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I'm beginning to think, more and more, active investing is in part about taking advantage of trading ranges (which have nothing to do with the fundamental value of the company).
For instance:
I buy stock in a good company. This company isn't going away in the next decade, maybe not in the next 50 years. The solidness of the company in effect gives me a "margin of error" in-case of a imperfect buy price, that time will bail me out.
The company does OK the first year, but basically just humming along as it has historically done. Basically, nothing much happens. Yet the stock went up 50%, if I manages to buy at $50 a share and sell at $75. (Which is in essence the trading range of many average companies.)
If I didn't sell when I was up 50% for instance, the stock could go back down. But I will have lost out, if I think purely from a "buy and hold forever" perspective. Buy and hold forever perspective is OK for exceptional companies, but it doesn't really capture trading range opportunities in boring, stable companies.
I guess my point is, exits are just as important as entries. I feel guys like Buffett do this kind of trading a lot, but don't admit to it.
For instance:
I buy stock in a good company. This company isn't going away in the next decade, maybe not in the next 50 years. The solidness of the company in effect gives me a "margin of error" in-case of a imperfect buy price, that time will bail me out.
Are you sure you don't 've a crystal ball with you or else I would never jump to conclusion that A company shall be there in 50 years. Even if its a company like MSFT/XOM/GOOG
Quote:
Originally Posted by concept_fusion
The company does OK the first year, but basically just humming along as it has historically done. Basically, nothing much happens. Yet the stock went up 50%, if I manages to buy at $50 a share and sell at $75. (Which is in essence the trading range of many average companies.)
If I didn't sell when I was up 50% for instance, the stock could go back down. But I will have lost out, if I think purely from a "buy and hold forever" perspective. Buy and hold forever perspective is OK for exceptional companies, but it doesn't really capture trading range opportunities in boring, stable companies.
I guess my point is, exits are just as important as entries. I feel guys like Buffett do this kind of trading a lot, but don't admit to it.
Thoughts?
What attributes are you using to decide if the stock has hit the top (as you say 50%) before it goes back down? Volume is stagnant? Short ratio is low?
AFAIK, the attributes you are gonna use to determine if its time to exit is the crucial aspect of active investing. It's those attributes that differentiates the buffet's in us .
That's why I think any active investor MUST learn technical analysis, at the very least... moving averages, stochastics, bollinger bands, bullish/bearing patterns, trading ranges, support/resistance levels.
That's why I think any active investor MUST learn technical analysis, at the very least... moving averages, stochastics, bollinger bands, bullish/bearing patterns, trading ranges, support/resistance levels.
Perhaps it's good to be aware of things like the 200 day moving average on an Index, and psychological price points like $100/ barrel on oil.
My point is, look to sell when you have gains, unless the company you're holding is really in a growth period. For instance, if I bought corning glass and had a 50% gain, I might want to sell. And make the stock somebody else's problem.
But if I bought, say a smaller cap tech company, like a biotech and had a 50% gain, I might want to hold on (large potential for greater gains there).
Quote:
Originally Posted by ThisDamnLife
What attributes are you using to decide if the stock has hit the top (as you say 50%) before it goes back down? Volume is stagnant? Short ratio is low?
AFAIK, the attributes you are gonna use to determine if its time to exit is the crucial aspect of active investing. It's those attributes that differentiates the buffet's in us .
Nothing in particular. Just looking for say, a 50% gain on my position. Yeah, that's arbitrary and imperfect. But it's probably not the worst rule of thumb in the world.
I'm beginning to think, more and more, active investing is in part about taking advantage of trading ranges (which have nothing to do with the fundamental value of the company).
For instance:
I buy stock in a good company. This company isn't going away in the next decade, maybe not in the next 50 years. The solidness of the company in effect gives me a "margin of error" in-case of a imperfect buy price, that time will bail me out.
The company does OK the first year, but basically just humming along as it has historically done. Basically, nothing much happens. Yet the stock went up 50%, if I manages to buy at $50 a share and sell at $75. (Which is in essence the trading range of many average companies.)
If I didn't sell when I was up 50% for instance, the stock could go back down. But I will have lost out, if I think purely from a "buy and hold forever" perspective. Buy and hold forever perspective is OK for exceptional companies, but it doesn't really capture trading range opportunities in boring, stable companies.
I guess my point is, exits are just as important as entries. I feel guys like Buffett do this kind of trading a lot, but don't admit to it.
Thoughts?
Buffett does not do this kind of trading. Period. Where did you even get that?
If you buy a good company for $50/sh and it goes to $75/sh in a year, the next year - or next month - it could go to $50, stay at $75 or go to $100. There is no way to predict short term movements in advance. NONE WHATSOEVER.
Technical Analysis does not work consistently. Depending on what rulesets you follow, it can be much worse than a coin toss.
As they say, there are no traders in the investors' hall of fame.
Sounds like trying to time the market with next to nothing to support your choices.
Buffett operates off of value.
If a company goes from $50 to $75, he'd sell if it was deemed overvalued. If it wasn't he'd still hold it. He's got a reason to take his action, not just because it "went up"
There's only a stock trading rang until there isn't.
Buffett does not do this kind of trading. Period. Where did you even get that?
If you buy a good company for $50/sh and it goes to $75/sh in a year, the next year - or next month - it could go to $50, stay at $75 or go to $100. There is no way to predict short term movements in advance. NONE WHATSOEVER.
Technical Analysis does not work consistently. Depending on what rulesets you follow, it can be much worse than a coin toss.
As they say, there are no traders in the investors' hall of fame.
There are no basketball players in the football hall of fame either. Two different activities.
While you can not predict short term movements in advance with 100% certainty it is possible to determine what is LIKELY to happen. If your method is right even 50% of the time you can still make money PROVIDING you use proper money management.
I agree with your statement regarding technical indicators. If technical indicators WERE consistent then there wouldn't be a 90% washout rate in the trading world. A lot of people decide they are going to trade and jump into it thinking all they need are some basic technical indicators like the MACD, stochastics and moving averages. Looking at a historical chart it is easy to fool yourself into thinking technical indicators are useful because the buy and sell signals are very clear in hindsight. When you are trading live it ain't so clear.
Perhaps it's good to be aware of things like the 200 day moving average on an Index, and psychological price points like $100/ barrel on oil.
My point is, look to sell when you have gains, unless the company you're holding is really in a growth period. For instance, if I bought corning glass and had a 50% gain, I might want to sell. And make the stock somebody else's problem.
But if I bought, say a smaller cap tech company, like a biotech and had a 50% gain, I might want to hold on (large potential for greater gains there).
Nothing in particular. Just looking for say, a 50% gain on my position. Yeah, that's arbitrary and imperfect. But it's probably not the worst rule of thumb in the world.
I understand you perfectly but my advice would be that close the position only if it has met your exit criteria, which should have been defined on sound investing principles using technical attributes without arbitary numbers else you could be left ruing this decision. If you can't stop the 'itch' to sell because your position has gained an arbitary x% then you should consider investing in index ETFs for your own good.
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Two different activities.
