Go to Jeff Salisbury LWGate Home Page.From: "John Adair" <xjadair@brightok.net>
Subject: RE: [CANSLIM] Due Diligence
Date: Fri, 1 Feb 2002 22:22:26 -0600
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Hi Kathlene
I hope you are saving the url and name of each of the requests. It will
come in handy for your next lecture and future ones.
- -----Original Message-----
From: owner-canslim@lists.xmission.com
[mailto:owner-canslim@lists.xmission.com]On Behalf Of Katherine Malm
Sent: Wednesday, January 30, 2002 11:11 AM
To: canslim@lists.xmission.com
Subject: [CANSLIM] Due Diligence
Hi all,
One of the parts of my investment discipline that I feel very strongly about
is the due diligence step. I call this "making a case for the stock" or "the
2 minute elevator speech." Gerald Loeb calls it "having a single ruling
reason." Wise advise from a gentleman that's known for his successful
career. Here's a terrific article on the subject that I'm placing in the
front of my CANSLIM binder in the section marked "sell rules.":
- --Katherine
Investment Ideas Have Expiration Dates
28-Jan-02 11:50 ET
[BRIEFING.COM - Robert V. Green] You probably wouldn't drink milk in your
refrigerator that is a month past the expiration date. Why are you still
holding on to the stock whose investment idea has expired?
Stock Purchase Premises
We believe strongly that when you buy a stock, you should have an investment
premise.
A premise is an reasoned explanation or idea for why the stock price for
your chosen investment will rise. This includes ideas such as:
* Revenue and earnings will grow because the company has great distribution
in an expanding market.
* The company will be acquired because it fits well with XYZ's stated
expansion plans.
* The company will continue its strong demonstrated increase in its net
profit and gross margin percentages, thereby earning an increased market
multiple.
* The company's market multiples are low in comparison with comparable
companies, and will eventually reach parity.
* The historical stock price chart indicates a coming change in the stock
price.
* A new product introduction will generate a new stream of revenue and
earnings that are not yet factored into the price.
* The company is the sole provider of a product, demand for which will
increase.
These are examples of the conclusion of an investment premise. A fully
developed premise includes a financial projection and assumed market
multiples in the future that predict the future stock price.
(For the moment, we will ignore the problem of buying a stock without an
investment premise. This far too common practice deserves its own separate
treatment.)
Even the best researched and thought out investment premises do not always
come true. How you address your investment at this moment is a key element
of investment success.
Sell When It Does Not Work Out
An investment premise imposes a discipline upon the buying decision.
It also can be a key element of the sell decision.
When it becomes clear that an investment premise is wrong, you have only two
choices:
1. Sell.
2. Develop a new premise.
Failure to take either of these two paths means that "hope" is now the
premise on which your money is invested. While "hope" is a great motivator
in our emotional lives, it is a very poor reason to make an investment.
When you learn or decide that your investment premise is wrong, and you
cannot develop a new investment premise, you must sell, even if it means a
loss. Failure to take losses at this point only subjects your money to
"uncalculated risks." If you have no reason for why the stock price will
rise, you have no understanding of what is driving the stock.
As an extreme example, consider Exodus Communications. The investment
premise behind many owners of the stock in 1999 and 2000 was that the
world-wide boom in web site build-outs would lead to an increased customer
base for Exodus with strong revenue growth and earnings growth. This was
actually a very reasoned and rational investment premise at the time.
However, this investment premise was destroyed in April of 2001, when Exodus
reported sequential revenue declines were coming. At that point, the price
of the stock was $9. Investors who had bought on the growth premise were
faced with large losses. The stock had traded above $50 just six months
prior and $100 one year earlier. [Katherine's note--technical sell rules got
you out of this stock *long* before the fundamental slowdown kicked in. If
you missed the technical sell rules, the lone fundamental rule of slowing
earnings/revenue would have saved you.]
But anyone who sold EXDS at a loss in April 2001 because the growth premise
had been disproved, saved the additional $9 a share they would have lost if
they continued to hold the stock.
"Avoiding investment loss" is the same as "making money." When you sell at a
loss because your investment premise has not worked out, you often save
yourself from further losses. [Katherine's note--another CANSLIM sell rule,
cut your losses short and move on]
Expiration Dates
Investment premises have expiration dates.
