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Author: Somewhere Big red star, 1000 posts Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 3880  
Subject: Re: My worst unfoolish investment Date: 5/24/2001 5:53 PM
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If a stock double in a unusualy short time you should sell.

But if you do that, you might miss the boat when it triples, quadruples, or more. Nope, one should sell a stock because there's a better place to put the money. Selling simply because the stock doubled quickly is pretty dumb outside of all other contexts.

I own Ciena. It's up over 700% from when I bought it a little over two years ago. SEVEN HUNDRED PERCENT! I'd have missed out on a LOT of money had I sold it 600% ago. Want to know something else too? At one point, the stock was up over 2,000% from where I bought it. In hindsight, I wish I could have sold it then, but I'm not going to cry over a "measily" 700% return in a little over two years. I bought them at $7.50/share. When it reached $15/share, one my co-workers told me, "Sell! Sell!" Then it went up to $30/share. "Sell! Sell!" Then it went up to $60/share. "Sell! Sell!" Good thing I didn't listen to him. This has been the best performing stock I ever bought, even after the recent decline.

On the other hand, if a stock I recently bought doubled in price while inventories, receivables, or debt grew unusally fast, that might be a good indication that it's time to sell. But that would be an indication to sell no matter where the stock was at or what the price has done recently.

The earlier you take your profit, the safer it is.

I don't consider the government taking 30-40% of my profits very safe.

I don't consider giving my money away in commissions as very safe.

I don't consider stashing my money in a bank account while waiting for prices to come back down very safe.

Buying and selling stocks based purely on what they've traded at recently is foolhardy. The only time it makes sense for someone to sell a stock based purelyon the fact that price recently doubled is because the person has no concept of how to value a company properly. In that case, they might make the assumption that the company is overvalued. After all, the stock is more expensive at higher prices therefore it's likely the stock might be overvalued. However, since the person cannot properly value the company, they only have assumptions to work with. I'll admit, that's better than nothing. Rules of thumbs can and do work. But the person would be far better off figuring out what the stock should be worth, comparing it to the price the stock is currently trading at, and making a buy or sell decision based on that. Ultimately, your returns will be much better.

Ciena isn't the only stock I've own that I've watched double in price and not later come back down to prices near where I bought it. Andrx is up 150% from where I bought it shortly after it doubled in price. Tyco has doubled in price within a few months of where I bought it, and has been holding up well. The options I have on Tyco are up over 150% from where I bought them, and I continue to believe they'll provide superior returns.

Nope, if you really know what you're doing, you should have no reason to sell a stock simply because it doubled in price. The only reason one should do that is to protect themselves from their own ignorance--in which case they shouldn't be investing in the market at all.

-- Ryan
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