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I think that if one could have only a single piece of advice to base their investment program on, "Make sure you do not pay too much for your stocks" would serve the investor very well. The key point being that like other avenues of consumerism, it is imperative to calculate what you are paying relative to what you are getting. The tricky part is being able to stick to the resolve not to overpay when one is bombarded with "expert" and associate tips and assurances for gain.

On a personal level, a most difficult temptation to ignore is when a situation that was deemed slightly too expensive moves significantly up in price. This situation where the common thought is that money not made can be equated to money lost can easily lead to a (probably) unwise loosening of prudent investment pricing. For me, this is where the discipline is needed to realize that money not made is not equivalent to money lost and to realize that in the long run a greater benefit will be received by holding firm to the valuation methodology.


Well said, Zenvestor! After six years of investing in individual stocks, mostly large-cap non-techs, this is the part I think I'm finally starting to get the hang of. I like to combine fundamental research into intrinsic value with Buffett's margin of safety, and a wee bit of TA to find a good entry point. It used to be really agonizing to put in a limit buy order on a stock, only to see it go on a run without ever getting a fill (like happened with me recently on MSFT, where I missed getting a fill by 1/4 of a point at 40/share! Arrrggggg!). Still, as time goes by, I find it easier to resist the psychological pressure of seeing a stock get away from me, especially after watching what happened last year! ;-)

Now, maybe you could share with us some advice on how to optimize our approach to the sell side. I'm unloading 5-6 of my dogs, mostly stocks I've held for 3-5 years which, in various ways, have violated the premises I bought them for. In doing so, I am trying to apply Graham and Dodd in reverse, in other words set sell limits which, based on a mix of fundamentals and technicals, will diminish the likelihood of selling out too cheaply in the short run. Its not a positive margin of safety, because they might never get there, and I don't want to wait that long.

Just as an aside, when I saw the results of tax selling starting last October, depressing stock prices indiscriminately, I just suspended all plans to sell my out-of-favor stocks, figuring that a likely rebound in January, and the delay of any tax consequences by a year, would make the risk worthwhile. I confess to having a pathological aversion, as an investor, to doing anything which is aligned with what the majority of investors happen to be doing at the time. Based on the few trading days of 2001, I think this approach may turn out o.k., but it's too early, and, even if it works, it may be just luck. None of my stocks has yet hit its sell price, but one (MU) is getting close, and at a much better price than I would have gotten at anytime during the last quarter.

What are your thoughts on applying Graham and Dodd principles to the sell-side?

With high regards for your writing...

John J.
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