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Varchild2008 (85.88)

Fundamental Reasons why it's safe to hold your stocks

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August 02, 2009 – Comments (11) | RELATED TICKERS: F , WHR , AAPL

I get asked a lot by friends / co-workers who tell me to take some profits on my Whirlpool Stock or FORD or any stock that has gone up so high the RSI value is criticially overbought.

FORD (F) RSI is over 78% right now... 70% symbolizes criticially overbought status.

Those who look at the market from a tiny, tiny, short term situation all are shouting "We are at or near a top!  15-20% pullback is to be expected!!  Equity markets are going to crash soon! Sell Sell Sell Profit Take Now while you still can!!"

Well.. If I survived "Armageddon 2008" then I sure as heck can survive a much needed, desperately overdue, pullback in the equities markets.

So, if the markets are about to pullback why Hold?  Why not join in on the obvious profit taking that is going to happen soon?  Won't FORD make a big mistake and have its share price go back to $1.01 and I'll have ZERO profits to enjoy?

Here's why you hold:

1)  The future is impossible to predict so profit taking tomorrow might be a full month too early.... Or it might just be a foolish mistake as the market keeps doing it's thing for years to come. 

Worse still, you might be TOO LATE and witness as your share price drops 5+% lower right at the opening bell Monday.

2)  Those who HOLD will be doing as I have been doing... Putting together some cash on the sidelines in a savings account or money market, accumulating as much as I can, for the pull back if it is to come.  That way I can focus on stock piling shares for any top quality company whose share price might get over sold during any kind of prolonged pullback or profit taking session.

FORD goes back to $1.01?  Great... I'm a buyer now at those levels.

3)  Worrying about share prices in the short term can lead to forgetting the fundamental startegy of focusing on your investments long term fundamentals and not the short term price action. 

No one can predict what price (KO) Coca-Cola for example will sell at on August 3rd, 2021.  If you can predict that then what are the lottery numbers for this week's Michigan Lotto?

No... I'd don't worry about share prices UNLESS I find some company whose share price and fundamentals I like better.  I do a trade out of 1 stock into a stock I think I like even better.
I ditched (MSM) and poured some of the cash straight into (F) FORD and at (FRPT)'s absolute bottom price during that share price sell-off.   Given how (F) has been on FIRE! and (FRPT) has yet to trade anywhere close to what I paid for it at $4.57 a share, I guess I made the right move....

I don't worry about short term share prices unless the catalysts that interest me as an investor somehow crash and burn. 

4)  While most investors put their cash at 1 or 2 particular catalysts... I spend my time as a BUY and HOLD investor always looking for "THE NEXT" catalyst.

I am confident that either Starcraft 2 or Diablo III's release in stores will propel the share price skyward for (ATVI) a company I invest in.  I am also confident that after the initial blast upward the momentum will stop and the share price will come right back down.  There will be plenty of "GLOATERS" and "BOASTERS" telling those who never took a single penny's profit that they missed the boat and now are on a sinking ship.

I know a lot of (ATVI) investors are thinking... "I'd better sell and take my profits on the Release Date or perhaps 1 week behind the release date of Starcraft II!"

That's fine for a short term strategy.....  But Varchild2008 has alraedy identified something that could potentially be FAR BETTER than either Starcraft II or Diablo III.

I'm looking for "Prototype" to possibly become a franchise and possibly rival Grand Theft Auto if the company provides enough incentive to buy the next version(s) of the game. 

I also see Blizzard's interest to do more MMOs (whether subscriber based or whether they switch to a FREE subscription model based on buying "things" when you play the game to enhance your experience).   I see these as reasons to believe that the highest share price ATVI reaches off the Starcraft II or Diablo III video game release dates will pale in comparison to the highest share price ATVI reaches in the year 2030  (which is my target retirement year).

DISCLOSURE:  I own shares in ATVI, F, FRPT, and used to have shares in MSM.

11 Comments – Post Your Own

#1) On August 02, 2009 at 1:27 PM, NOTvuffett (< 20) wrote:

Hey Varchild,

If you think Ford is seriously overbought why wouldn't you sell part of your position and repurchase shares with the proceeds when there is a correction?  That will allow you to pick up additional shares.  Yes, I know about the negative tax consequences, you have to factor that into the equation.

I have used this strategy several times and it has worked out for the most part.  I learned the hard way not to sell the entire position- the price I set to buy back was 1 cent lower than the decline of the stock in one instance, I wasn't following it and had to repurchase for a small loss.  

The market is not always rational, take advantage when it is not.  What is the difference between selling during an overbought situation and buying during an oversold one?

