Stock trading is not for the faint hearted. Stocks rarely march according to pre-conceived patterns. Hindsight and statistical analysis gives comfort to those who trade based upon alleged patterns. However hindsight is not foresight; how many times have trends fallen above or below a trend. If the trend is the average predicted value, then 50% of values will fall below and 50% will fall above spec. This is no way to speculate, gamble or invest (pick your word).
Overlying stock movement has nothing to do with underlying value. Any reader of Graham or Buffett understands that opportunity only presents itself when the market is imprecisely priced. A stock with upward momentum does not indicate a forever upward trajectory, nor does a downward trend indicate poor underlying fundamentals. Following the crowd has rarely provided long term and consistent winnings. One analogy is the purchase of winter coats before winter. If one purchased when most people shopped, you would be buying before the winter at the highest prices. However, the greatest value occurs in the off season, when the fewest people are purchasing and the sales the greatest.
As such beat up and little favored stocks often offer the most compelling purchasing opportunities, while over-priced stocks (think dot com and housing) are often candidates for shorting. Of course the fundamentals must be examined....
This blog will track my stock purchases and sales this year based up on my personal assessment of value. Today TGI @ 50.95. I expect a bounce to $60 in 2 weeks. Sale at $65.
Friday, January 25, 2008
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