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Post by laughter on Aug 28, 2016 19:20:40 GMT -5
[...] If you're stuck in a stock like SPWR, and the future doesn't look good, there's a way to get out, but it entails a fair amount of risk. You have to sell some portion of your position at a momentary high, and then try to buy the shares back when the stock falls lower. This lowers your cost basis. By repeating this procedure again and again, it's possible to exit the stock with a minimal loss. The risk is that the stock will keep rising and leave you behind. You can mitigate that risk by using options, but only the most sophisticated investors will understand how to do this. Best of luck. Thanks for that info. I've been squeezed for a while by low income and liquidity, but I just got a good job so that should help and allow some techniques like this in coming weeks and months. If you can be patient enough (which depends on your age and retirement goals), stay in cash, wait for blood in the streets, and buy quality. Maybe 5 years, maybe 15, but within 20, its pretty much a certainty. Mark it with a 25% decline in the S&P. |
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Post by enigma on Aug 28, 2016 19:34:20 GMT -5
Lately I'm in the red on solar panel maker SunPower (SPWR) and not sure what to do. I think I do know enough about solar panels to say it's a good technology, and there will be more of them in the future, but... (and I've made this mistake before) ... just because a technology will be useful and popular doesn't mean a specific company is going to be able to profit from that. I think once I get out of this stock, I may stay out of stock gambling forever. Or maybe only buy index funds, which I heard Warren Buffet say people should do if they don't follow things closely. Good idea. The SPY ETF has an expense ratio of .09, and the VTI has an expense ratio of .04. If you're not interested in reviewing things like PE's, P/S ratios, cash versus debt relationships, PEG ratios, income and balance sheets, etc in an effort to find undervalued stocks, then a fund like the VTI is the way to go. Remember, about 80% of actively managed mutual funds CANNOT beat an S&P index fund over time. Before I got interested in individual stocks I put $10,000 into the Schwab 1000 (an index fund that owns the top 1000 US companies by market cap), and I put $20,000 into a relatively conservative growth and income mutual fund. This was in the nineties when the market was going straight up. For several quarters I looked at the statements and both funds were going up at the same rate as the market in general. Then, like most people, I ignored the statements for a while. Three years later I happened to look at the quarterly statement and was astonished at what I saw. The index fund had doubled in value to $20,000, but the G&I mutual fund had lost half its value and was worth the same amount I had put into it several years earlier--%$20,000. I quickly pulled up 5 year graphs of both funds to find out what had happened. The index fund graph showed a steady rise from $10,000 to $20,000, but the G&I mutual fund showed a steady rise until one particular day when the value collapsed by a massive amount. What happened? The G&I fund manager had made a bad bet, so, not only had he been paid substantial fees for managing the fund, he had lost all of the gains accumulated over several years. If the mutual fund had matched the performance of the index fund, it would have been worth $40,000 or more, but instead, it had returned zero gains over a period when the market was rising explosively. This is why Buffet and other highly successful investors recommend that people buy index funds. Warren Buffet has gained almost 20%/year, on average, for the last 50 years. He represents the best performance that anyone could hope for. Peter Lynch also had similarly spectacular gains when he managed the Magellan Fund. An index fund over the last 50 years has probably gained about 10%/year, on average, and an index fund is not managed at all. A computer simply reshuffles the index to include the list of companies selected to mirror the market. This is why the expense ratio is so low. There are no people being paid to buy and sell stocks in the fund. The only reason that a person might want to buy and sell individual stocks is because s/he is willing to study individual companies in an attempt to beat the performance of an S&P index fund. If an investor can't beat the S&P 500 with his/her stock picks, then s/he should simply buy an index fund and forget about it. For some investors, stock picking is an intellectually-exciting game, and the fundamental challenge is to outperform the S&P 500. From everything I've read the only stock pickers who can consistently beat the S&P 500 are value investors--people who search for undervalued stocks that the Wall Street herd commonly overlooks. Fortunately, it only takes one big winner to make up for a whole lot of losers. Stock pickers are always searching for what Peter Lynch called "the ten bangers"--stocks that go up at least ten times the initial purchase price. If you're stuck in a stock like SPWR, and the future doesn't look good, there's a way to get out, but it entails a fair amount of risk. You have to sell some portion of your position at a momentary high, and then try to buy the shares back when the stock falls lower. This lowers your cost basis. By repeating this procedure again and again, it's possible to exit the stock with a minimal loss. The risk is that the stock will keep rising and leave you behind. You can mitigate that risk by using options, but only the most sophisticated investors will understand how to do this. Best of luck. What's the difference between that and playing the same game with an unrelated stock and leaving the stock in question alone? Isn't it really a psychological game to make one feel better (or worse as the case may be) about making a bad investment? |
