Guys Who Don't Get Beat

[SharperDingaan]

In my opinion, one should sell when the initial thesis to justify the purchase was found to be incorrect, or when adverse things occur, that have not been anticipated.

 

Just empirically, I have found that the initial stock movements, as significant as they appear to be at that time, rarely are large enough to capture the full impact of change that occurred, which means that more declines are likely.

 

I am not talking about 1c /share earnings miss here. I am talking about a significant shift, like a huge write off, and large unexpected loss, a severe decline is margins or revenues etc. that were not expected at all. If these occur, my rule is to sell as quickly as I can and then to re-evaluate.

 

Your very last line "sell as quickly as you can and re-evaluate".  Take whatever losses you have before they become too big and have a sober second look.  Likely you can always but it back at reasonable price.  I just had to do this with Seaspan (twice).  If things look cleaner down the road, I will seriously entertain rebuying.  Its very situational though.  Wells Fargo was not one where I would sell just because they had the scandal.  I was looking to buy on weakness but apparently so was everyone else. 

 

Buffett and his Dexter Shoe is just another example of Warren trying to be humble.  He didn't lose 3.5 B, he lost the purchase cost minus whatever of the residual was left.  Acting as if there was opportunity cost is disingenious.  The whole debacle was a capital loss and entirely offset by gains that year from elsewhere. 

 

And I cant think of anyone else I know of who as made as few mistakes as Buffett.  And that is critically important and what distinguishes him from neary everyone else.  I dont see him holding Coke, WPO, or others as mistakes.

 

Over the years we've typically found that if we're down 25% on XYZ, it's time to lighten up. In most cases our idea was right, but we were typically years too early. The better the quality of XYZ the less our loss tolerance; does not apply to cigar butts.

 

As we also prefer to sell & repurchase later (at an even lower price), the sale is really a synthetic short - that also protects us from XYZ going bankrupt. Reinvest the entire sale proceeds at the lower price when the short gain equals the long loss. Risk management.

 

Whiplash is always the risk when trading around a position. We suck as traders, we know it, and accept lengthier holding periods as our mitigant; and easy for us as we aren't OPM. Know yourself, and know your value proposition.

 

SD 

 

     

[John Hjorth]

... but I know I'm full of shit; ...

 

IMO, this really is the key  ;)

 

Scott's shit smells better than mine. I personally love rubbing my nose in it

 

Off topic:

 

Somehow, it's good humor, Spekulatius! : - )

 

- Is that the reason why you chose to fled Germany [The lack of humor, I mean]? - Question asked based on personal experience with German business people!