If you have strong investment discipline, you can sell when you know your
investment premise is wrong. But what if time elapses and there is no
conclusive evidence that the premise is either right or wrong? What then?
[Katherine's note--think this is an investing discipline that transcends all
styles]
You should decide, in advance, how long you can wait for the premise upon
which you based your investment decision to develop. Patience may be a
virtue, but investment patience that is not backed up by progress eventually
becomes "hope" and not a true premise.
Business progress towards a business goal is called "traction." If your
premise is based upon a company's business fundamentals you need to look for
traction in the earnings reports. Failure to produce traction is often a
contradiction of a growth premise, even if the company's stock price does
not move. You should decide how long it "should take" for the business to
truly live up to the promise of your premise. If traction doesn't occur in
the timeframe you expected, start considering selling.
This is the reason that growth stock prices decline so drastically upon poor
earnings reports. Disciplined professionals dump the stock when their
premise is disproved by poor results. The refuse to hold the stock, even if
the losses are severe. [Katherine's note--another important sell
rule...inexplicable gaps down near earnings dates and/or gaps down on
earnings news.....get out of the way. Another sell rule--tails near the top
on high volume indicate institutional selling...pay attention and make sure
you have big ears when the market speaks.]
If your investment premise is based upon technical analysis, expiration
dates are even easier to define. Most TA approaches forecast chart moves
within a timeframe. When it turns out that the expected turn did not happen
within the timeframe expected, your investment premise has expired!
[Katherine's note--another sell rule...if a stock breaks out and has not
follow-thru within a reasonable timeframe, move on]
New Premises
When the milk in your refrigerator expires, you pour it out and get a new
gallon. The same practice should apply to investment premises. [Katherine's
note--another CANSLIM principle, dump the losers, pyramid into the winners.
If your sell rules kick in and there is nothing of quality setting up to
buy, you wait in near-cash. If you are more aggressive you can practice
"upside-down CANSLIM" and go short.]
It is extremely distasteful to take a deep drink of sour milk unknowingly.
Equally unpleasant is holding a stock long after the reason you bought it
has been explicitly disproved through contradiction, or implicitly disproved
through the absence of traction. Only you can decide how long your
investment premise should last, but without an expiration date, you may well
find that your investments have curdled while you weren't looking.
Comments may be emailed to the author, Robert V. Green, at
rvgreen@briefing.com <mailto:rvgreen@briefing.com>
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<p class=3DMsoNormal><span class=3DEmailStyle20><font size=3D2 =
color=3Dnavy face=3DArial><span
style=3D'font-size:10.0pt;mso-bidi-font-size:12.0pt;font-family:Arial'>Hi=
Kathlene<o:p></o:p></span></font></span></p>
<p class=3DMsoNormal><span class=3DEmailStyle20><font size=3D2 =
color=3Dnavy face=3DArial><span
style=3D'font-size:10.0pt;mso-bidi-font-size:12.0pt;font-family:Arial'>I =
hope you
are saving the url and name of each of the<span style=3D"mso-spacerun:
yes"> </span>requests. It will come in handy for your next =
lecture<span
style=3D"mso-spacerun: yes"> </span>and future =
ones.<o:p></o:p></span></font></span></p>
<p class=3DMsoNormal><span class=3DEmailStyle20><font size=3D2 =
color=3Dnavy face=3DArial><span
style=3D'font-size:10.0pt;mso-bidi-font-size:12.0pt;font-family:Arial'><!=
[if =
!supportEmptyParas]> <![endif]><o:p></o:p></span></font></span></p>
<p class=3DMsoNormal style=3D'margin-left:.5in'><font size=3D2 =
color=3Dblack
face=3DTahoma><span =
style=3D'font-size:10.0pt;font-family:Tahoma;color:black'>-----Original
Message-----<br>
<b><span style=3D'font-weight:bold'>From:</span></b> =