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Post by laughter on Aug 28, 2016 19:42:15 GMT -5
Good idea. The SPY ETF has an expense ratio of .09, and the VTI has an expense ratio of .04. If you're not interested in reviewing things like PE's, P/S ratios, cash versus debt relationships, PEG ratios, income and balance sheets, etc in an effort to find undervalued stocks, then a fund like the VTI is the way to go. Remember, about 80% of actively managed mutual funds CANNOT beat an S&P index fund over time. Before I got interested in individual stocks I put $10,000 into the Schwab 1000 (an index fund that owns the top 1000 US companies by market cap), and I put $20,000 into a relatively conservative growth and income mutual fund. This was in the nineties when the market was going straight up. For several quarters I looked at the statements and both funds were going up at the same rate as the market in general. Then, like most people, I ignored the statements for a while. Three years later I happened to look at the quarterly statement and was astonished at what I saw. The index fund had doubled in value to $20,000, but the G&I mutual fund had lost half its value and was worth the same amount I had put into it several years earlier--%$20,000. I quickly pulled up 5 year graphs of both funds to find out what had happened. The index fund graph showed a steady rise from $10,000 to $20,000, but the G&I mutual fund showed a steady rise until one particular day when the value collapsed by a massive amount. What happened? The G&I fund manager had made a bad bet, so, not only had he been paid substantial fees for managing the fund, he had lost all of the gains accumulated over several years. If the mutual fund had matched the performance of the index fund, it would have been worth $40,000 or more, but instead, it had returned zero gains over a period when the market was rising explosively. This is why Buffet and other highly successful investors recommend that people buy index funds. Warren Buffet has gained almost 20%/year, on average, for the last 50 years. He represents the best performance that anyone could hope for. Peter Lynch also had similarly spectacular gains when he managed the Magellan Fund. An index fund over the last 50 years has probably gained about 10%/year, on average, and an index fund is not managed at all. A computer simply reshuffles the index to include the list of companies selected to mirror the market. This is why the expense ratio is so low. There are no people being paid to buy and sell stocks in the fund. The only reason that a person might want to buy and sell individual stocks is because s/he is willing to study individual companies in an attempt to beat the performance of an S&P index fund. If an investor can't beat the S&P 500 with his/her stock picks, then s/he should simply buy an index fund and forget about it. For some investors, stock picking is an intellectually-exciting game, and the fundamental challenge is to outperform the S&P 500. From everything I've read the only stock pickers who can consistently beat the S&P 500 are value investors--people who search for undervalued stocks that the Wall Street herd commonly overlooks. Fortunately, it only takes one big winner to make up for a whole lot of losers. Stock pickers are always searching for what Peter Lynch called "the ten bangers"--stocks that go up at least ten times the initial purchase price. If you're stuck in a stock like SPWR, and the future doesn't look good, there's a way to get out, but it entails a fair amount of risk. You have to sell some portion of your position at a momentary high, and then try to buy the shares back when the stock falls lower. This lowers your cost basis. By repeating this procedure again and again, it's possible to exit the stock with a minimal loss. The risk is that the stock will keep rising and leave you behind. You can mitigate that risk by using options, but only the most sophisticated investors will understand how to do this. Best of luck. What's the difference between that and playing the same game with an unrelated stock and leaving the stock in question alone? Isn't it really a psychological game to make one feel better (or worse as the case may be) about making a bad investment? The difference is that ZD's describing making use of the volatility of the stock that cratered and that you want out of, which you're not going to have, comparatively speaking, with the similar stock. |
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Post by enigma on Aug 28, 2016 19:46:45 GMT -5
