I have no idea what the technical analysis of Lucent said throughout 1999, but based on the balance sheet metrics itself, I was 'encouraged' to remove it from my portfolio. At the time, comparing it to Cisco, Nortel and other technology companies in and around the surrounding space was an exercise many were doing. It's interesting that eventually Cisco and Nortel were met with pretty much equal declines in their share prices. How could one have used a combination of all the tools available to zero in on those three and what their share prices have done since late 1999? Tools are tools and plenty of people must have been using what they had in their toolkit to tinker with the engines. To say that it was a 'random' event fails to account for all of the critical factors that went into the 'event'. Capital markets, financing, credit, inventory, competition, supply and demand, support and resistance, balance sheet/income statements, overall market condidtions, sentiment, etc... .

I realize that this is a rhetorical question, but as long as we're attracting all this attention, why not use a specific example to make a point, particularly since the point with regard to LU is so easy to make?

And, yes, I know that many fundamentalists will complain that we're using hindsight, but it is impossible to avoid using hindsight to teach. Every single text is based on hindsight. Anyone using balance sheets and P&Ls to teach fundamental valuation is using old data. If realtime is important to anyone, we noted the March top in realtime, as well as the most recent top a month ago. Anyone wanting realtime advice on what to do with one stock or another is either going to have to pay for it or learn how to do it himself.

As far as LU goes, many investors would have exited LU when it broke its UTL (uptrendline) in late '98, but an LTBH could have been excused for simply hanging on since he could have justified (rationalized) the decline due to the market-wide decline. In other words, there may not necessarily have been anything wrong with the company per se.

Once the stock recovers, it does not again break that line until late '99, and here's where the premise and one's risk tolerance cross downstage and take the pink & amber pinspot. The stock holds at previous support at around 52. Is that the line in the sand? Should the line be moved lower? All that should have been part of the plan. But even if one were making it up as he went along, 52 would not be an unreasonable place to draw that line. If he were also picking up on deteriorating fundamentals, he might decide that a triple (assuming he bought it at the right time) was just fine and that better opportunities lay elsewhere.

If, on the other hand, he were to decide that the ensuing rally was heartening and that he should stand by his beloved, the failure to follow through on the new high at the end of '99 should have rung a bell. This "failure" phenomenon is detailed in Mamis and Sperandeo, so I won't go into it here. But that, coupled with the extraordinary move just a few days later, would have moved all but the most obstinate to get out and stand aside.

Let's assume, however, that one of our gentle readers was among the obstinate. After all, the stock halted its decline at that same 52 (more or less) level. It even gapped up to make yet another new high attempt. Which failed. But then it found support at that same old level yet again.

In my original answer to Bruce, I noted that support that is tested over and over again is likely to hold on subsequent tests. If it does not, something is wrong. That something is generally a fundamental problem, and even if that fundamental problem has not been revealed, one is better off standing aside until the problem is exposed rather than hold on and hope for the best.

The breach of 50, after more than a year, was important, and even the most obstinate could not have denied that something was wrong (though "could" is the wrong word since some clearly remained in a state of denial, and still do). A stop just below 50, or even as low as 45, would have salvaged a huge portion of profits, though one may yet have resisted placing such a stop due to tax liability.

About taxes.

There are many considerations regarding taxes which those who speak in bumper-stickers don't consider. For one thing, many if not most of the people who have profits in one issue or another did not buy the issue when it was twelve cents. They bought it much later. Therefore their profits are not nearly what the "don't sell" group assumes they are, hence a far lower tax liability in real dollars.

Second, not everyone pays taxes at the highest rate. Many pay nearly half that.

Third, there are an awful lot of people who I imagine wish that they had gone ahead and sold in March and paid those taxes rather than lose 60 or 70 or 90% of their investment. Granted their investments are now worth only a fraction of what they were worth then, but boy did they save on taxes!

There's more, but this is enough for now.

There's far too much religiosity in TMF. CANSLIM is one of the few strategies that combines fundamentals and technicals. If the pure fundamendalists and the pure technicians would just pull the poles out of their butts and work together more closely, many more people would make -- or at least save -- a great deal of money.

--Db