owner-canslim@lists.xmission.com
[mailto:owner-canslim@lists.xmission.com]<b><span =
style=3D'font-weight:bold'>On
Behalf Of </span></b>Katherine Malm<br>
<b><span style=3D'font-weight:bold'>Sent:</span></b> Wednesday, January =
30, 2002
11:11 AM<br>
<b><span style=3D'font-weight:bold'>To:</span></b> =
canslim@lists.xmission.com<br>
<b><span style=3D'font-weight:bold'>Subject:</span></b> [CANSLIM] Due =
Diligence</span></font></p>
<p class=3DMsoNormal style=3D'margin-left:.5in'><font size=3D3 =
face=3D"Times New Roman"><span
style=3D'font-size:12.0pt'><![if =
!supportEmptyParas]> <![endif]><o:p></o:p></span></font></p>
<p class=3DMsoNormal style=3D'margin-left:.5in'><font size=3D3 =
color=3Dblue
face=3D"Times New Roman"><span style=3D'font-size:12.0pt;color:blue'>Hi =
all,</span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/p>
<p class=3DMsoNormal style=3D'margin-left:.5in'><font size=3D3 =
color=3Dblack
face=3D"Times New Roman"><span =
style=3D'font-size:12.0pt;color:black'> </span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/p>
<p class=3DMsoNormal style=3D'margin-left:.5in'><font size=3D3 =
color=3Dblue
face=3D"Times New Roman"><span style=3D'font-size:12.0pt;color:blue'>One =
of the
parts of my investment discipline that I feel very strongly about is the =
due
diligence step. I call this "making a case for the stock" or
"the 2 minute elevator speech." Gerald Loeb calls it =
"having a single
ruling reason." Wise advise from a gentleman that's known for his
successful career. Here's a terrific article on the subject that I'm =
placing in
the front of my CANSLIM binder in the section marked "sell =
rules.":</span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/p>
<p class=3DMsoNormal style=3D'margin-left:.5in'><font size=3D3 =
color=3Dblack
face=3D"Times New Roman"><span =
style=3D'font-size:12.0pt;color:black'> </span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/p>
<p class=3DMsoNormal style=3D'margin-left:.5in'><font size=3D3 =
color=3Dblue
face=3D"Times New Roman"><span =
style=3D'font-size:12.0pt;color:blue'>--Katherine</span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/p>
<p class=3DMsoNormal style=3D'margin-left:.5in'><font size=3D3 =
color=3Dblack
face=3D"Times New Roman"><span =
style=3D'font-size:12.0pt;color:black'> </span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/p>
<table border=3D0 cellspacing=3D0 cellpadding=3D0 width=3D"100%" =
style=3D'width:100.0%;
mso-cellspacing:0in;margin-left:.5in;mso-padding-alt:3.0pt 3.0pt 3.0pt =
3.0pt'>
<tr>
<td style=3D'padding:3.0pt 3.0pt 3.0pt 3.0pt'>
<p class=3DMsoNormal><strong><b><font size=3D4 color=3Dblack =
face=3D"Times New Roman"><span
style=3D'font-size:13.5pt;color:black'>Investment Ideas Have =
Expiration Dates</span></font></b></strong><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/p>
</td>
</tr>
<tr>
<td style=3D'padding:3.0pt 3.0pt 3.0pt 3.0pt'>
<p class=3DMsoNormal><font size=3D3 color=3Dblack face=3D"Times New =
Roman"><span
style=3D'font-size:12.0pt;color:black'>28-Jan-02 11:50 =
ET</span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/p>
</td>
</tr>
<tr height=3D8 style=3D'height:6.0pt'>
<td height=3D8 style=3D'padding:3.0pt 3.0pt 3.0pt 3.0pt;height:6.0pt'>
<p class=3DMsoNormal><![if !supportEmptyParas]> <![endif]><font =
size=3D1
color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:6.0pt;mso-bidi-font-size:
=
12.0pt;color:black;mso-color-alt:windowtext'><o:p></o:p></span></font></p=
>
</td>
</tr>
<tr>
<td style=3D'padding:3.0pt 3.0pt 3.0pt 3.0pt'>
<p><font size=3D3 color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:
12.0pt;color:black'>[BRIEFING.COM - Robert V. Green] You probably =
wouldn't
drink milk in your refrigerator that is a month past the expiration =
date. Why
are you still holding on to the stock whose investment idea has =
expired? </span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/p>
<h3><b><font size=3D4 color=3Dblack face=3D"Times New Roman"><span
style=3D'font-size:13.5pt;color:black'>Stock Purchase =
Premises</span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/b></h3>
<p><font size=3D3 color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:
