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Investment Analysis Clubs / The BMW Method


Subject:  Re: BMW Assumption #1 Date:  3/11/2018  2:41 PM
Author:  captainccs Number:  42213 of 42349

How long am I willing to wait for the thesis to prove out?

This has proven to be one of the big stumbling blocks of the BMWM for me. Reversion to the mean happens because there is an attractor which is the intrinsic value of the underlying company. But that is not enough, Mr. Market has to get it and it will in time but in competition with all the other investment opportunities. If you are looking at a healthcare stock, the sector might be going in or out of favor affecting the time for the stock to revert.

What this translates into is the need for long term investing horizons and patience while at present markets are choppier than ever. The first question to ask is "How long is your attention span?"

A very long time ago IcyWolf and I had long discussions about when to buy a BMWM stock. I was in favor of averaging down while he favored waiting for the uptrend before buying. At this late date I concede that he was right! While the profits in dollars might be the same, since his holding period is shorter, his CAGR is higher. In other words, buying after the bottom is better cash management. Money parked voluntarily is OK but money stagnating in a stock is not.

Denny Schlesinger
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