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Author: IFindKarma Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 37402  
Subject: Now I know why stocks correct by 60%. Date: 3/10/1999 2:32 AM
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Stocks correct by 60% (or more) to shake peoples' confidence when euphoria starts to run high. In such cases, the overconfident are either forced to sell (due to margin calls) or get scared and sell (due to big price drops), allowing market makers to lock in profits by getting people who bought high to sell low.

In the last two years, we've seen this happen many, many times. Not just for CMGI but for a whole bunch of Internet and technology stocks. And that was with a superlong bull market in the big picture.

The big fear that scares people into selling low, of course, is the fear of an extended bear market. This is also the fear that causes people to set stop limit sell orders, which subsequently fill when you least want them to. It's really difficult to fight this fear when the media bombards us with the "bear market" drumbeating, and many investors are shaken.

You'll notice they've stopped doing this right now, in an effort to get people who don't know better to buy high, but oh yes, probably in about a month but maybe a little earlier and maybe a little later, the drumbeating will come back and start beating down stock prices again.

It's surprising how quickly the tone of this message board turned from cautiously optimistic to exuberantly optimistic. I guess like any good mob, we feed off each others' vibes. When the vibes are good, we all run happy. On the other hand, when the markets start to turn south again, it will be interesting to watch as the vibes turn to panic and fear, and how those vibes feed off each other.

Remember in investing that emotions are your enemy, because emotions lead you to make impulse decisions. Impulsive buys and sells are not a good way to try to make money, because more often than not, impulses are an inaccurate-because-they're-made-in-haste interpretation of our instincts. Impulses are the momentary lapses of reason that ever-so-briefly prevent us from listening to our (correct) deeper instincts.

Market makers and specialists know this, and they set stock prices accordingly. As a result, the prices of stocks move in such a way as to psychologically entice us into doing one thing when in fact we should be doing the opposite.

The key to making money in the markets, of course, is discipline. This is not a new idea. Nor is it an easy idea. We have to work really hard to fight off the greed that makes us want to buy when it looks like a stock's train is leaving without us. Just as we have to work really hard to fight off the fear that makes us want to sell when we think the stock is about to go to zero.

Unfortunately, the point-and-click interface of the Internet makes impulse buying and selling a snap. So we have to work really hard to fight our impulses if we want to set realistic goals for ourselves based on our individual needs and preferences, and develop strategies to pursue those goals, and have the discipline to follow through on those strategies.

Investing with discipline is difficult. But it does have benefits. First, it significantly increases our odds of making money in the stock market. Second, it gives us peace of mind regardless of how the market is behaving. And third, it prevents the brokerages and specialists and market makers (oh my) from taking some of our hard-earned money out of our pockets.




Randtor in post #4463:
I have some $$ to invest and can't decide between CMGI, YHOO, and CNET. Help!

No one can predict with absolute certainty what any stock is going to do in any given period of time. Anyone who says differently is selling something.

Remember, impulse buying is a good way to lose money in the stock market. You might get lucky and make some money, but odds are good that you'll get unlucky and lose money. That's the way stock prices move: to make as much money off retail investors as possible.




Yogo in post #4464:
Would appreciate any thoughts or comments, or referal to previous posts about the anticipated CMGI split (2:1? 3:1?) its timing and its potential aftereffects.

Without inside information, no one can predict with absolute certainty if and when a stock will split, and what the effects such a split will have.

The past pattern of CMGi has never had its stock price up in this range before, so chances are good that management is considering a split. There are enough shares authorized for a 2-for-1 split. On the other hand, we have to trust that management knows what's best for the stock, and will take the best action for the company and for the shareholders. They might decide splitting is not good for the company at this time, and we have to trust them to make the right decision. Without trust there is no reason to invest in a stock (for example, CPQ).

Yogo:
Sorry, just don't have time to read the boards daily or to reread the last several days-worth (let alone weeks'-worth) of posts...

If one doesn't have the time to read about things that will affect short-term movement of the stock without affecting the long-term picture, then one shouldn't be concerned with a stock's short-term movements.

Yogo:
You are all SO damned entertaining that it's really tough tuning out once I've tuned in. Hours fly by. My wife eats dinner without me. I look up and its time for bed.

No amount of entertainment or reading about companies is worth tuning out your wife. Your time is best spent with her. Money is only money; time with your wife is priceless and limited and cannot be extended with all the money in the world.




Windsrfr in post #4465:
I've been reading posts about Dellionaires, and MS millionaires and I figure I need more shares to become a CMGillionairre.

