Some Valuable Ideas About Coping When Stocks Are Down

[haha]

This is from a woman who posts on several Yahoo stock boards. I have not heard her mention her background, but she has a lot of detailed knowledge of banking the internal corporate considerations in financial businesses. This is a reply to a bear on the stock who appears to want her to throw in the towel, and "admit this stock is POS". (Yahoo boards have a somewhat different culture than ER.ORG)

I think her suggestion to buy value, not dividends, is a very good lesson that can be easily forgotten.

A side observation-on Yahoo boards, as here, the presence of intelligent women posters raises the overall level of interaction a lot.


Re: gckotarski, admit CSE is a pos! 31-Oct-08 10:03 am

"Rule number one" don't fall in luv with your stocks..This market is the reason for the ultra low price price. If "I" thought any stock I owned was a, "POS," I'd sell it even at a loss. There are too many great companies that are extremely under valued to hold as you say a "POS,". You can't take a snapshot look at any business and judge it's worth, If you do you'll miss large gains. ONE YEAR AGO Nobody thought Bear or Lehman were POS's but look who's still here and who isn't? The whole market is down huge. Look at the blue chips?? See something on the chart, Hmmm, They're down too, and cut their collective dividends as well. The is a deflationary Bear market, the last one happened in the 1930's. Right now is the time to buy good companies that will be around long term..But, by no means hold a company you've lost faith in, to much stress in that. Next time buy something you know will holdup. I try to buy value not dividends. If I wouldn't buy the stock without a dividend, I won't buy it because it has one.. Never over weight your portfolio with any one stock. you'll always feel pain at some point with that strategy. Back to the original point, try to Never let a stock get you emotional, it happen's, but emotions are from your irrational older automatic brain and are horrible money managers.. GL

 

[tightasadrum]

I've had one stock for years. I watched it go from $2000, to over $100,000, and now it's down to ~$700. Should I sell it? You bet. But I'm not. I keep it on my list to remind me to sell any stock after it makes an unreasonable gain, and NOT to hang on to one hoping it will go back up someday. The other thing it taught me was that if I don't have the time or the inclination to watch business issues of individual stocks closely, I should probably have a mutual fund manager do it for me and pay him/her the fee.

 

[haha]

The other thing it taught me was that if I don't have the time or the inclination to watch business issues of individual stocks closely, I should probably have a mutual fund manager do it for me and pay him/her the fee.

And realize that for the most part, unless you have chosen one of the boutique value funds, those managers aren't watching very closely either. Look what happened to David Dreman this time around.

BTW, what is the stock?

Ha

 

[tightasadrum]

True enough...CNXT

 

[FinanceDude]

I've had one stock for years. I watched it go from $2000, to over $100,000, and now it's down to ~$700. Should I sell it? You bet. But I'm not. I keep it on my list to remind me to sell any stock after it makes an unreasonable gain, and NOT to hang on to one hoping it will go back up someday. The other thing it taught me was that if I don't have the time or the inclination to watch business issues of individual stocks closely, I should probably have a mutual fund manager do it for me and pay him/her the fee.

Sorry to hear that, why didn't you "take some chips off the table" at one point or another? Just curious........

It does remind me of what a wise money man once told me: "Everyone has a BUY discipline, almost noone has a SELL discipline".......

 

[tightasadrum]

Sorry to hear that, why didn't you "take some chips off the table" at one point or another? Just curious........

It does remind me of what a wise money man once told me: "Everyone has a BUY discipline, almost noone has a SELL discipline".......

Yep, that was me all right. Even my late dad, who rarely purchased equities, begged me to sell when it came down 25%. My logic at the time: oh, it will go back up again. NOT.

 

[unclemick]

1. Yep - my sell discipline sucks.

2. The worst hosings I've taken over the last 40 yrs often involved chasing high yield dividend stocks too hard.



heh heh heh - Target Retirement on full auto for real money - a few good stocks for the hormones. Put me in coach I think I finally got it figured out - not.

 

[harley]

I've only sold right once. I bought Apple at $10, sold 2/3 or it at $175. That gave me cash to buy during this meltdown. Of course all this is in my gambling fund, so we're talking relatively small amounts.

I've had maybe a dozen other opportunities to "take money off the table" and missed them all. Apple was my most recent chance and I did it, so maybe I finally learned something. Only time will tell.

 

[haha]

It is not clear to me why people with over a million dollars to invest prefer mutual funds. Even if the overall expenses are only .4% on average, that is $4000. You can keep yourself very well informed on 1/4 of that. You can get all the diversification that you might want with 25 to 40 issues. I believe you can get all you need with many fewer. Probably out of the thousands of stocks traded on major exchanges, only several hundred are worthy of interest. But when you buy indexes you get all the crap along with the investment worthy stocks.

It takes some diligence, but even moreso it takes a little common sense.

And when you are living off a portfolio, .4% of assets reduces a 4% portfolio yield to 3.6%, a full 10% loss.


