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Moolah
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Posting #1: Sat Jun 21st, 2008 03:31 |
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randomly posted on a chat box...
- you have XXX in your stock portfolio and making a loss now, just keep the stock for long term.
Rather good topic imo.
So if you are holding a stock.. and it's making losses (hmm.. Is Paper Loss Not A Loss? ) , how?
Just keep for long term?
actually for me... rite now... hard to comment... cos.... i dunno which xxx stock is listed on which yyy market and at what zzz price?
comments?
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random
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Posting #2: Mon Jun 23rd, 2008 04:12 |
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I saw this in a blog.. The writer hasn't given me permission so I'm not gonna quote him
But seriously, asking the investor to hold on to a stock JUST BECAUSE its price has fallen below your purchase price is seriously bad advice imo
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wonderwealthwisdom
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Posting #3: Mon Jun 23rd, 2008 04:44 |
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Ok, I'm going to quote an extract from my blog. It's only scheduled for posting this Wednesday, but oh what the heck 
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The Real Deal: Share Price
Up to now, we have been analyzing historical information based on the annual audited financial statements. Such historical information furnishes us the track record of management's ability to generate returns for its’ investors. However, we are missing a vital link: the Share Price!
The Share Price of a Company on a particular day represents the last transacted price between a willing buyer and willing seller. For an Intelligent Investor, the Share Price of a company DOES NOT represents the worth of a Company.
WHAT! WHAT [insert expletive here] ARE YOU TALKING ABOUT?
Mr. Market
Well, the reason is very simple. Markets are IRRATIONAL! I shall let Warren Buffett explain further on this concept. This is extracted from one of his letters to the shareholders of Berkshire Hathaway.
Ben Graham
Ben Graham taught me that the key to successful investing was the purchase of shares in good businesses when market prices were at a large discount from underlying business values. The true investor welcomes volatility. Ben Graham explained this in Chapter 8 of The Intelligent Investor. There he introduced "Mr. Market," an obliging fellow who shows up every day to either buy from you or sell to you, whichever you wish. The more manic-depressive this chap is, the greater the opportunities available to the investor. That's true because a wildly fluctuating market means that irrationally low prices will periodically be attached to solid businesses. It is impossible to see how the availability of such prices can be thought of as increasing the hazards for an investor who is totally free to either ignore the market or exploit its folly.
Ben Graham told a story 40 years ago that illustrates why investment professionals behave as they do: An oil prospector, moving to his heavenly reward, was met by St. Peter with bad news. “You’re qualified for residence”, said St. Peter, “but, as you can see, the compound reserved for oil men is packed. There’s no way to squeeze you in.” After thinking a moment, the prospector asked if he might say just four words to the present occupants. That seemed harmless to St. Peter, so the prospector cupped his hands and yelled, “Oil discovered in hell.” Immediately the gate to the compound opened and all of the oil men marched out to head for the nether regions. Impressed, St. Peter invited the prospector to move in and make himself comfortable. The prospector paused. “No,” he said, “I think I’ll go along with the rest of the boys. There might be some truth to that rumor after all.”
The Risk
Sometimes, the share price of a company (say ZGL) appears to be trading at a large discount from their underlying values. In reality, say that this is not the case. Mr. Market has correctly priced the shares due to business risks and other factors that you had overlooked. Here, you may have bought the shares at RM25 as your (erroneous) analysis, indicates that the underlying value should be around RM30-35 per share.
During this period, the share price of ZGL has plunged from RM25 to RM10 in the span of one year. Do you still keep your shares in ZGL in the belief that Mr. Market has incorrectly priced its’ shares? Or do you dump all your shares in ZGL and sell out?
As an Investor, you have to rely on something important called JUDGEMENT. Not even the world’s greatest investor, Warren Buffett is perfect. Expect to make some missteps, when joining the world of investing. The best thing to do is to set your tolerance level for losses. You may set a trigger point to sell ZGL shares, if it falls below a certain value. This is important as most of us are reluctant to admit when we have made a bad call. It is not easy to cut your losses but you must do so! Don’t throw good money after bad!
For instance, you could set your trigger point to sell ZGL shares if it falls by 40% from your initial purchase price (i.e. the market price of ZGL's shares drops to RM15 per share). Even though you have lost 40%, at least you preserved the remaining 60% of your capital. Obviously if the shares price shoots up to RM40 a year later, then the fact you were RIGHT, would be of cold comfort.
