It can make you a better trader or investor. For example, the blog post Josh selected Monday, from chessNwine, nailed Facebook's FB action:
Given the gap-up this morning, I would not buy Facebook right here, right now, but you can be sure I am stalking any consolidation for a swing long entry point.After that A.M. gap-up -- to as high as $28.88 after a $28 even open -- FB closed down 3.4% at $27.04. Not a shock given the stock's recent strength; it's up roughly 55% over the last three months. So, that's how a swing trader is handling Facebook, but what if you're a long-term investor.
First and foremost, there's nothing wrong with taking profits, even in a stock with legs. Never regret taking money off of the table. Doesn't matter if Facebook heads to $100. Did you get out with a capital gain? If you can answer yes, proceed to the next trade or investment. (For that matter, if you answer no, take your lumps and move along). As my colleague, TheStreet contributor Robert Weinstein likes to say: If you're not leaving money on the table, you're not making money. And, as I say, if a stock dumps you, don't come back to it, even for a quickie, on the rebound. If you're not going to bank profits, accumulate. The investing elite likes to scoff at the notion of dollar-cost averaging. They cite studies that show buying $10,000 worth of stock at one time works better than investing a little each month. Those studies are garbage, primarily because it's not possible to get a reliable sample. Plus, not everybody has ten grand to drop on one stock, let alone the handful or more they want to buy.
Timing matters too much in that mess. So don't waste your time with it.Focus on your circumstances. How much money do you have to invest in a lump sum? How much can you invest weekly, bi-weekly or monthly? Do you have the time to mind your portfolio daily? Ultimately, you need to do what suits you. If you're not in the right stocks, it doesn't matter much when you buy them or how you spread out your investments, if at all. Maybe lump-sum investing returns 8% on stock X in scenario Y, but only 6.8% via dollar-cost averaging. But, again, you waste time worrying about a percent here and there. It's the stock you select that matters. An investment in Microsoft MSFT or Intel INTC five years ago didn't turn out quite as well as one in Apple AAPL or Amazon.com AMZN regardless of the method. It's easy to quantify the difference between 20% and 25% losses and 175% and 227% gains. Focus on picking the best stocks. Period. That's what makes you a successful long-term investor -- stock picking. Not how you scale in or timing. If you think Facebook is, to some extent, the next Apple or Amazon, buy a little bit as often as you can. Not as much as you can whenever you can, but a little as often as you can.
If this company reaches even half of its mobile monetization potential, it will be one of the top investments over the next five years. I said the same thing when the stock was getting beat up and outlets such as Barron's were setting $15 price targets.Endpoint -- I wouldn't mind dollar-cost averaging into a big winner. Sure, you'll buy more shares at higher prices if the thing moves in a straight line, but you'll still end up better off than the guy who went long MSFT or INTC. In my experience, on stocks that don't soar, averaging in over time almost always benefits. The best thing about it -- you look up one day and realize you accumulated a nice chunk of cash. When I signed as a full-time employee at TheStreet, I had to sell my stocks. I was pleasantly surprised with how things ended up in the names I had been dollar-cost averaging into for several years. Almost across the board, they performed better, just as well or ever so slightly below stocks I bought one time and forgot about. Follow @rocco_thestreet--Written by Rocco Pendola in Santa Monica, Calif.
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