Hi Bob,
I considered buying Facebook at the IPO a contrarian move because the stock behaved differently than the conventional wisdom at the time. From what I had read and from talking to other people in high technology, everyone expected Facebook to soar at the opening.
I know someone, a senior executive at a high-tech company, who placed a limit order at the open to not buy over 55. So, I wasn't planning to buy Facebook at the IPO, but when I saw that it didn't soar like everyone predicted, I decided to buy it.
Because my system diversifies, and each individual position is re-balanced, I feel safe sometimes taking a risk on a stock. I will rebalance my Facebook position at the end of the year. Even with Facebook's performance, I'm currently up 10% in my portfolio.
I don't use any stop losses with my system - other than replace a position if I feel that there is something fundamentally wrong with the company. In my book, I list an optional stop loss rule in the section about customizing my system. It calls for replacing a stock if it declines 50% (or X% - it can be customized) from the initial buy. I state in the section that I don't use this rule myself, and it would have prevented the performance in the AMZN stock example in my book.
Praveen