***
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Moolah
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Posting #4: Mon Jun 23rd, 2008 04:48 |
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Avatar,
IMO the biggest mistake one can make right now is to discount the falling stock markets is due to poor market sentiments.
Instead right now, I believe it's rather paramount one should evaluate and review the business economics of the business of the stock itself.
For example... one should ask if the business is facing any margin squeeze from recent developments?
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Moolah
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Posting #5: Mon Jun 23rd, 2008 04:52 |
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Avatar,
BTW.... since most of us are but normal average investors... perhaps... one of the better exercise to do is.... to take a good look at ourselves and ask if perhaps we have made a mistake in our stock selection!!!
And if we did make a mistake in our stock selection .... then how?
Doesn't keep for long term equates to suggesting one to keep our MISTAKES long term?
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wonderwealthwisdom
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Posting #6: Mon Jun 23rd, 2008 04:58 |
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Yes, I agree with you as the larger the drop from its' underlying value, the higher the potential gains. 
Unfortunately, the question boils down to the following:
How sure are you that Mr. Market is wrong and you are right?
Since small time investors like me are not privy to the latest information and are limited to personal experience and quarterly reports, it's a tough call to make.
Guess it will only come from experience. My advice may be for less sophisticated investors. If someone with a good investment record and enough cash reserves, maybe it's not a good idea to set a limit down. 
Your question is a million dollar one! If it were me, I would review the reasons why I bought the stock in the first place. If any of the reasons or assumptions have changed dramatically, perhaps it might be good to cut your losses. Still, I'm only speaking from theory. If I go into Bursa and face this situation, perhaps I can add more value based on practical experience. 
Hope that those that have faced such situations can share their experience as well.
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Moolah
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Posting #7: Mon Jun 23rd, 2008 05:13 |
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Since small time investors like me are not privy to the latest information and are limited to personal experience and quarterly reports, it's a tough call to make.
Yes, I would agree that in most cases, sometimes it's a tough call to make...but... since... we the small time investors are not priviy to additional info.. we are at a disadvantage... and also, the likelyhood that perhaps as a small time investors, the chances of us making a mistake is much bigger.
And since this is question is based on NOW (current environment) I would NOT suggest to anyone to simply keep for the long term.
The downside risk is huge.
If someone with a good investment record and enough cash reserves, maybe it's not a good idea to set a limit down.
Sometimes.... those with good investment record.... could even be punished severely.
Best case example, the legend Bill Miller. He has had one of the best investing records. Look at where he is now. Some clear bad choices in CountryWide amd Bear Stearns.
How?
I would do what Buffett says... "It takes a huge man to realise that he's wrong and the best way out of a hole is to stop digging!"
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James Bull
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Posting #8: Mon Jun 23rd, 2008 05:16 |
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wonderwealthwisdom wrote:
Guess it will only come from experience. My advice may be for less sophisticated investors. If someone with a good investment record and enough cash reserves, maybe it's not a good idea to set a limit down.
Well, a famous stock investment gurus who made his fortune in last decade was badly hit when megan koyak...
So many pity investors sailang in megan because of his call since RM2++ few years ago. So many ppl poured in their hard earned money every month to average down because of his so call 'good investment record'.
Pass performance does not guarantee the future results. I guess it's applicable for human too. 
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wonderwealthwisdom
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Posting #9: Mon Jun 23rd, 2008 05:17 |
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You are right
Hope I'll be able to admit I'm wrong when the moment comes. Letting go of the ego is most hard when investing. 
Stop digging myself into a hole and admit I'm wrong! NEVER! 
[Just joking!]
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Moolah
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Posting #10: Mon Jun 23rd, 2008 05:28 |
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James Bull wrote: wonderwealthwisdom wrote:
Guess it will only come from experience. My advice may be for less sophisticated investors. If someone with a good investment record and enough cash reserves, maybe it's not a good idea to set a limit down.
Well, a famous stock investment gurus who made his fortune in last decade was badly hit when megan koyak...
So many pity investors sailang in megan because of his call since RM2++ few years ago. So many ppl poured in their hard earned money every month to average down because of his so call 'good investment record'.
Pass performance does not guarantee the future results. I guess it's applicable for human too.
Jamesy,
hehehe... Megan example again?
ps. Did you read Wanderer's link to RBS comments? RBS issues global stock and credit crash alert
Did you see how some comments blasted the article based on the bank (ie based on the bank's track record) and not on what was written?
Hmmm... why ppl make pass performance/track record such a big issue eh?
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