Ha

 

[ERD50]

I think the biggest lesson in Ha's OP is that you should not have too high a % of funds in any one stock. Too much and you get emotional about any decision.

I kinda disagree with the idea that if the stock is a POS, you should sell. Heck, if it's a POS the price should reflect that. The damage is done. The only Q is, do you think that investment has a chance of increasing faster than alternative investments? Seems I've read some studies that the out-of-favor (POS) stocks do exactly that. They are beaten down, no one wants them, so they are actually priced below their true value, due to the herd mentality of getting out of a POS.

One approach I use to get an objective measure of whether I should sell or not is: did this investment rise far faster than the overall market (annualized). For example, an investment goes up 10% in 36 days, while the market was flat. I can look at that as a 100% annualized return over that period. If I cash out, I locked in that 10%, and I have another 9/10th of the year to try to work with that money. Should I expect that investment to continue at an above-market annualized rate?

That doesn't provide an answer, but it is one objective data point. From time-to-time, it has led me to think "yes, that's a very good return, I'm taking my profit". Of course, it doesn't always work, but at least you have some rationale to look back on and say - yes, that is why I sold. And, since you have some rationale, you can compare and tweak it as you go forward. That's hard to do with just gut feeling alone. Maybe it was the tamales that told me to sell?

-ERD50

 

[unclemick]

It is not clear to me why people with over a million dollars to invest prefer mutual funds. Even if the overall expenses are only .4% on average, that is $4000. You can keep yourself very well informed on 1/4 of that. You can get all the diversification that you might want with 25 to 40 issues. I believe you can get all you need with many fewer. Probably out of the thousands of stocks traded on major exchanges, only several hundred are worthy of interest. But when you buy indexes you get all the crap along with the investment worthy stocks.

It takes some diligence, but even moreso it takes a little common sense.

And when you are living off a portfolio, .4% of assets reduces a 4% portfolio yield to 3.6%, a full 10% loss.


Ha

Troublemaker.

I remember the flack in the old days on my two file cabinets of DRIP dividend stocks(ballpark 50 at their peak). Let alone the razzberries for my stock dividend ladder theory.

And that's why (also because of years of a good 401k plan) I blame my Norwegian widow stocks on hormones. I reread Bernstein's '15 Stock Diviersification Myth.' quite often and take the long side of the bet with 10-15% of my portfolio.

In ancient times aka in early ER when I was a really cheap bastard - dividends peaked around 40% of income, cash , and procedes from selling off my rental real estate were the rest - allowing my 401k/IRA rollover to compound a few more years.

Volitility has increased in recent years - but the number of stocks to simulate an index is not onerous and any fear of TWD, terminal wealth dispersion can be overcome.

More than one way to skin a cat.

Like I said - troublemaker.

heh heh heh - like what did they used to do in the old days before all this new fangled MPT stuff. Hmmmm .

BTW I'm sure the recent unpleasantness has skewed the numbers but I have seen curves where as few as 8 DOW stocks tracked 83%of the Index 500 back in the 90's.

 

[Hal3]

Mutual funds - are they worth the fees or not?

It is not clear to me why people with over a million dollars to invest prefer mutual funds. Even if the overall expenses are only .4% on average, that is $4000. You can keep yourself very well informed on 1/4 of that. You can get all the diversification that you might want with 25 to 40 issues. I believe you can get all you need with many fewer. Probably out of the thousands of stocks traded on major exchanges, only several hundred are worthy of interest. But when you buy indexes you get all the crap along with the investment worthy stocks.

It takes some diligence, but even moreso it takes a little common sense.

And when you are living off a portfolio, .4% of assets reduces a 4% portfolio yield to 3.6%, a full 10% loss.


Ha

"It takes some diligence, but even moreso it takes a little common sense."

Bingo! These can be less common than you might think. And you need them consistently. To be diversified you will need to make at least twenty or so picks and then keep up with them.

Twenty years ago I had money in an IRA and years to retire. I used to pick stocks the usual way. Watch Louis Rukheiser, read Barron's, listen to friends, etc. It was fun. I picked some winners. The market generally trended up.

Now my IRA is my money to live on in my old age. I don't think of it as just something to chat about at cocktail parties. I don't even go to "cocktail parties" any more. Along the way I got an MBA in my 40's. I learned how to really value a business and how much time and analysis it takes. Now .4% looks cheap to get professional analysis and diversification.

My concern is not the .4%. I'm just not sure about the "professional analysis" part. I am concerned about long-only investing. I am concerned about an equity and bonds only mentality. I am just concerned.

So that leaves me in the position of agreeing with you but not precisely for the same reason.

I just don't want to have to pick all these stocks myself in the face of massive uncertainty and I certainly don't want to pay someone else to gamble with my retirement.

So ... what about that CNXT? It looks dirt cheap and the CEO is buying.

 

[FinanceDude]

"It takes some diligence, but even moreso it takes a little common sense."

Bingo! These can be less common than you might think. And you need them consistently. To be diversified you will need to make at least twenty or so picks and then keep up with them.

