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Well it is a beautiful concept and one to strive for when it comes to relationships. But one has to be wary about applying it to shares – or any form of investment for that matter.
I had an email Thursday from a friend and colleague which read:
‘...Wouldn't you hate to be a NUF shareholder ....
Imagine if you bought in 1993 only to see your shares right back where you brought them 17 years later having seen them increase 600% in value then fall 75%....nasty !! I see the stock has lost more than $2B in shareholder value in the last 18 months....
Also, very telling about how tough the agri sector is doing right now.....’
And as one reader wrote to me a few weeks ago there has to be a buyer for every seller. That goes without saying but there is always a sucker at any price – many of whom think they are getting a bargain. And they follow the stock into the abyss.
I know little about why NUF dropped 28% on Thursday – I could look it up but it matters little. It is a stock that has been on the skids for a long time and I have never been tempted – at any price.
Note the big exit on Thursday:
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For such a small stock that is a lot of buyers to find in one day so hence the almighty fall!
The important lesson to be learnt here is you must have a point when you cut and run with a stock that is just not going to perform but also any stocks that may potentially just disappear down a big black hole.
I have written before on this and suggested even a simple trend line is so easy and can keep you out of big trouble, but many fail to use anything at all - let alone anything so simple.
Of course as I alluded earlier some think they are getting a bargain.
The psychology from here on in for such a stock can also be quite predictable. Take a look at a possible scenario:
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A possible rise followed by another bang – well at least low. This psyche is the reverse to ‘I am getting a bargain’ This time when a rally happens those who did not get out head for the doors – ‘I best get out whilst I am still alive’
We all have choices.
Enjoy the ride
Tom Scollon
Chief Analyst
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