Buy/Sell

[Dee]

hi all,
am having a serious problem with the buy/ sell, expecially the sell. how do you know the exact time to take the profit or cut the lose? i've learnt not to sell just because an analyst rates the stock a sell.any advice is welcome.

i sold kong like year after s&p downgraded the security to 1 star, and later on the stock went up evetually after 2 to 2 months beating. on the flip side am still holding on to a stock after it has been rated a sell and now i have lost about 50%.

sometimes i sell, and then realize i sold too early inthe case of CVS, is there an actuall indication i should be useing . i once had kramer said " sell when too many analyst are covering the stock sell".

anyone knows a link that explains this please direct me, and your advice is appricated.

[Airelon]

What you are discussing is the basics of money management.

How much do you risk? When should you take your profit? The two most important questions any trader will ever face.

Perhaps this little series of videos over at YouTube will help you out in this regard. It's plugging myself a little bit - but quite honestly, I've never seen a series that covers it in the same way. The manner that's made all the difference in both my trading, as well as my investing. Making money in the markets isn't about being right. It's about knowing how to manage the money in your account to your trades.

I know a trader who just blew out 3 accounts last week. The ironic thing is that this guy was right 85% of the time.

[Fredledingue]

Rockfeller once said "I became rich because I sold too early".
And he was right.
I always lost money because I failed to sell on time.

Conservative investors would sell after they make 10~12 % even when they are convinced it will go higher.
It's not sexy but it's the safest way to win and like it or not, a proven rule.

More agressive traders/investors will sell for 15~20%.
But they take more risks already.

Long term and very long term and very patient investors (we are talking about 10~20 years here) will eventualy sell (if they ever sell) for a gain ranging from 10 to 500%.

Just see what's your profile.

Just one advice, never look back at a stock you sold. Forget it for 3 months.
Like that you will never regret to sell a stock just before it gained 20% in a couple of days.

HTH

[Airelon]

Lord if that isn't the truth. Nothing worse than looking back at a stock or market and thinking: "If I woulda held on until..." and start playing the 'coulda / woulda / shoulda' game. That sort of thinking will get you in all sorts of problems ...

[Novice Investing]

Hi, Dee:

The moment I usually sell is when a stock has reached its fair value. Generally, I am trying to get ~ 50% appreciation for any given stock candidate. I do not recommend you buying stocks simply to get 5-10% appreciation. I'd rather put your money in the bank that way. The reason is simple. Stocks can move up or down 5-10% in a given week, some move more than that. Thus, if your stock gain 10% for the week, is it because of luck or is it because of skill? I must say it is 100% pure luck.

Is it hard to find a stock with a potential 50% appreciation? It is hard but doable. Nobody say it would be easy. If you look at many stocks in the major indices, their 52 week range is 50% or more. Thus 50% movement in one year is quite possible.

What you should be careful is the definition of fair value. For the same stock, Microsoft, for instance, investor A might think that its fair value is at $ 30 per share, while another investor B might think that its fair value is at $ 40 per share. You should check each investor's assumptions before deciding what is the correct fair value is.

[Fredledingue]

Novice,
I beg to disagree: If you cash in after one week for a 10~12% jump (ok under 10% it's too little),
1- You did in one week what any long term investment at the bank would give in one year.
2- It's not only a matter of chance: Chart analysis and fair value estimate play a role.
3- If you repeat that exercice with 4 net success in one year, you get close to 50% too... with much less risk as your money is constantly diverted or reinvested.

50% is doable but much more difficult than 10 or 20%. For 50% in one year you practicaly need to catch the bottom and sell at the top while you never know were is the bottom and the top.

I'm myself trying 50% gains on some stocks. I rarely succeed. Often I sell earlier because I see that it goes nowhere near I hoped. Often I buy too early, too high and I'm toast.
Often I buy at the bottom yet too early and it takes ages to move up.

When you do it it's great but it takes often more than one year to achieve.

[Dee]

thanks guys really appreciate the response.

Airelon i did follow the link u posted and a watched some of the videos and understood what u was talking about-money management. however ur 3% rule isn't that too small? from the example u gave - if i only have 3000 to invest with it means i can't make no money, cus the volume makes a difference. i think taking risk is just part of the game wheather its considered gambling or investing

[Novice Investing]

Novice,
I beg to disagree: If you cash in after one week for a 10~12% jump (ok under 10% it's too little),
1- You did in one week what any long term investment at the bank would give in one year.
2- It's not only a matter of chance: Chart analysis and fair value estimate play a role.
3- If you repeat that exercice with 4 net success in one year, you get close to 50% too... with much less risk as your money is constantly diverted or reinvested.

1. Ok. Anything can happen in a given week. Be it up or down. What if the stock goes down 10-12% in one week? Would you cut your loss or would you wait?
a) If you cut your loss, then your risk:reward ratio is 1:1 before any comission, which means you are merely breaking even on paper.
b)If you wait, then you are exposing yourself more to losses than gain (Since, you sold so quickly at a gain and not wait it up).

2. This I agree. But then again, it is not pure science. You won't know with 100% accuracy whether each particular chart pattern or fair value calculation will really give you that much amount of return. Thus, you need some kind of stop loss even with long-term investing.

3. The math makes sense. But again, you have to be SUCCESSFUL each time and I do not think it makes much more sense for everyone to have that kind of accuracy. Just do the math. If you make 50% return on your investment each year, $ 1000 on year 0 will become how much after year 25,30 or 40? The answer will surprise you. 25 years: $ 25.3 Million. 30 years: $ 191.8 Million. 40 years: 11.06 Billion. How many billionaires out there that can do it with $ 1000 and no additional investment required? Not much.

What I am saying is, I do not invest in stocks that don't have the chance of gaining 50%. For example, buying a stock that is merely 10% below fair value would give you only 10% gain in most situation. The downside, it can be 10%, it can be 20%, it can be 30%. I don't control the market and I don't know how low the stock will go. Regardless of the actual outcome (10% gain in one week), this is just the plan that I go with.

50% is doable but much more difficult than 10 or 20%. For 50% in one year you practicaly need to catch the bottom and sell at the top while you never know were is the bottom and the top. I'm myself trying 50% gains on some stocks. I rarely succeed. Often I sell earlier because I see that it goes nowhere near I hoped. Often I buy too early, too high and I'm toast. Often I buy at the bottom yet too early and it takes ages to move up. When you do it it's great but it takes often more than one year to achieve.

Yes, from the time I buy till the time I completely sell out, it is generally more than one year. This is more of a longer term approach. Patience is really key, but you don't have to practically catch at the bottom. Just near the bottom will suffice. In fact, in the past, I generally buy 10-20% above the bottom. If you see S&P 500 stocks, many will have 50% or more 52 week ranges. Thus, it is doable within one year period. How about I give you examples of group of stocks that move more than 50% in a given year? HPQ, AAPL, DELL, MRK, PFE, AMGN, AMD, INTC, all home builders, most banks, most investment banks, most retailers (CC, KMX, RSH, BBY, BEBE, GES, ANF, AEOS) and many others.

To sum it all, we agree to disagree at several points :-)