Tuesday, April 29, 2008
Monday, April 28, 2008
Thursday, April 24, 2008
LESSON NUMBER THREE
In the past few day Sirius Satellite Radio (SIRI) fell below its 52-week low of 2.51 - and I recommended that it be SOLD if this happened. (I exited my entire position at just below 2.50 for a loss of about 5%.)
This is in keeping with the investing strategy that I teach in my stock market course -- avoid big losses on any single transaction.
One way of looking at this is think of it as buying insurance. When you sell, you are buying insurance against any further decline in the stock. In the worst case scenario, should your house burn down (or your stock go into a tainspin) - the most you can lose is the expense of your insurance premium (or, in the case of a stock, a 5% loss.)
NOTE: In class, and in my personal investing, I use the 5% loss limit. I arrived at this figure by experimenting over time and it is easy to compute. However, I would not argue with an investor who selected another level - as long as it was under 10%.
Now for today's lesson: One of the most frustrating things that happens to investors is to sell a stock and then be sitting on the sidelines when the stock takes off. (Not long ago I sold Apple at 72 and then watched it go to over 200.) When most people take a loss (hopefully a small loss), it is human nature to be reluctant to get back in. "It's unlucky." "I don't understand the stock." "It's not behaving right."
WRONG!
To win at anything, you have to be willing to do what the herd doesn't do and to fight your natural instincts. When one takes a small loss, it often means nothing more than your timing wasn't perfect.
My experience and study shows that after a small loss, the best thing you can do is put the stock symbol up on your bulletin board/white board with a "buy-in" price. Your insurance policy (selling with a small loss) protected you from a major disaster, now it's time to get back in. For me, the buy-in price is 5% above the most recent low.
In the case of SIRI, the closing low was 2.41 - so my buy point becomes 2.53, a 5% advance over the low. For my personal account, I bought SIRI on April 23 at 2.57 and the stock is now at 2.62.
The other stock of the satellite radio twosome -XM Satellite Radio (XMSR)- was suggested to readers
of this blog as a possible buy should it close under 10.60. It did, in fact, close below that figure (10.49) a few days ago. If it had been bought, you would now be holding XMSR at 11.56 for a 9.1% gain in three
trading days.
To repeat and expand on some important caveats from the prior blog:
A) These are speculative and volatile stocks. These are for agile investors who follow the market on a daily basis.
B) These stocks are involved in merger that is pending before the regulators. Should the merger blow up, the affect on the stocks could be significant. For this reason I would be reluctant to put more than
a small percentage of my investable funds in these stocks.
C) But from these levels, both stocks have enough upside potential (25 to 50%) to make them very interesting trades.
(Blog written after the market close on April 23.)
This is in keeping with the investing strategy that I teach in my stock market course -- avoid big losses on any single transaction.
One way of looking at this is think of it as buying insurance. When you sell, you are buying insurance against any further decline in the stock. In the worst case scenario, should your house burn down (or your stock go into a tainspin) - the most you can lose is the expense of your insurance premium (or, in the case of a stock, a 5% loss.)
NOTE: In class, and in my personal investing, I use the 5% loss limit. I arrived at this figure by experimenting over time and it is easy to compute. However, I would not argue with an investor who selected another level - as long as it was under 10%.
Now for today's lesson: One of the most frustrating things that happens to investors is to sell a stock and then be sitting on the sidelines when the stock takes off. (Not long ago I sold Apple at 72 and then watched it go to over 200.) When most people take a loss (hopefully a small loss), it is human nature to be reluctant to get back in. "It's unlucky." "I don't understand the stock." "It's not behaving right."
WRONG!
To win at anything, you have to be willing to do what the herd doesn't do and to fight your natural instincts. When one takes a small loss, it often means nothing more than your timing wasn't perfect.
My experience and study shows that after a small loss, the best thing you can do is put the stock symbol up on your bulletin board/white board with a "buy-in" price. Your insurance policy (selling with a small loss) protected you from a major disaster, now it's time to get back in. For me, the buy-in price is 5% above the most recent low.
In the case of SIRI, the closing low was 2.41 - so my buy point becomes 2.53, a 5% advance over the low. For my personal account, I bought SIRI on April 23 at 2.57 and the stock is now at 2.62.
The other stock of the satellite radio twosome -XM Satellite Radio (XMSR)- was suggested to readers
of this blog as a possible buy should it close under 10.60. It did, in fact, close below that figure (10.49) a few days ago. If it had been bought, you would now be holding XMSR at 11.56 for a 9.1% gain in three
trading days.