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#2) On August 02, 2009 at 1:29 PM, portefeuille (99.61) wrote:

I very much agree that profit can really be a problem. I am really sick of this "profit taking is never a mistake" garbage. I could have ended most of the calls I made here within a few weeks with an "outperformance" of greater than 100 (percentage) points (in the "caps" game way of calculation). I have not ended most of the "outperform" calls so far and the ones I did end just continued their "outperformance" after that ending.

A "buy and hold" strategy could have yielded some pretty good result as of late (see this post).

The only problem for a value investor is that the price has "outperformed" the value in most cases in the last few months so that holding or buying has become less "compelling".

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#3) On August 02, 2009 at 1:32 PM, portefeuille (99.61) wrote:

... that profit can really ...

... that profit taking can really ...

profits usually are not that problematic, hehe!

 

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#4) On August 02, 2009 at 1:34 PM, portefeuille (99.61) wrote:

... and paper profits are profits just like realised ones. They just might have a somewhat more fuzzy future.

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#5) On August 02, 2009 at 3:23 PM, prose976 (< 20) wrote:

Some profit taking is good, provided you put the money back into more shares of the same company (after a pull-back) or into another company.  I believe profit-taking is one of the best methods for increasing your overall wealth, although some would say buying and holding the same shares over time is the best way.

Let's say you own 100 shares of (F).  It rises to an extremely oversold place.

If you hang on to your 100 shares and just go with them, you'll get the gradual rise on those 100 shares.

If you wait for a pull-back and invest in 100 more shares, then you'll have 200 shares (100 that has lost profit from the oversold position and 100 that you bought after the pull-back.

If you sell half your position at oversold, reinvest those profits at pull-back and add 100 shares to your position, then you might end up with 225 shares (50 from your original, 100 from new and 75 from the profits you took at oversol.  Now you have 25 additional shares that are making you money as the stock slowly edges its way back up.

The last solution is an example of profit-taking working for you instead of against you.

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#6) On August 02, 2009 at 5:29 PM, dragonLZ (99.31) wrote:

I don't think it's safe to say: "It's safe to hold", but I think that buy-and-hold makes a lot of sense when you buy a good stock close to the market bottom. So, if you purcahsed a good stock between March and now, it's pretty much safe to hold it for 2-3 years (through all the corrections), and will probably be better off than seeling it and buying it back 10 times (during each correction) during those 2-3 years... 

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#7) On August 02, 2009 at 6:00 PM, NOTvuffett (< 20) wrote:

DragonLZ, who can say where a market top or bottom is?  Some think recovery near the end of the year, others (the nutty fringe) think 9/09 will be the apocalypse.  I agree with the Fools here to buy companies that you understand and like, I just think that there will few opportunities to capitalize on volatility like this in the future.

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#8) On August 02, 2009 at 7:04 PM, Varchild2008 (85.88) wrote:

"If you think Ford is seriously overbought why wouldn't you sell part of your position and repurchase shares with the proceeds when there is a correction?  "

Do you know WHEN the correction will occur and WHAT level the share price sells off to?

Cause I don't.

Therein lies the dillemma.  I've done back in 2008 profit taking and buying back in at lower prices successfully... But I've also failed...sitting watching the share price NEVER dip.

Because I can't predict the future... My profit taking has to be based on when I plan to retire or based on opportunities to buy "something else" that has a really cheap share price.

I mean it's easier for me to profit take if I have something else to buy.  If I profit take FORD to buy back in FORD.... That's a 50/50 chance I won't be able to buy back in except to pay for a greater share price than I sold.

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#9) On August 02, 2009 at 7:32 PM, prose976 (< 20) wrote:

Mathematically speaking, assuming the market has orderly trends, over a loooong period of time, this is absolutely correct.  The very best strategy is is add to your position on ANY pullback, whether the market is choppy or smoothe.  This will give you a much more predictable overall gain, fewer trading fees and a much bigger boost when prices surge to the positive.

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#10) On August 02, 2009 at 7:51 PM, NOTvuffett (< 20) wrote:

Varchild, if you follow a stock closely, you will have an idea of what a fair market price for it is.  You said yourself that you thought it was overbought, you must have some idea on its current value.  It is not a 50/50 chance of going up or down- you do research and you make a better decision than the other guy that acts on 'Ted gave me a hot stock tip'.

You can't always buy into the bottom or sell at the top, but you just have to be close to make money in the short term.  Sometimes you will call it wrong, but that just goes with the territory.  And I like your plan B strategy, if things don't work out the way you like, have another stock to put the money.

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#11) On August 02, 2009 at 11:03 PM, dragonLZ (99.31) wrote:

NOTvuffet, you say: "Who can say where a top or a bottom is",

and I can tell you that I think (99.9% sure) that March 6 was a bottom that will either never be touched again or at least not for a very long time...

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