Long term stock investing is full of old wives tales about the intelligent way to proceed. Given the fact that all stock investing is gambling (unless you are trading on illegal inside information), seeking an intelligent system for stock investing is a suckers game. Buy and hold for the long term? Sure, if you buy at the right time and hold until the right time you can do really well. It helps a great deal being born at the right time, so you can reach the point in life where you have money to gamble on stocks at the right time. Anybody who bought stocks in the world’s second largest economy of the last three decades (Japan) is still waiting for the market to get back to one third of the level it reached over 20 years ago.
How about buying stock in a company you understand, one where you have special insight into their products, giving you a competitive edge over other investors? Doesn’t work that way. You’re better off buying stock in a company where millions of people think they have special insight into the products, like Apple, because the only thing that drives stock prices is the enthusiasm of stock buyers. How about cost averaging? Sorry, cost averaging isn’t an investment strategy, it’s a sales strategy, one used to convince nervous Nellie’s that it’s safe to buy stocks as long as you do it right. My favorite rule of all is “Never put all of your eggs in one basket.”
I felt a I knew a great deal about AMD products around ten years ago. The company had issues, including heavy investments in chip foundries which they believed were necessary to compete with Intel and some questionable joint ventures, but their new line of chips looked likely to outperform the Intel processors of the time. I had around $25K in my IRA, and conveniently, the AMD share price at the time was around $25 (down from nearly $50), so I jumped in with both feet. The analysis I did at the time indicated that either AMD was way under-priced or Intel was way overpriced, by a factor of four.
Well, I turned out to be right and wrong on all accounts. With the usual bouncing around, the share price continued to fall, I think it bottomed out around $5, meaning I was out around ten years of $2,000 IRA contributions. But I believed in the products and I held, and after a couple years, the as the stock passed through $25 on its way to nearly $50 again, I cashed out at break even. Intel did turn out to be overpriced by a factor of four, though lot of good it did me. And then AMD fell again, until earlier last year it bottomed out around $2 a share. And I, who had by this time bet against the market and was coming through the Great Recession with flying colors, ignored it. I didn’t fear they would go out of business, I literally feared I wouldn’t buy enough. Who cares about 1,000 shares in a $2 stock if it doubles, but who wants to hold 20,000 shares of a $2 stock if it goes to 50 cents?
I finally got out of my short positions a couple weeks ago (at break even) and started buying some stocks at what I believe is a market peak. Why? Because while my assessment of the underlying economy has been pretty accurate over the years, I’ve noticed that the stock market tends to ignore the economy and overshoots badly in either direction. So I’m hoping the 1,000 shares of AMD I picked up at around $9.50 will pop after the quarterly report, and I’ll be able to get in a stop loss order with enough of an error band to make it worth while.
I have no illusions about this being “investing” or making any money in the long term, I mainly trade these days to keep a hand in. I see the US stock market doing a Japan over the next decade, where selling out of losses and stopping out of profits is the only way to inch forward. For all of my mistakes, I’m still a little ahead of the game in one of the most turbulent decades the markets have seen. If there was something else reasonable to do with the money, I wouldn’t bother, but we’re all hostage to the NYC/Washington DC corridor.
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