A simple rule to make make more money.
If one is going to use individual stocks in their STR system, they should have the ability to analyze the underlying businesses. If one adds only successful companies with high probability of continued success, there is every reason to believe you will see higher prices, sometime in the future. The stock may decline before it rallies, but it will rally, whether in a year or two, or longer. You will need to be patient, and for many of Praveen's readers, they will fail at that.
so, let's look at Praveen's AMZN example, if you are really confident about AMZN's future, and, you must be, as you didn't dump your shares, even after seeing the shares decline 76% in the very first year. So, let's look at what we should do at the beginning of 2003, the book shows us selling 49 shares @ $21.85, but the average price paid for our shares was $26.88. Now I realize that we bought shares as low as $14.19, but we are raising our breakeven point from $26.88 to $29.59.
Why should we sell our excellent business at a loss? If we add a rule that we only sell, when the price is above our average price paid, we would pass and then sell 100 shares in 2004.
Instead of a profit of $1,342.28, we would have realized a profit of $2,734.04, with no additional cash being invested. If we are not confident in our ability to analyze businesses, we should be employing ETFs and CEFs in our system. Today, you can build a diverse portfolio, with adequate volatility opportunities, with sector, country, global, capitalization sizes, etc. ETFs.
In my very humble opinion, for someone to be successful in this system, they must be able to remain confident in the system for many years to come. Seeing a decade of prices in a book is one thing, but actually experiencing it in real life, is another thing, particularly when you are in red, years after commencing a strategy.