How can you be stuck in a stock? It's just a psychological thing that don't want to sell in the red. Either you think it's a good investment or not. If not just sell. Of course you can also trade the swings because you want to come out in the green and maybe you will. But you might still perform worse than an ETF so you are really in the red (plus all your time!). If you enjoy the trading it's a different story maybe. Just my thought, but not much experience here. It's very easy to get stuck in a stock. You buy a stock that looks undervalued, but the price drops. If you have total confidence in the stock, you may choose to double down (buy more shares at the lower price), and thereby lower your cost basis. But the stock may continue to fall. Some investors automatically sell any stock that falls 10% below their buy point, but most value investors will not do this. I've made lots of money by riding a stock all the way to the bottom while continually buying more shares. When the stock rebounds, it can be progressively sold on the way up for big gains. Why sell shares on the way up? To lock in gains in case it falls back.Sometimes, however, you discover that there were problems with the company that were not foreseen when the stock was purchased, and you lose confidence that it will ever rebound. This is called "a value trap." If you sell the stock, you have to take a big loss, and the only time that makes perfect sense is if one thinks that the company may go bankrupt. Every stock story is different, and an investor has to constantly review the numbers and the basic story to decide whether to continue holding the stock or attempt to get out of it. Sometimes a stock falls so far that it isn't worth selling; you just hang onto it and hope that one day it will recover. If it looks like it'll be underwater for a long time, and the price is oscillating, then it may make sense to sell on upward bounces and buy back the shares on downward bounces. This strategy is not always successful, but sometimes you can get out of a stock by playing this game until your cost basis drops to the current value of the stock. Then you can kiss the shares goodbye and say "good riddance!" haha Because you have a math background, you might find stock investing fun (and highly profitable). It helps to be smart and to be able to think outside the box. It also helps to be able to focus intensely upon the numbers. In the movie "The Big Short," the one-eyed guy, Michael Burry, had Asperger's Syndrome, and it allowed him to dig deeper into the numbers than almost anyone. His record as a stock trader was mind-boggling, and he gained almost $500 million by shorting the housing market in 2006. In the same movie, and book, two young guys discovered a strange aspect of the Black-Scholes option pricing formula, and in three years they turned a $100,000 inheritance from one of their grandmothers into $30 millions dollars. They made tons more money by having a deep insight into the structure of CDO's, an insight that no other major players ever saw. Check out the movie or book. As a mathematician, you'll be able to appreciate the insights that these people had. I have a friend who's a math genius. He got interested in options, and he was able to accurately calculate all of the odds involved in the way he wanted to play options. He made money on almost all of his trades, but he was so risk averse that he couldn't take full advantage of his knowledge. The whole investment game can be summarized as finding investments with a very high chance of paying off, and then betting big. Then that should be a valid approach for any stock that is rebounding, whether you own it or not. Is that true? Buy a rebounding stock and sell a little at a time on the way up? |
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Post by enigma on Aug 28, 2016 19:51:27 GMT -5
What's the difference between that and playing the same game with an unrelated stock and leaving the stock in question alone? Isn't it really a psychological game to make one feel better (or worse as the case may be) about making a bad investment? The difference is that ZD's describing making use of the volatility of the stock that cratered and that you want out of, which you're not going to have, comparatively speaking, with the similar stock. You will if the similar stock is similarly volatile. It's not hard to find a volatile stock. Is playing chicken with them a valid investment strategy? |
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Post by laughter on Aug 28, 2016 20:06:55 GMT -5
The difference is that ZD's describing making use of the volatility of the stock that cratered and that you want out of, which you're not going to have, comparatively speaking, with the similar stock. You will if the similar stock is similarly volatile. It's not hard to find a volatile stock. Is playing chicken with them a valid investment strategy? The strategy is premised of course on the prospects of the dud to recover, and a decision not to cut your losses completely, or at the very least to gamble on a better timing for cutting those losses. Here's a classic example: compare the chart of vow3 with f. VW is going to experience some intense volatility over the next few years that you won't find in Ford, but if you had a big position when the axe fell, selling now and shifting to what looks at the moment to be the better risk is essentially gambling that VW is unlikely to eventually at least regain parity with Ford in terms of valuation. |
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Post by zendancer on Aug 28, 2016 20:28:13 GMT -5