12.0pt;color:black'>We believe strongly that when you buy a stock, you =
should
have <i><span style=3D'font-style:italic'>an investment premise. =
</span></i></span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/p>
<p><font size=3D3 color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:
12.0pt;color:black'>A premise is an reasoned explanation or idea for =
why the
stock price for your chosen investment will rise. This includes ideas =
such
as:</span></font><font color=3Dblack><span =
style=3D'color:black;mso-color-alt:
windowtext'><o:p></o:p></span></font></p>
<ul type=3Ddisc>
<li class=3DMsoNormal =
style=3D'mso-margin-top-alt:auto;mso-margin-bottom-alt:
auto;mso-list:l1 level1 lfo1;tab-stops:list .5in'><font size=3D3
color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:12.0pt;
color:black'>Revenue and earnings will grow because the company =
has
great distribution in an expanding market. </span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/li>
<li class=3DMsoNormal =
style=3D'mso-margin-top-alt:auto;mso-margin-bottom-alt:
auto;mso-list:l1 level1 lfo1;tab-stops:list .5in'><font size=3D3
color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:12.0pt;
color:black'>The company will be acquired because it fits well =
with
XYZ's stated expansion plans. </span></font><font =
color=3Dblack><span
=
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/li>
<li class=3DMsoNormal =
style=3D'mso-margin-top-alt:auto;mso-margin-bottom-alt:
auto;mso-list:l1 level1 lfo1;tab-stops:list .5in'><font size=3D3
color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:12.0pt;
color:black'>The company will continue its strong demonstrated =
increase
in its net profit and gross margin percentages, thereby earning =
an
increased market multiple. </span></font><font =
color=3Dblack><span
=
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/li>
<li class=3DMsoNormal =
style=3D'mso-margin-top-alt:auto;mso-margin-bottom-alt:
auto;mso-list:l1 level1 lfo1;tab-stops:list .5in'><font size=3D3
color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:12.0pt;
color:black'>The company's market multiples are low in comparison =
with
comparable companies, and will eventually reach parity. =
</span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/li>
<li class=3DMsoNormal =
style=3D'mso-margin-top-alt:auto;mso-margin-bottom-alt:
auto;mso-list:l1 level1 lfo1;tab-stops:list .5in'><font size=3D3
color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:12.0pt;
color:black'>The historical stock price chart indicates a coming =
change
in the stock price. </span></font><font color=3Dblack><span
=
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/li>
<li class=3DMsoNormal =
style=3D'mso-margin-top-alt:auto;mso-margin-bottom-alt:
auto;mso-list:l1 level1 lfo1;tab-stops:list .5in'><font size=3D3
color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:12.0pt;
color:black'>A new product introduction will generate a new =
stream of
revenue and earnings that are not yet factored into the price. =
</span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/li>
<li class=3DMsoNormal =
style=3D'mso-margin-top-alt:auto;mso-margin-bottom-alt:
auto;mso-list:l1 level1 lfo1;tab-stops:list .5in'><font size=3D3
color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:12.0pt;
color:black'>The company is the sole provider of a product, =
demand for
which will increase. </span></font><font color=3Dblack><span
=
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/li>
</ul>
<p><font size=3D3 color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:
12.0pt;color:black'>These are examples of the conclusion of an =
investment
premise. A fully developed premise includes a financial projection and
assumed market multiples in the future that predict the future stock =
price. </span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/p>
<p><font size=3D3 color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:
12.0pt;color:black'>(For the moment, we will ignore the problem of =
buying a
stock <i><span style=3D'font-style:italic'>without</span></i> an =
investment premise.