To repeat and expand on some important caveats from the prior blog:
A) These are speculative and volatile stocks. These are for agile investors who follow the market on a daily basis.
B) These stocks are involved in merger that is pending before the regulators. Should the merger blow up, the affect on the stocks could be significant. For this reason I would be reluctant to put more than
a small percentage of my investable funds in these stocks.
C) But from these levels, both stocks have enough upside potential (25 to 50%) to make them very interesting trades.
(Blog written after the market close on April 23.)
Wednesday, April 9, 2008
Tuesday, April 8, 2008
LESSON NUMBER TWO
A pair of stocks for your consideration:
Sirius Satellite Radio (SIRI)
XM Satellite Radio (XMSR)
I think a very good case can be made right here for a solid trading opportunity.
Both companies are in a prolonged start-up phase and have not yet turned a profit. However they are approaching profitability and continue to rapidly expand their customer base. Most importantly, they are involved in a pending merger which should strongly improve the prospects for future profitability.
Since April of 2007 here is their record:
low high percent gain
SIRI 2.69 3.24 20.4% Current price: 2.74
2.71 3.83 41.3
2.65 3.31 24.9
2.66 3.15 18.4
XMSR 10.48 11.98 14.3 Current price: 11.90
10.52 13.02 23.8
10.55 15.83 50.0
10.22 13.55 32.7
10.80 13.79 27.7
These are both stocks with a solid base or apparent price support level - and they have returned to that level several times over the past year.
Although some analysts put more stock in exact figures, I think they are more subjective and subject to hundreds of individual buying decisions that can have a wide variety of motivations. So I place my base points at 2.65 to 2.75 for SIRI and 10.20 to 10.60 for XMSR. (Note: The intraday 52-week lows for the stocks are 2.51 for SIRI and 9.62 for XMSR.)
BUY STRATEGY: SIRI is at, or very near, a buy point. If you can pick it up a dime cheaper, that
would be nice - but it is now close enough to base support area to be a buy.
XMSR needs to come down another 10 to 15% to be a good buy. It does have
some volitility and bears close watching.
SELL STRATEGY: Sell if either stock goes to a new low. This would indicate that the support level
is questionable and the stock could be a dangerous hold.
Should the stock bounce off its base, as it has done several times in the past 52-
weeks, the stock should be sold on any 10% decline. (Example: Should XMSR
go to 14.00, it should be sold before falling below 12.60, a decline of 1.40 or 10%) Of course,i t may be sold at a highier level, but the 10% decline rule would provide a mandatory exit point. .
To summarize the lesson that I try to convey in my investment course:
A) Always go into a stock purchase with a well defined strategy that has entry and exit points. (These go on a white-board that I can see from my office desk.)
B) When the reason for the buy is no longer in affect, why would you want to continue to hold the stock? (In this case, the stocks have well defined bases. Should either stock go below the base, the logic for holding it gone and the risk becomes significant.)
(This blog was written on April 7, 2008 and stock prices mentioned in the blog reflect that date.)
Sirius Satellite Radio (SIRI)
XM Satellite Radio (XMSR)
I think a very good case can be made right here for a solid trading opportunity.
Both companies are in a prolonged start-up phase and have not yet turned a profit. However they are approaching profitability and continue to rapidly expand their customer base. Most importantly, they are involved in a pending merger which should strongly improve the prospects for future profitability.
Since April of 2007 here is their record:
low high percent gain
SIRI 2.69 3.24 20.4% Current price: 2.74
2.71 3.83 41.3
2.65 3.31 24.9
2.66 3.15 18.4
XMSR 10.48 11.98 14.3 Current price: 11.90
10.52 13.02 23.8
10.55 15.83 50.0
10.22 13.55 32.7
10.80 13.79 27.7
These are both stocks with a solid base or apparent price support level - and they have returned to that level several times over the past year.
Although some analysts put more stock in exact figures, I think they are more subjective and subject to hundreds of individual buying decisions that can have a wide variety of motivations. So I place my base points at 2.65 to 2.75 for SIRI and 10.20 to 10.60 for XMSR. (Note: The intraday 52-week lows for the stocks are 2.51 for SIRI and 9.62 for XMSR.)
BUY STRATEGY: SIRI is at, or very near, a buy point. If you can pick it up a dime cheaper, that
would be nice - but it is now close enough to base support area to be a buy.
XMSR needs to come down another 10 to 15% to be a good buy. It does have
some volitility and bears close watching.
