t2K - I don't want to make this into a treatise, so I'll keep this as short as I can - which will be hard, as I'm a major gasbag.
IMO, it makes sense to have a core holding of MSFT at all times - it provides an anchor and stability for the whole portfolio. Obviously, every holding should be continuously reevaluated, but IMO, MSFT is definitely a good stock to own for at least another 2-3 years (after which, we'll have to see where MSFT is, where it intends to go, and how the technological and competitive landscape looks).
The obvious concern is that you'll buy too high. That is why, it makes sense to buy and hold for at least 1-2 years, so that as MSFT moves up, the fact that you overpaid by 3 points becomes irrelevant.
I have one additional technique I use. I take advantage of my trading to lower my costs of acquisition. A good example is SFE. I like what I see of the company, so I'd like to keep it long term. Long term implies risk - SFE is trading close to it's all-time highs, and buying now seems extremely risky - what if it tanks and I lose 65% of my money? That fear stops most people from buying a stock that they would like to own, but fear is too expensive, and they fear buying it at a top. Consequently they never get into the stock at all, and watch it climb 100%, 200%, 300%, and it becomes ever more difficult to get in.
So, I look at SFE. It is a company that is extremely difficult to value - scratch that - is *impossible* to value. Just like CMGI. How can you value a company that grows a bunch of companies and floats them? How can you evaluate which will be monster hits, and which will be flops? Impossible. So, I do my best to analyze SFE purely on technical grounds, by looking at the stock in terms of market dynamics. My analysis indicates that if market conditions turn for the worse, the stock will trade at about $45. If the conditions are very bad, perhaps around $33. I bought it at 68, because I felt that I couldn't get it any cheaper unless there was a market collapse. As I'm not banking on a collapse, I can't wait for that. Still, I intend to hold SFE for the long term. That means, there is a RISK of it possibly hitting $45, or even $33. How to protect myself? The only way I can do it, is by lowering my cost of aquisition through trading. This I have done - thus far, I have a 28 point gain on my trading of SFE (some of these trades I've posted here in my posts to Teflon, to whom I owe a big debt of gratitude for turning me on to this stock). Effectively therefore, I have lowered my aquisition price to $40 - unfortunately not quite... there are taxes to be paid on short term capital gains, so in reality my average cost is around $50. I intend to trade it until it reaches about $33 (after taxes). Why trade now? Because every stock has it's optimal time of trading - SFE is in such a period right now (until recently, and to some degree it is still a good trade is NITE; before that DCLK, etc.).
Bottom line: if there is a stock I desire, I get into it, without worrying excessively about its current price. I worry whether I will be able to lower my cost of aquisition. If I see that the stock is in a good period of trading, I'll jump in, and trade my way to a lower cost of aquisition - the level determined by what I think the worst case scenario is if it sells off. Of course, this applies to stock I want to own for the longer term, not just a trading stock.
My point is, that you have to make a series of decisions: do you want to hold MSFT for the long term (define long term for yourself); how much are you willing to pay, and will it bother you to overpay by "x" amount; are you in a position to lower your costs of aquisition.
Hope this is helpful.
Regards,
Morgan |
