced into taking a "small" loss).
So, the whole point of the discussion was - VALUE is important (at least with my method). Now you say - what if you are wrong? That's like saying what if you are a bad trader? The point is that whatever method you use BADLY, it will end up BADLY. Ken's or mine. The difference as I see it, is that it's a lot easier to use Ken's method badly than mine. I mean, what - I pick a stock whose chart shows the stock declining for the past 5 years? Please. And the odds of my being wrong are very remote - like I said, I'd have to be very unlucky to pick a stock that has been in a decade long uptrend, and at the very moment when I start trading, it tanks, never recovers, and moreover I'm too stupid to do enough of FA to ever notice. Please.
Look, there is validation in my method - in the very concept of INVESTING. Why is investing profitable? Because stocks go up over time. If they didn't, no investor would make money. It's stupid to ask an investor "what if you are wrong". That's the whole damn point. Pick a stock that is rock solid - exactly why I say *DO* pay attention to VALUE. And then using my method, you are afforded no less than the same statistical upward bias that an investor is. This has worked ever since stocks were invented - which is why investing has been profitable, which is why markets have an upward bias over time. Of course, my twist on this is - pay EXTREME attention to VALUE. To use my method, you may only be able to do it with a handful of stocks. But is it possible? Hell yes - Warren Buffet chose 10 stocks and they all went up over decades, and he's the richest investor in history (Gates is the richest businessman). So, I chose my one, two stocks - even easier, I don't need 10 like Buffet.
BTW, just in case you think this is simply no better than Buy an Hold investment, then go back to my first post to you, and refresh your memory on how trading my way gives you a better return than investing (scenario A and B, leverage, margin etc.). |
