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Michael Anderson
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I am an individual investor. I also assist a small number of other investors develop a quality portfolio by first determining their goals and risks. Individuals I assist with their investments, I mainly help set up a long term investment strategy with a small portion of the portfolio dedicated... More
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  • Making Some Sense of the Market  0 comments
    Jul 28, 2010 1:38 PM | about stocks: V, DIS

    Just over the last few months I began writing on certain message boards whether it is giving my opinion, sharing facts, or trying to dispute misleading bashers or straight out lies, but I have come to find that many reactions on the boards match many of the overall reactions of particular stocks or sectors.  People will continually claim they are long the stock, but get overly upset because it dropped a couple of percent in one day or even a good amount in several weeks or months.  I will agree that many have very flawed research if any is really done at all by some.  If strong research is done by reading all of the sec filings, especially the 10-ks and 10-Qs, contact management with any concerns, understanding the actual business and its future, and then its valuation such as P/E, cash on hand, etc. and all of the neccessary research is done and nothing has negatively changed with the company and the strengths are still in tact, then a drop in a short period of time should not be a concern.  Obviously it is never fun to see an investment drop in value, but again if everything is still holding strong with the company, then it presents a buying opportunity as the price drops. Many in the small cap China sector have been beaten down due to a lot of negativity and many are selling at less than a P/E of 5 based on full year 2010 earnings.  So when sectors and particular stocks drop or even rise, people like to follow the crowd and lately there have been big drops and pops not just in the China small cap sector, but also the overall market. In todays market it seems as though it is easier to make money trading as everything seems to be very volatile and it may be a while before the attitude and volatility changes.  So if you are going to hold for the long term, expect ups and downs.  Another idea is to trade part of your position or do some type of trading in your portfolio. The best thing to do with any type of investment is to invest in increments and have a starting point to start the initial investment and then an end point when you will start selling the investment. Also, sentiment can change if something negative has effected the stock such as poor management decisions, slower than expected growth, insider selling, etc.  The main thing is to not get so emotional and overreact over every single thing, but to have certain rules that you apply to your investment otherwise when you stray, that is when you hurt yourself the majority of the time. Some rules for me are:

    1) Never chase a stock that has made a big run because 90% of the time, the jump is missed

    2) For long term, invest in more increments and short term can be done in less increments as you do not want to miss your opportunity

    3) Invest as a stock has continued downward due to no real negativity with the actual company

    4) Do complete research as mentioned above, especially in the long term investments

    5) Set a selling point for your short term investment

    ex) about a month ago I bought V at 72.50 and stated that there would be an expected jump of 5%-%10 and that was my starting point to start selling. Now I did end up selling half after a 1% gain because I used it for another investment that came about unexpectedly, but really it is best to stick to the original plan

    6) When one of your investments drops below your first increment, buy more as long as the strengths are still there.

    7) Do not put all of your eggs in one basket. Have some short term, long term, and some from different sectors. I personally do not like to invest in more than 5 stocks at a time.

    8) In my opinion, for short term investments, invest in large cap quality stocks so that the downward risk is minimized, but track many stocks to find trends

    ex) In the beginning of the year DIS reach about 34 and was a 52 week high at the time, but came down to 29.50 for no real reason and Alice in Wonderland was coming out in the next few weeks after it reached that point and it was a good opportunity to gain a quick 10% - 20% and that is exactly what I did and the downward risk was minimal based on the factors that I stated and the fact that it is Disney

    9) Do not invest in a company where you are having a lot of confusion with the research

    10) I also notice that many people will hold a stock that has had actual negative things happen such as slowing growth, poor management, declining eps, missing targets and so forth, and they will hold hoping to recoup their investment because they are attached to the stock. When they could have sold long before and entered a better opportunity. So do not be afraid to sell if factual and proven information has been presented against the company. A good example of this is AOB.

    Those are some of the things I can think of for now, but there are a variety of ways to invest and many people have differing strategies and risk.  What I have found, is that when I stray from my rules, many times it presents chaos, missed opportunies, losses or minimized gains.


    Disclosure: no current positions in either V or DIS

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: V, DIS
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