Twenty years ago I had money in an IRA and years to retire. I used to pick stocks the usual way. Watch Louis Rukheiser, read Barron's, listen to friends, etc. It was fun. I picked some winners. The market generally trended up.

Now my IRA is my money to live on in my old age. I don't think of it as just something to chat about at cocktail parties. I don't even go to "cocktail parties" any more. Along the way I got an MBA in my 40's. I learned how to really value a business and how much time and analysis it takes. Now .4% looks cheap to get professional analysis and diversification.

My concern is not the .4%. I'm just not sure about the "professional analysis" part. I am concerned about long-only investing. I am concerned about an equity and bonds only mentality. I am just concerned.

So that leaves me in the position of agreeing with you but not precisely for the same reason.

I just don't want to have to pick all these stocks myself in the face of massive uncertainty and I certainly don't want to pay someone else to gamble with my retirement.

So ... what about that CNXT? It looks dirt cheap and the CEO is buying.

Use ETFs, they solve most of your past problems........

 

[Free To Canoe]

"It takes some diligence, but even moreso it takes a little common sense."

Bingo! These can be less common than you might think. And you need them consistently. To be diversified you will need to make at least twenty or so picks and then keep up with them.

Twenty years ago I had money in an IRA and years to retire. I used to pick stocks the usual way. Watch Louis Rukheiser, read Barron's, listen to friends, etc. It was fun. I picked some winners. The market generally trended up.

Now my IRA is my money to live on in my old age. I don't think of it as just something to chat about at cocktail parties. I don't even go to "cocktail parties" any more. Along the way I got an MBA in my 40's. I learned how to really value a business and how much time and analysis it takes. Now .4% looks cheap to get professional analysis and diversification.

My concern is not the .4%. I'm just not sure about the "professional analysis" part. I am concerned about long-only investing. I am concerned about an equity and bonds only mentality. I am just concerned.

So that leaves me in the position of agreeing with you but not precisely for the same reason.

I just don't want to have to pick all these stocks myself in the face of massive uncertainty and I certainly don't want to pay someone else to gamble with my retirement.

So ... what about that CNXT? It looks dirt cheap and the CEO is buying.

I used to work for them when they were Rockwell. I wonder if they do anything still with the GaAs technology?

Free

 

[Hal3]

Way off topic now.

I used to work for them when they were Rockwell.
Free

I didn't know they were Rockwell.

My grandfather used to work for Collins Radio.

Hmmm ...

 

[Hal3]

"So ... what about that CNXT? It looks dirt cheap and the CEO is buying."

The balance sheet looks squirrelly. A billion dollars in "other assets" seems to have vanished in the last 24 months. I wonder what's going on.

 

[Koolau]

It is not clear to me why people with over a million dollars to invest prefer mutual funds. Even if the overall expenses are only .4% on average, that is $4000. You can keep yourself very well informed on 1/4 of that. You can get all the diversification that you might want with 25 to 40 issues. I believe you can get all you need with many fewer. Probably out of the thousands of stocks traded on major exchanges, only several hundred are worthy of interest. But when you buy indexes you get all the crap along with the investment worthy stocks.

It takes some diligence, but even moreso it takes a little common sense.

And when you are living off a portfolio, .4% of assets reduces a 4% portfolio yield to 3.6%, a full 10% loss.


Ha

Ha,

I don't disagree with your premise. I also think those with the interest, energy, motivation, temperament etc. to manage their own portfolio are relatively few. I use MFs because I seem to have none of those attributes when it comes to investing. I wish I did, but I'm honest with myself about my limitations when it comes to managing my own stocks. Too emotional about money, perhaps? Funny, 'cause I don't have expensive tastes or spend all that much. I guess I think of what I had to go through to get each of those $ and the thought of losing even one of them seems like a tragedy. With that attitude, it's obvious that I need to step back from it as far as possible.

I do believe it's possible to buy the expertise for less than .4%, but then again, I usually go with indexes at even less than that.

Ha, I'm glad it works for you. It has to be gratifying to have that kind of control and yet keep the old emotions in check. It's just not for everyone (e.g., me!!)

 

[Urchina]

We don't have over a million to invest (and we're a lot farther away from it than we were this time last year) but this year we came to the realization that we don't want to spend the time and energy it takes to manage a good, diversified portfolio of individual stocks. Indexing meets our needs and doesn't require a lot of our attention. Once a year we check in to make sure things are still where we want them to be and we make adjustments accordingly.

For those who want to spend the time, I'm glad an improved return is available. I've decided to spend my small amount of discretionary time showering, reading for pleasure and posting here. I'm OK with the 0.4% that costs me. Of course, if I had more discretionary time, I might reorder my priorities a bit.

 

[ziggy29]

Coping when stocks are down:

 

[Dawg52]

Coping when stocks are down:

Yeah baby. One of my meds.

 

[unclemick]

Yep Wild Turkey 101 is owned by dang foreigners.

heh heh heh - No soapbox eh - welll take some psssst Wellelsey.

So there.