Forum Archive Index - May 2000

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

Deciding when to sell is probably the most difficult of investor decisions
… and track records would show that most of us get it wrong.  I don't think
ten per cent stop loss rules (as in Rils post)  work particularly well for
several reasons.

First whether you sell, really depends why you bought the share in the
first place.  If you don't know, then (a) should you have bought it ? and
(b) I'd sell it anyway.  It goes back to the trading versus value
investment attitudes.

If you buy a value share then:
1) the long term expectation is that the share will continue to give value
either through capital growth or dividends.  If the entire market is
declining (as it is now) then the fact that your share is declining is of
no particular note.  What you bought was not a set amount of dollars, but a
long term share of a company.
2) The only reason for selling then would be if information indicates that
the original expectations were false.

If you buy a trading share then:
If the share falls by more than a set amount, the trade has failed.
Therefore you should sell.  If you are into trading clothes, and you buy a
stock of bell bottom jeans, and no-one wants to buy them because they have
gone out of fashion, do you hold them in the hope that eventually they come
back into fashion?  Like hell.  However much you like bell bottom jeans
with bits of braid round the bottom, you flog them off at the next winter
sales, sack your buyer and hope that the next one has got more taste.

Advantage is a neat example, because it started off as a company that
should have been making pots of money as a value company (flogging eftpos
systems) and metamorphosed into a dot.com with no visible means of support. 

So whether you sell Advantage depends on your reasons for buying the share
and expectations for future performance.

If you bought it as a value investment, holding on to it depends on whether
you think it will make money in the future.  If you bought it as a trade,
the trade just failed.  Tough, flog it and get something better.

One further thing, in a volatile market like the last three weeks,
individual share prices fluctuate rapidly and often fall by as more than
10% in a single day.  For a great many people, it is not possible to follow
the share more than once a day or week.  If you are out of the office, then
you can miss a stop loss simply by being out of touch. Unless you have a
proper broker (to watch the market for you) you are likely to miss a stop
loss and end up with a 15 to 20 % loss.








At 07:21 PM 5/3/00 +1200, you wrote:
>My darling is slowly but surely sliding down hill. Whats up?
>
>Nigel
>
>
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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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