The Deipnosophist

Where the science of investing becomes an art of living

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Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

12 June 2007

Time and price stops

One reader seeks greater understanding re this post, specifically...

Given the strong support for ISIS in this price range (see multiple resistance in 2002, 2004 & 2006) and the bullish outlook, why sell here instead of scaling in?
Excellent question, Paul. Now would be a good moment to re-introduce a core tenet.

There are a million and one ways to make money successfully when investing; nonetheless, each investor has his or her own individual objectives and tolerance for risk. Perceived generally, some investors prefer to purchase beaten-down stocks with the thought that they cannot decline any further; other investors prefer to purchase winning stocks with the thought that the share price will continue its momentum to higher prices. Each style works admirably well -- so well that I wed the seemingly competing philosophies via my perception of the specific stock's trajectory within a given periodicity. And then align that trend with my time frame.

Yes, Isis Pharmaceuticals/ISIS appears closer to a relative low (~$8), which argues auspiciously for a low-risk purchase. But two questions linger:
1) Do you know the final low; i.e., will ~$8 indeed stem a deeper decline? Certainly, I know no such thing.
2) Do you know when the upside momentum will return? I know not that item either.

Let's re-phrase those two questions as when will the decline stop? and when will the up trend resume? When I first recommended the position, I speculated on a continuation of the uptrend that gathered steam in early-November 2006. I based my interpretation on several items, not least certain key 'tells' I saw on the chart. But that pattern, or at least my perception of a particular pattern, has failed. I will not compound an error with a follow-on error; having misperceived #2, I stray away from mis-perceiving #1.

Alas, time has run out for this position at this time. Oh, sure, I could hold it patiently and await the probable upside breakout. Or I could re-purchase it then. (There is always the possibility the shares do not follow the bullish assumption.) Because I prefer to make all decisions as re my portfolio's holdings, I swallow my ego, sell, and move on.

But only trading lots; investment lots remain, as the chart's long term bullish picture remains. The stop level for investment lots remains in place -- now at $8, and rising (slowly).

I hope this reply helps.

-- David M Gordon / The Deipnosophist


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