What's the difference between that and playing the same game with an unrelated stock and leaving the stock in question alone? Isn't it really a psychological game to make one feel better (or worse as the case may be) about making a bad investment? The difference is that ZD's describing making use of the volatility of the stock that cratered and that you want out of, which you're not going to have, comparatively speaking, with the similar stock. Correct. If you're stuck in a stock that probably won't recover for many years, you can sell the stock for a big loss or, if the price is oscillating, you can try to use the oscillations to gradually lower the cost basis and allow you to get out with a smaller loss. If you bought a stock at $25/share, and it's fallen to $12 and is oscillating in the range of $10 to $12, you can sell and buyback shares in the lower range to exit the stock long before it ever gets back to the $25 range. You already own the stock, and you're way underwater, but if you sell at $12 and buy back at $10, and keep doing this, you can eventually lower your cost basis from $25/share to $12/share and get out at a breakeven figure. Of course, you could continue trading the stock at the lower range and attempt to end up with a gain, but usually you want to be rid of it because it didn't turn out to be the kind of winner you initially envisioned. Many times investors are happy just to reduce the size of the loss. It all depends upon where the stock price stabilizes, and whether there is enough interest in the stock to keep the price oscillating. Different investors choose to play the game in different ways. |
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Post by enigma on Aug 28, 2016 20:31:37 GMT -5
You will if the similar stock is similarly volatile. It's not hard to find a volatile stock. Is playing chicken with them a valid investment strategy? Here's a classic example: compare the chart of vow3 with f. VW is going to experience some intense volatility over the next few years that you won't find in Ford, but if you had a big position when the axe fell, selling now and shifting to what looks at the moment to be the better risk is essentially gambling that VW is unlikely to eventually at least regain parity with Ford in terms of valuation. But neither the desire to cut loses nor the gamble for better timing has anything to do with the strategy of playing with the volatility. Either that strategy is valid for all volatile stocks (it isn't) or it's never valid, even when you've got a big 'L' painted on your forehead. (Doesn't stand for Laughter)  If you think VW is likely to recover, hold it. If you think it isn't, sell it. Why play the buy low/sell high game while everybody else is trying to do the same? That's what makes it volatile to begin with. That's why it's a game of chicken with the other investors, most of which are way smarter than the average bear and less emotionally invested. |
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Post by enigma on Aug 28, 2016 20:37:13 GMT -5
The difference is that ZD's describing making use of the volatility of the stock that cratered and that you want out of, which you're not going to have, comparatively speaking, with the similar stock. Correct. If you're stuck in a stock that probably won't recover for many years, you can sell the stock for a big loss or, if the price is oscillating, you can try to use the oscillations to gradually lower the cost basis and allow you to get out with a smaller loss. If you bought a stock at $25/share, and it's fallen to $12 and is oscillating in the range of $10 to $12, you can sell and buyback shares in the lower range to exit the stock long before it ever gets back to the $25 range. You already own the stock, and you're way underwater, but if you sell at $12 and buy back at $10, and keep doing this, you can eventually lower your cost basis from $25/share to $12/share and get out at a breakeven figure. Of course, you could continue trading the stock at the lower range and attempt to end up with a gain, but usually you want to be rid of it because it didn't turn out to be the kind of winner you initially envisioned. Many times investors are happy just to reduce the size of the loss. It all depends upon where the stock price stabilizes, and whether there is enough interest in the stock to keep the price oscillating. Different investors choose to play the game in different ways. The rules of the game are clear. What I'm suggesting is that it's a fool's game. Would it be advisable for me to invest in this hypothetical volatile stock and play that buy/sell game as an investment strategy, never having owned it before or experienced the loss? If not, why would you do it? |
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Post by laughter on Aug 28, 2016 20:47:51 GMT -5
The strategy is premised of course on the prospects of the dud to recover, and a decision not to cut your losses completely, or at the very least to gamble on a better timing for cutting those losses. Here's a classic example: compare the chart of vow3 with f. VW is going to experience some intense volatility over the next few years that you won't find in Ford, but if you had a big position when the axe fell, selling now and shifting to what looks at the moment to be the better risk is essentially gambling that VW is unlikely to eventually at least regain parity with Ford in terms of valuation. But neither the desire to cut loses nor the gamble for better timing has anything to do with the strategy of playing with the volatility. Either that strategy is valid for all volatile stocks (it isn't) or it's never valid, even when you've got a bi 'L' painted on your forehead. (Doesn't stand for