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Old 06-19-2010, 02:57 PM   #21
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You are entitled to your opinon. Personally, I am generally a deep value investor and willing to do significant analytical work to figure out companies/situtations that may be small cap with little or no institutional following.

Yes, I suppose it can be done in areas that are not followed by the big guys, and where one may have some specific knowledge of the industry. But I doubt that applies to someone looking for penny stock advice from a largely B&H board (though it could). That's real work.

Even then, I still have to wonder if one can overcome the old adage that "markets may remain irrational longer than I can remain solvent". I guess I express that concern as - if the market doesn't value it 'fairly' now, what makes me think they will change before I give up on it?

If it's working for you, that's great, but I do think it is rare. Not that have any stats to be able to back that up, just a general observation. Again, just opinion and 2 cents thrown in.

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Old 06-19-2010, 04:04 PM   #22
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Yes, I suppose it can be done in areas that are not followed by the big guys, and where one may have some specific knowledge of the industry. But I doubt that applies to someone looking for penny stock advice from a largely B&H board (though it could). That's real work.

Even then, I still have to wonder if one can overcome the old adage that "markets may remain irrational longer than I can remain solvent". I guess I express that concern as - if the market doesn't value it 'fairly' now, what makes me think they will change before I give up on it?

If it's working for you, that's great, but I do think it is rare. Not that have any stats to be able to back that up, just a general observation. Again, just opinion and 2 cents thrown in.

-ERD50
Assuming you can do the due diligence and get it right, the major risk is how long it takes for the market to appropriately value what you bought cheap (sometimes never). The longer you wait, the lower your return. I generally buy with the expectation of being patient. Example: Around early 2001 I sarted buying a whole wad of shares of PPD, which was the highest market cap company with no analyst coverage at the time. There were a ton of shorts in the name and lots of bad press, including an accounting scandal. But I did some digging and figured out that the company was a cash cow, likely worth $40 or so vs. the teens when I started buying. I held for 4 or 5 years and the company ultimately bought back so mch of its own stock hat they triggered a short squeeze. I sold out in the low 40s, but it got squeezed as high as 70 before settling back to the 40s. I got a pretty decent return out of the stock, but it would have been alot more lucrative if it had only taken 2 years to get to fair value and a lot less if it took 10 years.
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Old 06-19-2010, 04:59 PM   #23
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here is the hard part. when a stock goes higher and higher, usually higher er/sales. but same time, some hyper too, like new product, move the main board instead of being OTC. Very easily the fair value in my mind becomes inflated.
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Old 06-19-2010, 05:07 PM   #24
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here is the hard part. when a stock goes higher and higher, usually higher er/sales. but same time, some hyper too, like new product, move the main board instead of being OTC. Very easily the fair value in my mind becomes inflated.
I suffer from the same affliction. The antidote seems to be to let at least part of your stake go at what you originally though the fair value of your investment was when you bought it. "You get rich by selling early."
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Old 06-19-2010, 05:32 PM   #25
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...Always leave some gains for the guy you are selling to.
The above post is from another thread. I have read the same thing from John Neff, a former long-term manager of the Windsor MF. I guess what it means is that it is OK to sell early. Neff said that he could never get out at the very top; he said he was not that smart.

Occasionally, I got lucky with a good position. I would sell half to recover my cost and ride the other half a little longer.
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Old 06-19-2010, 05:49 PM   #26
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wow, I used to work in the same building with John Neff. Meet him frequently. But only when I moved out there, I started to appreciate his way. at that time, I viewed it boring

back to profit taking, one thing I realized is that the last run is the most profitable. One example, a position up 200%, after that, even a small percentage is a big gain in dollar value.
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Old 06-19-2010, 06:03 PM   #27
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Of course John Neff's investing style is "boring": value-oriented and conservative. But he made steady money.

