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Subject:  Lessons learned Date:  3/31/2001  10:00 PM
Author:  Rayvt Number:  97594 of 273734

Moe said:
You were trying lots of things that were a little different then many of us like Reverse Scaling investing and not buying monthly screens.

I'm curious if you have any good lesson learns from the past year (i.e. both good and bad) that you can share with us.
And I though it best to open another thread...

Lessons learned (maybe):
* Margin is the juggling-with-chain-saws of the investing game. Or maybe juggling-with-life-handgrenades. You not only risk losing precious body part of your own, but causing severe collateral damage as well. Many of the market participants of the last couple years blew up in 2000. Bad enough for them, but when the margin clerks starting the indiscriminate selling them out, that drove the stocks even lower. Some of probably remember days when the market took a nosedive 1/2 hr before the market closed----I'm told that is when the margin clerks start writing the sell tickets. The forcee is *never* given a good price in any kind of forced-sale position.

* Friction is a Big Deal! Commissions, spreads, taxes, expense ratios, etc.

* SD (GSD) tells only part of the story. You can also call this "Giving too much credence to the backtest data." The drawdowns (polite term for "losses") don't explicitly show up in the figures.

* Risk management. Repeat 3 times. Huge drawdowns happen. Better have a "Plan B", for when the 100-year flood hits the fan. Preferably, have your exit strategy in place before the "move into two refrigerator boxes" becomes your only available option.

* Reverse scale is a pretty good tactic. It is the formalization of the "don't sell on the way up and don't buy on the way down" maxim. For example, I strictly adhered to RVS with my AMCC holding. I bought it several times in the last couple of years, at higher & higher prices. When it started to collapse, I sold half of it, then sold the other half later.

* It's never too late to sell. Just look at your AMCC or INTC or QCOM or AMZN or EMC or DELL. I first sold some AMCC at 95 and it was like selling my firstborn. Then I sold some more at 60, and the last at 40. Today it's 16. Same for CSCO. When it was falling from 80 to 60 to 50----to 40 to 30 to 20....... Every step of the way, people told themselves it was too late to sell, it couldn't go lower. In at 80, out at 40 hurts. Hurts bad. But it's better than in at 80, out at 15. Or out at 7. Or out at whatever the margin clerk can get for it.

* Check your emotions at the door. I keep looking at my highest balance (4/00) and regretting what might have been ("....if only I had sold all my techs and bought MO...").
I can't get one out of my mind. I went short CSCO at 38 in Feb. Because I *knew* that it was heade lower. Covered a couple of weeks later at 36 for a slight profit. Then CSCO crashed and I could have covered at 28---or 20. I left nearly $20,000 on the table---and I can't get it out of my mind. But Madge is cool about it. She says, "Why are you beating yourself up? Cut it out."

* Hold back money for taxes. Lots of people--myself included--had nice realized profits early in 2000---but huge unrealized losses the rest of the year, and now are having to sell stocks that are way down in order to pay the taxes on the gains. When you realize a profit, put the appropriate capgains tax into a Money Market account.

Ray
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