One more time: this is not a race. There is no finish line. And when something seems too good to be true, it probably is.

Be patient. Money is made one dollar at a time, not all at once. There is no reason to take needless risk when it comes to investing. Patience and moderation can pay off wonderfully over time.

I'll also repeat that the future is not certain, and there are no guarantees. The unexpected can and does happen. And if you take unnecessary risk, you can be hurt. I've seen a lot of people lose a lot of money, even in this bull market of the 1990s, by taking needless risks when they thought they "knew" what was going to happen next.

You don't have to make all your money at once. There will always be opportunities later on to make money. Play smart, make your money a little at a time, and you'll live to play another day.




Marcus in post #4483:
Call me a cynic, but I'd like to know when the institutions started loading up on these stocks. Could it have been the recent "correction", that I suspect was manipulated to their benefit?

You can call it manipulation if you want, but this is the way they have always operated. The funny thing is, they don't always accumulate correctly, either. The institutions have a distinct advantage over you and me, because they have access to more information and are less likely to buy into a buying panic and sell into a selling panic.

However, they are retail investors just like you and me, and just like you and me they also suffer at the hands of the specialists and market makers, who wield the real power in the stock markets to manipulate prices. The institutions can just as easily be cut off at the knees as you and me -- which is why a stock market crash hurts them as much if not more than we individual investors.



statics in post #4486:
My small investment (taken from a mutual fund) in CMGI in December has almost paid for my 8-year-old's future private college education. It is now my largest holding. I still believe CMGI is a good investment. But do not think is is not a risky one.

I have studied CMGi the company for 18 months, and yes, the upside potential is extraordinary.

On the other hand, there are an incredibly high number of things that could go wrong to derail this company and its stock. Therefore, in my mind, it is an extremely high-risk stock.

Among the things that could go wrong:

1. Something could happen to David Wetherell. [Stockholders perceive this one man to be a big reason why the stock is worth its premium.]

2. The SEC could change the regulations on what constitutes a sale of assets and/or on what constitutes a mutual fund, thereby forcing CMGi under greater scrutiny for its accounting practices, forcing CMGi to pay a greater share of taxes, and/or forbidding CMGi from moving its capital around so easily. [Something the SEC and the IRS are currently exploring.]

3. Internet stocks correct by 90% and don't come back for 10 years as the U.S. economy goes belly-up in a deflationary recession that rivals The Great Depression. [When companies with business plans that aren't making money have market caps of $18 billion, and when companies with trailing PEs in the four-digit range have market caps of $18 billion, there is precious little room for error.]

4. IPOs suddenly become "cold" again and each successive CMGi public offering fizzles. [It happened to the market in general in August 1998, and it could certainly happen to the market again. It happened to an incubator company in particular in 1997 to Safeguard Scientific (SFE) and it could happen to CMGi.]

5. Something I'm not even expecting.




All stocks are risky to some extent. CMGI's stock is riskier than most. How do I know? Because if a stock returns 1000% a year without any risk, then everyone would buy it. But with CMGI, not everyone is buying it; in fact, precious few people are buying it. Now, you could attribute this to the fact that few people know about this stock; however, a stock does not return 1000% in a year without anyone who matters noticing. CMGI returned 1000% not only in 1998 but also in 1994, so people with big money have known about this stock for a while. Therefore, there is much implicit risk in this stock, because not everyone is buying it despite its enormous past returns. Which is why the market is pricing the stock the way it does. Risk is not volatility, but the volatility of this stock indicates how uncertain people collectively are of its intrinsic value.




Kazu in post #4498:
I think I'll nibble on IFK, little by little.

Help help I'm being eaten!!

Mr. Rimpinths said he'll short IFK because of its current valuation: "This IFK bubbles have got to pop eventually. I predict it'll lose 90% of its value before November, 1999."

Heck, if I'm gonna lose 90% of my value in the next 8 months, then I may as well live it up and spend as much of myself as possible...

...sorry. I'm having way too much fun.

Euphoria levels are running high on this board. Therefore, posting will have to correct by 60% before the number of messages posted per day will be able to start climbing again...

Seriously, follow Karma's footsteps & you'll be enlightened.

Just don't try walking in my shoes or your feet will start smelling like mine...

I've learned so much just by reading his daily posts & I thank him everyday for my port's success (20% YTD & rising).

Thank you everyone for being so kind to me, but remember that your success is truly your own, for you have taken all the available information and decided what was best for you. And no one can take that away from you, regardless of what happens in the future.
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