Laughter) If you think VW is likely to recover, hold it. If you think it isn't, sell it. Why play the buy low/sell high game while everybody else is trying to do the same? That's what makes it volatile to begin with. That's why it's a game of chicken with the other investors, most of which are way smarter than the average bear and less emotionally invested. Yes, to play the volatility game you have to be willing to trade short term. Yes you risk some factor that makes your situation worse, which is why when you speculate like this you better be willing to cut your losses more quickly. But selling out of VW at the bottom is just as much of a risk -- if, in this particular case, not much more -- than holding it long term. But as you have an interest in the brick, you get a feel for the price/volume as you lament over it each day, and you're ruefully aware of the underlying story, and if you keep abreast of it, these can be to your advantage. Dollar cost averaging your basis with short term trades may or may not be something someone does regularly, but in a case like VW, the fact of the position itself is a reason that someone who doesn't usually do it might make an exception. The " public throwing darts at a board" is Hollywood's cliche about Wall St., and it's really an argument just not to get involved in the game at all to begin with. It's not so much even the smarts of the situation, it's the inside information. But even with this unlevel a playing field it's interesting that some individuals do manage to do well. The advantage they have is that they don't have to answer to a quarterly earnings call, which an advantage also enjoyed by private fund managers, which is why there's been a gravity of assets in that direction and away from the big broker-dealers for decades now. |
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Post by zendancer on Aug 28, 2016 20:53:03 GMT -5
It's very easy to get stuck in a stock. You buy a stock that looks undervalued, but the price drops. If you have total confidence in the stock, you may choose to double down (buy more shares at the lower price), and thereby lower your cost basis. But the stock may continue to fall. Some investors automatically sell any stock that falls 10% below their buy point, but most value investors will not do this. I've made lots of money by riding a stock all the way to the bottom while continually buying more shares. When the stock rebounds, it can be progressively sold on the way up for big gains. Why sell shares on the way up? To lock in gains in case it falls back.Sometimes, however, you discover that there were problems with the company that were not foreseen when the stock was purchased, and you lose confidence that it will ever rebound. This is called "a value trap." If you sell the stock, you have to take a big loss, and the only time that makes perfect sense is if one thinks that the company may go bankrupt. Every stock story is different, and an investor has to constantly review the numbers and the basic story to decide whether to continue holding the stock or attempt to get out of it. Sometimes a stock falls so far that it isn't worth selling; you just hang onto it and hope that one day it will recover. If it looks like it'll be underwater for a long time, and the price is oscillating, then it may make sense to sell on upward bounces and buy back the shares on downward bounces. This strategy is not always successful, but sometimes you can get out of a stock by playing this game until your cost basis drops to the current value of the stock. Then you can kiss the shares goodbye and say "good riddance!" haha Because you have a math background, you might find stock investing fun (and highly profitable). It helps to be smart and to be able to think outside the box. It also helps to be able to focus intensely upon the numbers. In the movie "The Big Short," the one-eyed guy, Michael Burry, had Asperger's Syndrome, and it allowed him to dig deeper into the numbers than almost anyone. His record as a stock trader was mind-boggling, and he gained almost $500 million by shorting the housing market in 2006. In the same movie, and book, two young guys discovered a strange aspect of the Black-Scholes option pricing formula, and in three years they turned a $100,000 inheritance from one of their grandmothers into $30 millions dollars. They made tons more money by having a deep insight into the structure of CDO's, an insight that no other major players ever saw. Check out the movie or book. As a mathematician, you'll be able to appreciate the insights that these people had. I have a friend who's a math genius. He got interested in options, and he was able to accurately calculate all of the odds involved in the way he wanted to play options. He made money on almost all of his trades, but he was so risk averse that he couldn't take full advantage of his knowledge. The whole investment game can be summarized as finding investments with a very high chance of paying off, and then betting big. Then that should be a valid approach for any stock that is rebounding, whether you own it or not. Is that true? Buy a rebounding stock and sell a little at a time on the way up? This all depends upon the investor's confidence in what will happen. Here's a real life example. A few years ago, HIMX was selling at $6/share. The fundamentals suggested that the stock ought to be selling at $8 or above. I bought some shares, and shortly thereafter the price fell