This far too common practice deserves its own separate =
treatment.)</span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/p>
<p><font size=3D3 color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:
12.0pt;color:black'>Even the best researched and thought out =
investment
premises do not always come true. How you address your investment at =
this
moment is a key element of investment success. </span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/p>
<h3><b><font size=3D4 color=3Dblack face=3D"Times New Roman"><span
style=3D'font-size:13.5pt;color:black'>Sell When It Does Not Work =
Out</span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/b></h3>
<p><font size=3D3 color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:
12.0pt;color:black'>An investment premise imposes a discipline upon =
the
buying decision. </span></font><font color=3Dblack><span =
style=3D'color:black;
mso-color-alt:windowtext'><o:p></o:p></span></font></p>
<p><font size=3D3 color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:
12.0pt;color:black'>It also can be a key element of the sell decision. =
</span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/p>
<p><font size=3D3 color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:
12.0pt;color:black'>When it becomes clear that an investment premise =
is <i><span
style=3D'font-style:italic'>wrong,</span></i> you have only two =
choices: </span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/p>
<ol start=3D1 type=3D1>
<li class=3DMsoNormal =
style=3D'mso-margin-top-alt:auto;mso-margin-bottom-alt:
auto;mso-list:l0 level1 lfo2;tab-stops:list .5in'><font size=3D3
color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:12.0pt;
color:black'>Sell. </span></font><font color=3Dblack><span
=
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/li>
<li class=3DMsoNormal =
style=3D'mso-margin-top-alt:auto;mso-margin-bottom-alt:
auto;mso-list:l0 level1 lfo2;tab-stops:list .5in'><font size=3D3
color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:12.0pt;
color:black'>Develop a new premise. </span></font><font =
color=3Dblack><span
=
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/li>
</ol>
<p><font size=3D3 color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:
12.0pt;color:black'>Failure to take either of these two paths means =
that
"hope" is now the premise on which your money is invested. =
While
"hope" is a great motivator in our emotional lives, it is a =
very
poor reason to make an investment. </span></font><font =
color=3Dblack><span
=
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/p>
<p><font size=3D3 color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:
12.0pt;color:black'>When you learn or decide that your investment =
premise is
wrong, and you cannot develop a new investment premise, you must sell, =
<i><span
style=3D'font-style:italic'>even if it means a loss. =
</span></i>Failure to take
losses at this point only subjects your money to "uncalculated
risks." If you have no reason for why the stock price will rise, =
you
have no understanding of what is driving the stock. =
</span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/p>
<p><font size=3D3 color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:
12.0pt;color:black'>As an extreme example, consider Exodus =
Communications.
The investment premise behind many owners of the stock in 1999 and =
2000 was
that the world-wide boom in web site build-outs would lead to an =
increased
customer base for Exodus with strong revenue growth and earnings =
growth. This
was actually a very reasoned and rational investment premise at the =
time. </span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/p>
<p><font size=3D3 color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:
12.0pt;color:black'>However, this investment premise was <i><span
style=3D'font-style:italic'>destroyed</span></i> in April of 2001, =
when Exodus
reported sequential revenue declines were coming. At that point, the =
price of
the stock was $9. Investors who had bought on the growth premise were =
faced
with large losses. The stock had traded above $50 just six months =
prior and
$100 one year earlier. </span></font><font color=3Dblue><span =
style=3D'color:
blue'>[Katherine's note--technical sell rules got you out of this =
stock
*long* before the fundamental slowdown kicked in. If you missed the =
technical
sell rules, the lone fundamental rule of slowing earnings/revenue =
would have
saved you.]</span></font><font color=3Dblack><span =
style=3D'color:black;
mso-color-alt:windowtext'><o:p></o:p></span></font></p>
<p><font size=3D3 color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:
12.0pt;color:black'>But anyone who sold EXDS at a loss in April 2001 =
because
the growth premise had been disproved, <i><span =
style=3D'font-style:italic'>saved
the additional $9 a share </span></i>they would have lost if they =
continued
to hold the stock. </span></font><font color=3Dblack><span =
style=3D'color:black;
mso-color-alt:windowtext'><o:p></o:p></span></font></p>
<p><font size=3D3 color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:
12.0pt;color:black'>"Avoiding investment loss" is the same =
as
"making money." When you sell at a loss because your =
investment
premise has not worked out, you often save yourself from further =
losses. </span></font><font
color=3Dblue><span style=3D'color:blue'>[Katherine's note--another =
CANSLIM sell
rule, cut your losses short and move on]</span></font><font =
color=3Dblack><span
=
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/p>
<h3><b><font size=3D4 color=3Dblack face=3D"Times New Roman"><span
style=3D'font-size:13.5pt;color:black'>Expiration =
Dates</span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/b></h3>
<p><font size=3D3 color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:
12.0pt;color:black'>Investment premises have expiration dates. =
</span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/p>
<p><font size=3D3 color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:
12.0pt;color:black'>If you have strong investment discipline, you can =
sell
when you know your investment premise is wrong. But what if time =
elapses and
there is no conclusive evidence that the premise is either right or =
wrong?