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back to profit taking, one thing I realized is that the last run is the most profitable. One example, a position up 200%, after that, even a small percentage is a big gain in dollar value.
Oh, tell me about it. I have kicked myself a few times for selling too soon. I guess a reason some people do not buy individual stocks because they do not want to have to deal with buy/sell/hold decisions on each of them. It's tough, lots of work, and there is no guarantee that you will make more money than trading buying and balancing with MFs, or ETFs now. I have said here that I am still doing it for the fun of it, and may quit one of these days to go with psstt... :-)
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Old 06-19-2010, 06:04 PM   #28
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back to profit taking, one thing I realized is that the last run is the most profitable. One example, a position up 200%, after that, even a small percentage is a big gain in dollar value.
And a small percentage loss is a big dollar loss.
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Old 06-19-2010, 06:16 PM   #29
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that's true too. still i would like to squeeze more if the last run is most profitable.

many penny players use the gruadual sales rule, for example, take back investment first, let other free shares run. i tried it before, but once i start to sell, i always sell very fast.
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Old 06-19-2010, 06:58 PM   #30
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that's true too. still i would like to squeeze more if the last run is most profitable.

many penny players use the gruadual sales rule, for example, take back investment first, let other free shares run. i tried it before, but once i start to sell, i always sell very fast.
I have lost enough money trying to hold out for that last few bucks to persuade me to sell on the way up and not worry about top-ticking it. But you will have to find what works for you.
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Old 06-19-2010, 07:35 PM   #31
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I have wide 10% "bumpers in my re balancing strategy . My nominal target is the traditional 60% stocks - 40% bonds and cash with my trigger points being 55% on the low end and 65% on the high end for stocks. As a result I very seldom have to wake up from my naps and do anything. I sold stocks in February of 2007 and almost sold bonds in March of 2009 when my stock allocation nudged 55% but then self corrected. I'm currently 61% stocks and enjoying my naps.
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Old 06-20-2010, 02:00 AM   #32
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I find that covered call writing that gets you (all-in) your target sell price helps a lot with sell discipline.
I do this when shares approach a rebalancing price, and I find it takes all the drama & angst out of the decision.

As well as boosting the yield on those shares by 5-10%.
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Old 06-20-2010, 11:21 PM   #33
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I do this when shares approach a rebalancing price, and I find it takes all the drama & angst out of the decision.

As well as boosting the yield on those shares by 5-10%.
That's my theory too. But then, on a couple of occasions, I regretted letting the option buyer have my wonderful stocks for so cheap, and bought back those options at a higher price as the stocks kept climbing.

Of course, that option buy back was a mistake, as the stocks next slumped again, and would I just let it be, those options would have expired worthless.

Still, in this case, at least the hog did not get slaughtered. It simply turned itself back into a skinny pig.
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Old 06-21-2010, 12:10 AM   #34
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But then, on a couple of occasions, I regretted letting the option buyer have my wonderful stocks for so cheap, and bought back those options at a higher price as the stocks kept climbing.
Of course, that option buy back was a mistake, as the stocks next slumped again, and would I just let it be, those options would have expired worthless.
Now you're just snatching defeat out of the jaws of victory.

I use a spreadsheet to change our portfolio's share prices to 10-15% above their current levels. I look at "If BRK gets to $85" or "If IJS gets to $66", and I see whether that price pushes the shares outside of their (loose) asset-allocation bands. If they get to those numbers then I should be selling them anyway. Ideally I'd be able to sell a round lot like 500 shares (five contracts) which seems to get a faster fill at a limit price.

Then I set alerts on Fidelity's website for that strike price and the dates, which are usually 6-9 months into the future. This is painful (especially since all the options symbols are changing to a new system) but it's not impossible. It'd be nice to get $3-$4 per contract but sometimes it's less. I put in a limit order for that day, and some trades take 5-6 days to happen. It doesn't seem very liquid.

When Berkshire first joined the S&P500 (and had no real historical volatility) the options models were using old "A" share prices from the previous two years (a huge swing in Berkshire's share price) and the volatility was causing them to offer ridiculous prices for call options. That might stop in a few months. But one month I sold some contracts at an $85 strike price and a few days later I sold the same number of contracts at a $90 strike for even more money.

I'm probably only in a position to do this 3-4x/year. But it's money for nothing on shares we should be selling anyway. Best of all we can feel that we've been given adequate incentive to do what we should've been doing in the first place.
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Old 06-21-2010, 07:54 AM   #35
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I owned many stocks. What happened was that I started, or intended, to sell them off in a bull market. As the market kept rising, my earlier sells, either outright or by writing call options, left too much money on the table. I started to second guess myself. The ones that I would buy back the options at even higher prices were the strongest of the bunch. Their earning estimates were still being bumped up by analysts, and their products were in demand worldwide. What's not to love?

Of course, no stock or business can stay immune from a world-wide recession. I do not own a stock without believing in its prospect. Still, one has to try to value it against the economic condition back drop, the so-called big picture. And that was where I erred. Still, I do better than some MF managers so far.
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