to $5. I then bought more shares because it seemed even more undervalued than before. Later, some news came out that Google Glass was going to use HIMX in their VR products and that Google had bought shares in the company. The price began to climb. When the price rose to $8, I began to sell shares in order to lock in some gains. At $10 I sold more shares. The price kept rising, and I sold out at $12 because the fundamentals no longer justified the price in my mind. I think it went all the way to $14/share before collapsing. When it fell back to $7, I began buying again. I bought more and more shares as it fell, and when it later rebounded, I gradually sold out again. I've done this over and over again for several years. I sold shares at $9.94 on Friday, and I have both buy and sell limit orders in place. If it goes higher, then I'll sell out, and if it falls back, I'll buy shares back. By contrast, some stocks that are seemingly undervalued, go down and stay down. The investor's task is to study and try to understand why particular stocks are undervalued and why they may eventually rise to a correct valuation. Sometimes it's much harder to know when to sell a stock than when to buy a stock. I've seen stocks go up 500% and then fall all the way back down. By selling a portion on one's position on the way up, gains are locked in. It's impossible to predict exactly where the top or bottom of a stock is going to be, so too much greed can be dangerous. Most of the time it makes more sense to lock in a certain amount of gains rather than going for the maximum potential gains. Buy and hold investing makes more sense when buying blue chip stocks with a huge moat and a great future. Hi-tech stocks are way more volatile than blue chips, and new innovations and competition can change the landscape precipitously. Better to take good gains when they're available because they can easily disappear. |
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Post by laughter on Aug 28, 2016 20:58:23 GMT -5
Correct. If you're stuck in a stock that probably won't recover for many years, you can sell the stock for a big loss or, if the price is oscillating, you can try to use the oscillations to gradually lower the cost basis and allow you to get out with a smaller loss. If you bought a stock at $25/share, and it's fallen to $12 and is oscillating in the range of $10 to $12, you can sell and buyback shares in the lower range to exit the stock long before it ever gets back to the $25 range. You already own the stock, and you're way underwater, but if you sell at $12 and buy back at $10, and keep doing this, you can eventually lower your cost basis from $25/share to $12/share and get out at a breakeven figure. Of course, you could continue trading the stock at the lower range and attempt to end up with a gain, but usually you want to be rid of it because it didn't turn out to be the kind of winner you initially envisioned. Many times investors are happy just to reduce the size of the loss. It all depends upon where the stock price stabilizes, and whether there is enough interest in the stock to keep the price oscillating. Different investors choose to play the game in different ways. The rules of the game are clear. What I'm suggesting is that it's a fool's game. Would it be advisable for me to invest in this hypothetical volatile stock and play that buy/sell game as an investment strategy, never having owned it before or experienced the loss? If not, why would you do it? Oh, one point that might not be so clear is that you want out anyway. So let's say you sell at a local peak, and it keeps going up from there. Well, sucks even worse to be you but not so bad if you'd sold out 5% lower. If it goes back down, you're taking a risk re-buying, but like I said, you're (grudgingly) more familiar with the story at that point, and you're in a similar boat to peeps who are taking advantage of what looks like an opportunity because of the crater. Once your loss is pared to a (subjectively) acceptable level you might not re-buy on the way back down. An investor who reports that they're more willing to do this with VW than Netflix is expressing a preference that may or may not prove itself to be wise, as it is gambling, but with no risk there is no possibility of reward.  |
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Post by zendancer on Aug 28, 2016 20:59:19 GMT -5
Correct. If you're stuck in a stock that probably won't recover for many years, you can sell the stock for a big loss or, if the price is oscillating, you can try to use the oscillations to gradually lower the cost basis and allow you to get out with a smaller loss. If you bought a stock at $25/share, and it's fallen to $12 and is oscillating in the range of $10 to $12, you can sell and buyback shares in the lower range to exit the stock long before it ever gets back to the $25 range. You already own the stock, and you're way underwater, but if you sell at $12 and buy back at $10, and keep doing this, you can eventually lower your cost basis from $25/share to $12/share and get out at a breakeven figure. Of course, you could continue trading the stock at the lower range and attempt to end up with a gain, but usually you want to be rid of it because it didn't turn out to be the kind of winner you initially envisioned. Many times investors are happy just to reduce the size of the loss. It all depends upon where the stock price stabilizes, and whether there is enough