Forum Archive Index - October 2001

[Phaedrus <Phaedrus@techemail.com>]

Brian,
      There are instances where Buying and Holding is not the best strategy, 
this being one of them. Averaging down would have compounded the loss. Either 
approach would have cost you your shirt. 
  Everyone makes mistakes, whatever their investment system or philosophy. 
  To doggedly hold a stock regardless of any amount of subsequent price 
deterioration is to ignore the possibility that you were wrong, or that 
circumstances have changed. 
  It is impossible to be completely objective about any stock once you have 
bought it. Because of this fact, it is best, before buying, to define a point 
at which you would accept that your initial analysis was wrong, and sell should 
the price fall to that level. Without this, you are flying without a parachute 
- if the stock crashes, you crash with it. How and where you set this stop-loss 
level is of secondary importance, just so long as you set it and keep to it.
  All you are trying to do is cut your losers and let your winners run. To do 
this, you must first define a loser. Buying and holding without a stop-loss 
strategy lets winners and losers both run.
  Buying and holding regardless of any subsequent price deterioration best 
suits people that never make mistakes.
          Phaedrus.

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