Friday, November 18, 2005

In defense of the Hold

Some of my stocks aren't doing so well today, and that got me thinking...

We have heard before that a decision to hold a stock on any given day is the same as a decision to buy at the current price. I think that you can take that statement too literally and forget both the frictional costs of investing and the opportunity cost of selling.

Two questions surround the decision to hold, and you need to answer both, not just one before you decide to change your position:

  1. Would I be comfortable buying the stock at this price?
  2. Would I be comfortable selling the stock at this price?
Note: "comfortable" not "happy." Sometimes, selling makes you extremely unhappy (as I have witnessed on a couple of my own stocks over the past few weeks) but significantly increases your comfort level.

Holding a stock is not the same as buying, nor is selling the same as not buying. Buying increases your risk and your potential reward. Selling decreases your risk, but eliminates your potential reward. Holding maintains the status quo, balancing the current risk with the potential reward.

Holding should be a reasoned decision, not a state of crossing your fingers and hoping, but it still requires a balancing of the risk and the potential reward of your current situation. It should balance the feelings of greed and fear in your stomach with the knowledge in your head about this company that you have come to know.

It's easy to focus on the risk side of the equation, which I think is exactly what the "hold=buy" thought process does. The logic, as far as I can see goes like this, "If I wouldn't be willing to increase my risk with this company today, then why should I take any risks with them?" If the answer to question 1 is "No," then get out before everyone else does. This misses out on the potential rewards and leads people to sell too soon.

Question 2 presents the reward side of the equation, and could be rephrased as, "If this stock goes up 10% next week, am I going to kick myself repeatedly because I should have known it was going to happen?" This is the opportunity cost of selling, and it shouldn't be ignored by lumping holding in with buying. It also addresses the intellectual investment that you make in a company, which you essentially sell along with your stock when you decide to move on to a new investment. Sure, you can take lessons learned with you, and you may be prepared to "jump back in" down the road. For practical purposes, though, even as you increase your cash balance when you sell a stock, you reset our knowledge balance to zero when you move on to the next big thing.

Before I sell a stock, I make sure that I can firmly answer "No" to question 1 and "Yes" to question 2. If I'm wishy-washy in either answer, I hold until I can find something to make up my mind.There's a reason that a body in motion tends to stay in motion: energy was invested in that motion, and more energy will be required to change its direction. So, too, a decision to hold preserves the energy that has been spent on a stock, and a decision to sell expends it.

Sometimes, inertia is a good thing.

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Friday, November 11, 2005

The French are Sittin' Mad!

French Stage Sit-In to Protest Violence

PARIS - Angry residents of riot-torn suburbs staged a sit-in Friday near the Eiffel Tower, calling for an end to more than two weeks of arson and vandalism across France. While the protesters were sitting at the Eiffel Tower, rioters burned and vandalized their now empty houses in the Paris suburbs.

Asked about their future plans now that this attempt had failed, one protester shouted, "We're so mad, we'll sit anywhere! We'll sit on the Champs Elysees, if that's what it takes. And if that doesn't get our message across, then we will sit in the Louvre and drink wine in the 'No Beverages Allowed' area. We want the world to know that we mean business!"

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Friday, November 04, 2005

Should Google be reined in?

Reining in Google - Commentary - The Washington Times

There seems to be a lot of misattribution of intent going on right now, not just in the media, but in the publishing community as well, around Google's Print Library Project. Yes, in an ideal world Google would only scan public domain books and let authors opt in to their larger program of making the text searchable, much as Amazon does with its "Look Inside" program. However, that would be extremely unwieldy and error-prone, resulting in both lower quality and poorer selection in their digital library. Imagine your public library having to go ask each author or publisher for permission before stocking their books, rather than just buying a copy, then expand that to a global scale, and you get an idea of the problem.

The real question here seems to center on what Google means by a "snippet." Those with a more sinister bent assume that a snippet will be somewhere between a chapter and the entire text of a book, so they cry copyright infringement. Those who assume Google has the best of intentions see this as a boon to authors, making a taste of their work available to the whole world and potentially spurring sales, just as free MP3 samples spur the sales of complete CDs.

Myself, I see this as Google pushing the boundaries of fair use in the pursuit of their greater goal: the digitalization of all knowledge. They may find a way to do this without infringing on copyrights. If they don't, then they have clearly decided to test the current laws and let the courts define new boundaries. It's probably time that we did that with print, just as we have done with music over the past five years. We can't think of words as being confined to one medium, location, or even a sequential format anymore. We need to stretch our thinking and our laws to ensure both protection for the artist and realistic usability for the consumer.

I think that Google is forcing that conversation to take place now, while they can still take the lead on this new frontier, rather than waiting another decade for the law to catch up to the market. By then, of course, Amazon will already have every book scanned and ready for sale by the page. As an author, I will applaud their audacity now, and be prepared to voice my displeasure if they take it too far. Even then, though, I will appreciate the fact that someone is stretching the boundaries to ensure that the written word, in all its glory, is not left behind.

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Wednesday, November 02, 2005

I'm officially guilty of fraud...

... or satire, whichever carries the lighter sentence.


I can only assume one of three things happened:

  1. The college's alumni notes are handled by an intern who doesn't know how to read English and only clicks the Copy and Paste buttons repeatedly as part of his work-study job.
  2. The Alumni Notes editor is so jaded by self-congratulatory "announcements" from alumni trying to one-up the people they were forced to live with for four years and haven't seen since that he didn't see anything wrong with my message.
  3. Someone at my alma mater has a sense of humor.
Based upon the constant requests for money -- from a university with an endowment of more than a billion dollars -- I think that I can safely rule out any humorous self-awareness within the Hallowed Halls of old Shiz. I'm going with Option 2 until I hear otherwise.

Now the fun part: seeing if I get any emails from people congratulating me on my "success."

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