Forum Archive Index - January 2000

[Nigel McCarter <n.mccarter@clear.net.nz>]

The discussion on FFS is deja vu.  
About five years (pre letter stocks) ago I bought FLetcher Challenge (FLC),
on the assurance of a broker that they would go up on the back of
increasing log prices and were grossly undervalued.  
They shares promptly crashed (see table 5.1. Shorten the Odds p56).
Eventually I sold with a  20% loss, reinvested in Ebos, Radio Pacific and
Advantage and have more than recovered the loss. 
If you calculate loss percentages out, you can show that the longer you
wait to sell a share, blue chip or not, the more difficult it is to regain
your investment and make a profit,

For example for values of $1000 investment:
A.  assume you stick with a loser that loses 20% is static for one year
then climbs at 10% per year.
B.  assume you sell at a loss and reinvest at 10% per year

Year      Stick with the loser strategy    Sell and reinvest
1               1000                                    800     
2               800                                     880
3               800                                     968
4               800                                     1065
5               880                                     1171

The required rate of growth for strategy A to recover the original
investment is about 25%.  Plug in real rates of return, brokers fees and so
on, and you can demonstrate that A is unlikely to ever catch up with
strategy B of cashing up and writing off the losses.

PDL, Nuplex and Owens are other examples of long term declines in price for
otherwise good companies where the best strategy would have been to sell at
a loss and reinvest in more robust growth.

And that growth is not difficult to find, even in the New Zealand Market.
It does mean however, ignoring the IT stocks, and finding companies with
good balance sheets and a track records.

The only exception to this rule of selling on loss is where the are strong
reasons for a temporary collapse in price, for example FERNZ (now NuFarm)

DISCLOSURE
I hold (or held) all the above companies.


\At 12:37 AM 1/25/00 PST, you wrote:
>Graham
>
>I know where you are coming from however as a novice trader who is learning 
>fast the one rule I am trying to come to grips is when trading and holding 
>onto shares is emotion. There should be no emotion attached to whatever 
>share you buy - it is just a share - not fletchers or telecom etc etc. If 
>you purchase the share to make money? then emotion should be out of the 
>equation. The funds you have tied up in your FFS purchase when brought 4 
>months ago would of doubled at least if any of the current IT stocks were 
>brought. I'm learning this also through holding Fletcher stocks whereas if I 
>used the money to increase my purchase in ITC I would be sitting on more of 
>a profit while my Fletchers stock is showing a negative return because 
>emotionally I like it and keep thinking it should be worth such and such but 
>as soon as it moves up it comes back down. Also the price movement when it 
>does rise is not such a greater percentage as the current IT stocks if one 
>is speculating. Of course the above depends on age and investment risk etc 
>etc but aren't all here to make money.
>
>
>>From: Graham Watt <gwatt@xtra.co.nz>
>>Reply-To: sharechat@sharechat.co.nz
>>To: sharechat@sharechat.co.nz
>>Subject: [sharechat] FFS
>>Date: Tue, 25 Jan 2000 19:00:35 +1300
>>
>>
>>David I am stuck with FFS myself after hedging 4 times. I've waited
>>patiently for a rebound. I initially bought them thinking they would
>>lead the export recovery. When looking back over 5 year history, I could
>>see them reaching $2-00 within 12 months. That was 4 months ago. That
>>decision has tied up alot of my trading funds as I am a day trader. One
>>of my strategies though is never to sell a blue chip stock for a loss,
>>assuming that they will keep track roughly with the NZ40. Along with
>>other mistakes one can easily make in this game (I've made a few) I'm
>>lucky I can afford to wait for them to recover. Meanwhile the tech.
>>stocks skyrocket. My advice is to hold on to them.
>>
>>Regards Graham
>>
>>
>>
>>
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Nigel McCarter
Safety Management and Information Services Ltd
Box 23 019 Hamilton
Phone 64 7 858 2429 Fax 64 858 2689
Mobile 02 212 4901

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