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Friday, October 11, 2013

The thing people forget about.

Things go up. They go down. And after they swing, attitudes are different. If a company has money, you generally don't care much about what it's doing. The company has money, that's all that matters. But when cash gets tight for a publicly traded company, a whole new set of rules apply, regardless of direction or earnings.

I would say drowning in cash, especially for a well established company (like Apple) bears caution. Look at what they are doing with the cash. Using it wisely, or diversifying needlessly? How is the core business?

One thing's for sure: when the market is up, and companies are up. People get careless. The good plan, for companies and people, is to have cash at hand to expand or invest when markets are down and everyone is selling.

Obvious yes. But we forget how powerful this fact of psychology powers us.

Monday, October 7, 2013

Looking at Stocks

In this very cynical and self serving post I'll be talking about stocks that I own. Cynically I would hope for the blog to become popular and for you to follow my thoughts. You may even want to invest in stocks I own. I can tell you perfectly seriously that I don't guarantee any return from my musings. I don't even get a return sometimes.

That being said, I occasionally do better than the indexes, and sometimes worse. On the other hand, I keep a large amount of my money, unwisely, in cash. This is to guard against my own ignorance. That's my first rule of investing:

You as a stock trader are ignorant, in ways you don't even know.

This is a Black Swan type of ignorance, in that you can't even gauge the gulf of your lack of knowledge. What this means from a practical standpoint is that I am making hopefully sensible and educated guesses about companies, because (and this is crucial) they ALL have the potential to do something illegal, stupid, or both. And they are ALL subject to chance disasters and events.

HOWEVER, by following Seth Klarman's logic and diversifying, you can fairly well cushion yourself, if you have the nerve to let the market swing around. Here is my rule of practical stock trading.

It's very easy to to buy a stock. It's hard as can be to sell it. 

This is because your decision to sell puts your ignorance on line. You CAN"T know the future of a stock at any time but when selling you have immediate feedback on your decision. If it goes down after you sell it, you wonder if you should have held it a little longer. If it goes up, you really kick yourself for not holding it longer. Any loss, even a minimized loss (such bailing out near a bottom before the final bottom) is a negative. And any gain after you sell is a negative.

No wonder Buffet tries to find stocks he can hold 'forever'.