What then? </span></font><font color=3Dblue><span =
style=3D'color:blue'>[Katherine's
note--think this is an investing discipline that transcends all =
styles]</span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/p>
<p><font size=3D3 color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:
12.0pt;color:black'>You should decide, in advance, how long you can =
wait for
the premise upon which you based your investment decision to develop.
Patience may be a virtue, but investment patience that is not backed =
up by
progress eventually becomes "hope" and not a true premise. =
</span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/p>
<p><font size=3D3 color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:
12.0pt;color:black'>Business progress towards a business goal is =
called
"traction." If your premise is based upon a company's =
business
fundamentals you need to look for traction in the earnings reports. =
Failure
to produce traction is often a contradiction of a growth premise, even =
if the
company's stock price does not move. You should decide how long it
"should take" for the business to truly live up to the =
promise of
your premise. If traction doesn't occur <i><span =
style=3D'font-style:italic'>in
the timeframe you expected,</span></i> start considering selling. =
</span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/p>
<p><font size=3D3 color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:
12.0pt;color:black'>This is the reason that growth stock prices =
decline so
drastically upon poor earnings reports. Disciplined professionals =
<i><span
style=3D'font-style:italic'>dump</span></i> the stock when their =
premise is
disproved by poor results. The refuse to hold the stock, even if the =
losses
are severe. </span></font><font color=3Dblue><span =
style=3D'color:blue'>[Katherine's
note--another important sell rule...inexplicable gaps down near =
earnings
dates and/or gaps down on earnings news.....get out of the way. =
Another sell
rule--tails near the top on high volume indicate institutional =
selling...pay
attention and make sure you have big ears when the market =
speaks.]</span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/p>
<p><font size=3D3 color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:
12.0pt;color:black'>If your investment premise is based upon technical
analysis, expiration dates are even easier to define. Most TA =
approaches
forecast chart moves within a timeframe. When it turns out that the =
expected
turn did not happen within the timeframe expected, <em><i>your =
investment
premise has expired! </i></em></span></font><font color=3Dblue><span
style=3D'color:blue'>[Katherine's note--another sell rule...if a stock =
breaks
out and has not follow-thru within a reasonable timeframe, move =
on]</span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/p>
<h3><b><font size=3D4 color=3Dblack face=3D"Times New Roman"><span
style=3D'font-size:13.5pt;color:black'>New Premises</span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/b></h3>
<p><font size=3D3 color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:
12.0pt;color:black'>When the milk in your refrigerator expires, you =
pour it
out and get a new gallon. The same practice should apply to investment
premises. </span></font><font color=3Dblue><span =
style=3D'color:blue'>[Katherine's
note--another CANSLIM principle, dump the losers, pyramid into the =
winners.
If your sell rules kick in and there is nothing of quality =
setting up to
buy, you wait in near-cash. If you are more aggressive you can =
practice
"upside-down CANSLIM" and go short.]</span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/p>
<p><font size=3D3 color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:
12.0pt;color:black'>It is extremely distasteful to take a deep drink =
of sour
milk unknowingly. Equally unpleasant is holding a stock long after the =
reason
you bought it has been explicitly disproved through contradiction, or
implicitly disproved through the absence of traction. Only you can =
decide how
long your investment premise should last, but without an expiration =
date, you
may well find that your investments have curdled while you weren't =
looking. </span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/p>
<p><font size=3D3 color=3Dblack face=3D"Times New Roman"><span =
style=3D'font-size:
12.0pt;color:black'>Comments may be emailed to the author, Robert V. =
Green,
at <a href=3D"mailto:rvgreen@briefing.com">rvgreen@briefing.com</a> =
</span></font><!--(V) (RVG)--><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/p>
</td>
</tr>
</table>
<p class=3DMsoNormal style=3D'margin-left:.5in'><font size=3D3 =
color=3Dblack
face=3D"Times New Roman"><span =
style=3D'font-size:12.0pt;color:black'><![if =
!supportEmptyParas]> <![endif]></span></font><font
color=3Dblack><span =
style=3D'color:black;mso-color-alt:windowtext'><o:p></o:p></span></font><=
/p>
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