Saturday, October 15, 2005

Why You Can't Buy and Hold Anymore

(Chart of AT&T)
Many investors think they can buy a stock and forget about it. The bubble, Enron, Worldcom, and now Refco are all examples that you can't just buy a stock and hold it, even if the company is an "established bluechip." One of my goals for the next year is to take on a more trader oriented approach to investing in stocks. If you are down 20 or 30% in a stock and hold it for five years for it to come back then that is lost opportunity. That is one of the reasons why I sold some of my position in Tyco (TYC) this past week. Then there is the dilemma of "buying down" or "averaging down." I have done this successfully and unsuccessfully. You really have to believe in a company and feel that the decline is only temporary. I know individuals who set stop losses at 5% and exit positions after a gain of 5-10%. My best advice is to do your best to avoid major blow-ups and don't be afraid to take a loss.


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