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Subject:  Re: 1/3, 1/3, 1/3? Date:  7/15/2004  9:09 PM
Author:  TMFAdmiral Number:  1400 of 2244

Hi Keith,

As one who frequently recommends this approach I'd describe it this way.

If I make a decision to buy because I think that a company is significantly undervalued I will usually split up the amount that I want to purchase into 2 or 3 separate purchases. I do not set a time limit for my purchases.

Example: Company XYZ is valued by me at $32 per share. It's selling at $24. That is at a 25% discount to my valuation. I tend to like a value approach so I often buy out of favor stocks. I have no way of knowing which way the stock price will go in the short term. It may fall further out of favor and drop below $20 or it may creep up towards my valuation. However I have a degree of confidence that over a period of time the market will recognize the value in XYZ.

I have $1,500 to invest (Scottrade at $7 per trade) so I invest $500 at $24 (actually 20 or 21 whole shares. Should the stock go down I can add more. At $20 I can add another 25 shares. In my case I might say that I won't buy over $25.60 as that's a 20% margin of safety on my $32 valuation

I might take months or years building up a position. Once a quarter I review the company to see if my valuation holds true.

I do have a rough rule of thumb that brokerage fees should not exceed 2% of the purchase price. So at $7 per trade that would be minimum $350.

Best Regards
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