Re: [CANSLIM] Know your exit before you enter

From: "DMC197807" <dmc197807@comcast.net>
Subject: Re: [CANSLIM] Know your exit before you enter
Date: Wed, 27 Aug 2003 12:11:06 -0700

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Ian,

Brilliantly and concisely stated.  If people want to achieve 30% or 50%
returns on their entire investment porfolios it is crucial that they
preserve and protect the few managed positions which can fly 200-300%.
Because of position management, it will only be a 300% return on 5% of your
porfolio, so the portfolio gain is more like 15%, and has to be aggregated
with those pesky 8% losses on 5% of the port (each of which hits your bottom
line 0.4%--8% X 5%).  You can easily see, if you can manage the following
returns on twenty 5% positions, then the portfolio results can be handsome:

Twenty positions at 5% each, maximum loss of 8%, 3 "big casino" winners:

300
200
100
10
8
8
7
5
2
- -8
- -8
- -8
- -8
- -8
- -8
- -8
- -8
- -8
- -8
__

560, or a 28% aggregate return, provided you let the winners run.  If you
get nervous and drop out of the top three trades after only 30% gains (that
is subtract 600, and add 90), you end up with only a 2.5% gain for the year
(50 / 20).  For all your conscientious work.

DMC

>
> IMHO, identifying a pre-determined profit, and selling a stock
automatically
> once it reaches that level, flies in the face of CANSLIM. The whole point
of
> listening to the market, and letting the tape tell you which stocks to
trade
> (and when) is very reactionary, and falls under the age-old classic mantra
> 'the trend is your friend'.  Why would anyone arbitrarily sell a breakout
> stock after a small 20% profit in a strong bull market? It makes no sense
> whatsover.  Given that many stocks are up 400%+ since the market turn on
> March 12, you would be defeating the entire purpose of patiently wating
for
> a confirmed bull market and then riding breakout leaders.
>
> I think that some people confuse this with having a target 'stop' sell in
> mind immediately after buying a stock. Making sure you know exactly when
you
> will sell if the trade turns against you is essential risk management. But
> it isn't something you should do if the trade is working in your favour.
>
> Ian
>



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