How do you know when to give up on a stock?[Random Roger's Big Picture]
I'll examine four different situations in an effort to analyze this process. AIG got taken down in an ugly fashion in the face of the Spitzer episode. I don't own this stock, don't plan on buying and wrote a negative article about it last spring for TMF. That doesn't mean it was ever likely to go out of business. Holders that got ambushed by Spitzer at $72 and watched go down to $60 and now back to $72 maybe had some opportunity cost but the likelihood that AIG was going to go away was miniscule.
Taser (TASR) is a stock that is having all sorts of problems and unlike AIG could go away. I'm not saying it will, but too many more deaths from the non-lethal weapon and sales could drop a lot. I wrote a positive article for TMF last spring on Taser saying there was clear and obvious demand for the product, I even got a nice email from the CEO thanking me. A perception of the stun guns killing people hurts that demand badly. If you own this stock, you own a name that could go away. This needs to be taken into account and perhaps patience isn't a virtue.Personally I'm more of a technical trader than Roger and I probably would have dumped this when it passed through the 50 day moving average.
I own Starbucks (SBUX)for most of my clients (yes naming a name, but I don't think I can move this stock). Most clients own it lower than current prices. The stock is in the middle of a nasty correction. The way I see it Starbucks isn't going away. Patience is a virtue here. Obviously in hindsight I should have handled it differently but no manager will trade every move exactly right, nor do I think they necessarily should try to do this.
Another name I do not own going through a nasty slide is Veeco (VECO). They make equipment for nano technology. I do not know the story very well but they have an accounting issue, that I doubt is serious but again this is the type of company that could conceivably go away.
Go away is a metaphor of sorts. If a $30 stock drop below $5 and stays there, in a way that stock has gone away. If owned Taser here I would have to question whether I had lost touch with the story. I own Starbucks and have decided I have not lost touch with the story. For clients that own it, Starbucks is about a 2% weight. If I am dead wrong, clients will not be hurt. That is crucial to what I do.
Monday, February 14, 2005
Stock article... this is a good one!
Random Roger has a good piece here...