SELL STRATEGY: Sell if either stock goes to a new low. This would indicate that the support level
is questionable and the stock could be a dangerous hold.
Should the stock bounce off its base, as it has done several times in the past 52-
weeks, the stock should be sold on any 10% decline. (Example: Should XMSR
go to 14.00, it should be sold before falling below 12.60, a decline of 1.40 or 10%) Of course,i t may be sold at a highier level, but the 10% decline rule would provide a mandatory exit point. .
To summarize the lesson that I try to convey in my investment course:
A) Always go into a stock purchase with a well defined strategy that has entry and exit points. (These go on a white-board that I can see from my office desk.)
B) When the reason for the buy is no longer in affect, why would you want to continue to hold the stock? (In this case, the stocks have well defined bases. Should either stock go below the base, the logic for holding it gone and the risk becomes significant.)
(This blog was written on April 7, 2008 and stock prices mentioned in the blog reflect that date.)
Tuesday, April 1, 2008
Lesson One
** A while back, I struck up a conversation in a doctor's office where the person shared with me that they had lost over $30,000 on a single stock purchase during the last year. Ouch!
** Once, while visiting a stock broker, I observed a prominent sign above his desk reminding him: DON'T FORGET THE EXIT POINT.
** At a more personal level, the single most important (and painful) lesson I've learned in investing is to
AVOID THE BIG LOSSES.
When I teach my investing course to high school students, one of the fundamental concepts that we focus on is that no matter how good you are at picking stocks - some of your ideas are just not going to work out. Your pool of information is always going to be imperfect and incomplete. There will always be emotional factors (greed and fear, for example) that will drive stock prices far above and below what reasonable valuations would indicate. To become a successful investor, I believe it is critical to learn how to keep your losses small when you are wrong about a stock.
EXAMPLES:
52-Week Low Since
High Feb. 20
Apple 202.96 119.15
Google 747.24 413.62
NYSE Euronext 102.38 56.46
Level 3 Communications 6.80 1.80
The first pair of stocks on the list are two of the biggest success stories in the stock market over the past couple of years - and may very well be excellent picks for the future. The last two stock are/were favorites of TV guru Jim Cramer.
The point here is that had you established a position in one of these stocks during 2007-8, your loss could have been as much as 40% to 70%+. And this is not the way you want to treat you savings.
If you are verturing into investing in individual stocks, go in with a plan that keeps your losses small on any single transaction. There are several ways of doing this and in future blogs I'll outline my strategy. But to get things started, let me throw out a couple of rules for your consideration:
1) Always write out your exit point for the down side for any stock you buy. This would be the price you would sell your shares should the stock price go to or below this level.
My exit prices are written on a white board that I can see from my office desk.
2) Never hold a stock that is more than 10% below your buy price.
More on both of these rules - with specific example - next time.
** Once, while visiting a stock broker, I observed a prominent sign above his desk reminding him: DON'T FORGET THE EXIT POINT.
** At a more personal level, the single most important (and painful) lesson I've learned in investing is to
AVOID THE BIG LOSSES.
When I teach my investing course to high school students, one of the fundamental concepts that we focus on is that no matter how good you are at picking stocks - some of your ideas are just not going to work out. Your pool of information is always going to be imperfect and incomplete. There will always be emotional factors (greed and fear, for example) that will drive stock prices far above and below what reasonable valuations would indicate. To become a successful investor, I believe it is critical to learn how to keep your losses small when you are wrong about a stock.
EXAMPLES:
52-Week Low Since
High Feb. 20
Apple 202.96 119.15
Google 747.24 413.62
NYSE Euronext 102.38 56.46
Level 3 Communications 6.80 1.80
The first pair of stocks on the list are two of the biggest success stories in the stock market over the past couple of years - and may very well be excellent picks for the future. The last two stock are/were favorites of TV guru Jim Cramer.
The point here is that had you established a position in one of these stocks during 2007-8, your loss could have been as much as 40% to 70%+. And this is not the way you want to treat you savings.
If you are verturing into investing in individual stocks, go in with a plan that keeps your losses small on any single transaction. There are several ways of doing this and in future blogs I'll outline my strategy. But to get things started, let me throw out a couple of rules for your consideration:
1) Always write out your exit point for the down side for any stock you buy. This would be the price you would sell your shares should the stock price go to or below this level.
My exit prices are written on a white board that I can see from my office desk.
2) Never hold a stock that is more than 10% below your buy price.
More on both of these rules - with specific example - next time.
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