If a 75% decline will scare you out of a stock then I strongly suggest you never invest in stocks.
Stocks are a voting machine in the short term that only measures what someone is willing to buy or sell the stock at in the short run. In the long run (pun intended) the growth of sales and earnings (and hopefully a dividend) is what makes you money.
So, if you had bailed out using a simple "money management strategy to cut your losers at 50% or 75%", then you'd be out and you'd have missed the 134 times return.
Because if you can't afford to lose 75% first, then you will never make 130 times your money in your lifetime.
(The 2nd green box marks the 9/11/2001 level - NKE is up 919% since then)
And another point to make - if you can't afford to watch a stock go sideways for 10 years too - then you likely don't have the patience or the time frame to invest for 100 X's gains. Results (sales, earnings, dividends) build slowly and compound steadily over time.
PKA
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Tim, find the next Nike and you'll be set.
timwest
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So true. That is what TradingView is all about - hopefully too, in the same breath, we can all avoid using mutual funds for long term investing. Mutual funds have a vested interest in having you afraid to manage your own money.
#1. Fear of not being diversified.
#2. Fear of not having a highly paid, Wall Street expert in charge who has an MBA, CFA, Series 7, and a masters in Behavioral Finance.
#3. Fear of not having an army of accountants poring over balance sheets.
#4. Fear of not having a direct link to what the brokers are saying on Wall Street.
It's time to change the way people think. You only need to know how to identify a winner and how to hold onto it through thick and thin and let the power of compounding go to work for you, instead of against you.
SPYderCrusher
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idealistically I agree but without a background in finance or accounting I don't think most people will be able to find the proverbial nike *as a duplicatable and repeatable process* unless through sheer luck. Finding a NFLX, a NKE, as a singular event, sure, but building a portoflio of them with a sense of money management, understanding sentiment and investor mood (behavior), being able to reverse engineer the many, many accounting decisions that are made in reports, or idea generation (a network of smart skilled people to bounce ideas off of) its basically impossible. Even people with 1-4 routinely fail in this endeavor and there is no arguing they have a better informational advantage.
The good news is we do have a resource like TV where this exchange from people with domain knowledge and sharp ideas is possible, and probable (like your great work Tim)
timwest
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@SPYderCrusher, I'm sorry I didn't see your message from almost 2 years ago until now. AAII has a course that teaches people how to find stocks like NKE. The hard part is most people own too many stocks - even 30 stocks makes you too diversified that one stock can't do well enough for you. I don't know of many people who even read quarterly reports. It's hard to believe that people own a stock and don't know enough about the company to hold on through a regular bear market NOR do they have the strength to put more money to work on price declines. I believe we can help people do much better than any mutual fund could over the long term, which is 30 years from my perspective.
SPYderCrusher
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@timwest, better late than never!! Anyways, I agree with you (in part) and highly respect your work here on the site. People are largely empowered to succeed in the way you've outlined, but like so many things, the commitment and the "long term vision" get in the way (in many cases).
Even things that are notoriously cliched, like, "this is the yr I hit the gym 3x a week" or w/e, that actually produces near immediate, tangible results (!) and people still have a tough time with it. When you carry that analogy to something where you may see no immediate improvement even if you do everything right (investing over shorter term time frames, say 3mos to 1-2 yrs) then its really a special type of person who carries in in spite of that.
I'm not a bear on people getting better, or the utility of TV to advance this purpose, just that its no small task
ACTIV8X
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I really like the concept of the piece! It is very accurate...
"Because if you can't afford to lose 75% first, then you will never make 130 times your money in your lifetime" proves that investing needs to bear risks when someone is investing in an equity with a deep belief about its products, and its business model. For instance, M. Buffett is invested in Coca Cola in the 70ies and he didn't bail on it not even during it worst days...
moorekapital
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The pieces of money management ideas you often share in your posts inspire me a lot. I think I need a training on money management from you.
SPYderCrusher
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I saw a study that 60-80% of stocks will at some point make a 100% move up and a 60% move down in their lifetime. IMO, the lesson is either accept that if in fact you sit through a 75% drawdown, in most cases you are screwed -- they don't come back. As a corollary, if you want to own the "next microsoft" as it were, long from 1985 etc, then yeah youd be obligated to hold through those drawdowns.
Like me I will probably never own a nke except (fingers crossed) in my IRA bc anything in a account I actively manage I would cut long before such a steep decline.