interest in the stock to keep the price oscillating. Different investors choose to play the game in different ways. The rules of the game are clear. What I'm suggesting is that it's a fool's game. Would it be advisable for me to invest in this hypothetical volatile stock and play that buy/sell game as an investment strategy, never having owned it before or experienced the loss? If not, why would you do it? No, you would not invest in such a stock if you didn't already own it. You do this only because you already own it, and you're stuck with it, and you do it with only a portion or your position at a time to prevent getting totally left behind in the off chance that the stock significantly recovers. It's only a fool's game if the underlying assets of the company are so bad that the trade is a pure gamble. Most of the time it's possible to see enough of the moving parts of the puzzle to make an educated guess about what will probably happen. |
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Post by enigma on Aug 28, 2016 21:02:51 GMT -5
But neither the desire to cut loses nor the gamble for better timing has anything to do with the strategy of playing with the volatility. Either that strategy is valid for all volatile stocks (it isn't) or it's never valid, even when you've got a bi 'L' painted on your forehead. (Doesn't stand for Laughter) If you think VW is likely to recover, hold it. If you think it isn't, sell it. Why play the buy low/sell high game while everybody else is trying to do the same? That's what makes it volatile to begin with. That's why it's a game of chicken with the other investors, most of which are way smarter than the average bear and less emotionally invested. Yes, to play the volatility game you have to be willing to trade short term. Yes you risk some factor that makes your situation worse, which is why when you speculate like this you better be willing to cut your losses more quickly. But selling out of VW at the bottom is just as much of a risk -- if, in this particular case, not much more -- than holding it long term. But as you have an interest in the brick, you get a feel for the price/volume as you lament over it each day, and you're ruefully aware of the underlying story, and if you keep abreast of it, these can be to your advantage. Dollar cost averaging your basis with short term trades may or may not be something someone does regularly, but in a case like VW, the fact of the position itself is a reason that someone who doesn't usually do it might make an exception. The " public throwing darts at a board" is Hollywood's cliche about Wall St., and it's really an argument just not to get involved in the game at all to begin with. It's not so much even the smarts of the situation, it's the inside information. But even with this unlevel a playing field it's interesting that some individuals do manage to do well. The advantage they have is that they don't have to answer to a quarterly earnings call, which an advantage also enjoyed by private fund managers, which is why there's been a gravity of assets in that direction and away from the big broker-dealers for decades now. Yes, zackly my point. The investor is not only financially invested, but also emotionally invested. This drives the market as much as those numbers in the prospectus, and the point I've been wanting to make is that it's advisable to observe these emotional factors from the outside rather than fumble with them from the inside. |
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Post by zendancer on Aug 28, 2016 21:07:13 GMT -5
The rules of the game are clear. What I'm suggesting is that it's a fool's game. Would it be advisable for me to invest in this hypothetical volatile stock and play that buy/sell game as an investment strategy, never having owned it before or experienced the loss? If not, why would you do it? Oh, one point that might not be so clear is that you want out anyway. So let's say you sell at a local peak, and it keeps going up from there. Well, sucks even worse to be you but not so bad if you'd sold out 5% lower. If it goes back down, you're taking a risk re-buying, but like I said, you're (grudgingly) more familiar with the story at that point, and you're in a similar boat to peeps who are taking advantage of what looks like an opportunity because of the crater. Once your loss is pared to a (subjectively) acceptable level you might not re-buy on the way back down. An investor who reports that they're more willing to do this with VW than Netflix is expressing a preference that may or may not prove itself to be wise, as it is gambling, but with no risk there is no possibility of reward. Correct. The investor usually has a good feel for the history of the stock's performance and an understanding of what's going on, or what may have changed, that was not apparent when first buying the stock. One huge misconception about the market is that "the big guys understand more than the little guys." Frequently, the opposite is true. Wall Street traders are like a herd that stampedes in both directions, and little guys often have a big advantage because buying small blocks of shares will not move the market. Most mutual funds cannot buy a stock worth less than $5/share, and they will almost never buy a stock that is not followed by analysts. An intelligent small investor can often far outperform big investors who exhibit "group-think." |
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