Know Yourself and Checklist for Chasing

Charles Payne
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Posted: Aug 29, 2014 12:01 AM
Know Yourself and Checklist for Chasing

Earlier this week, on my show, I was asked about selling a stock after one decides to take a tax loss (hint: you cannot buy it back for at least thirty days). This led up to a very important question: When does one sell? It is actually the biggest question every investor faces. After all, when it is all said and done, there are stocks that make a lot of money for many, while others actually lose a lot of money for many. But, why? Simple: because some people sell too early, or they sell too late…

Investing GuideTraderIntermediateLong-Term
Duration1 to 30 days30 day to 6 monthsSix months +
Risk5%10%20%
Reward10%20%50%
Vigilance (daily)Four TimesTwo timesOnce
Financial commitment20%60%20%
Ideally, an investor should have an equity portfolio in various investment themes. In part, to take advantage of volatility, but also to resist the urge to close long-term ideas too soon, and take too long to close short- term ideas. However, it is easier said than done. Yet over the course of any given 52-week period, the rationale typically plays out to where the advantages are clearer. The decision-making process for buying and selling stocks is the same across all levels of traders. People who buy as day traders, should sell as day traders; People who buy as intermediate traders, should sell as intermediate traders; and etc.Obviously, the idea is to find stocks that are undervalued for intermediate and long-term investors. Traders should actually forget about fair value and look at the Greater Fool Theory which reminds a buyer that though they may be paying a lot for a stock, there is someone in line behind them ready to pay more.

Main Tools

Trader

  • Charts
  • Volume
  • Momentum

Intermediate

  • Fundamentals (earnings, market share, margins)
  • Charts

Long- term

  • Fundamentals (products, pipeline, potential)
  • Fundamentals (earning, market share, margins)

No matter what a person considers himself or herself, there is a psychological aspect to investing that triggers actions not originally intended. You MUST take losses from time to time, and you MUST keep ‘greed’ in check, and be realistic. Stick to who you are as an investor, or inconsistency will result in larger individual loses, wiping out more individual winners.

Equal Value?SnapchatLevel 3
Value$10 billion$10.4 billion
Employees3511,000
Revenue$0$6.3 billion
Hot Private Companies = Hot IPOs?
Last night, I discussed all the noise with private companies that have soaring valuations. It is so amazing that Jessica Alba's business, Honest Company, is now valued at $1 billion. The thing is, she probably deserves it, but I cannot say that for the rest.

At the start of the year, there were 30 private Venture Capital (VC)-backed companies valued at a billion dollars or more. Since then, three have gone public with decidedly mixed results that give naysayers ammo. On the other hand, they also encourage those that think these blockbuster private companies will soon be blockbuster publicly traded companies.

Welcome to the Real WorldNameJanuary ValueCurrent Value
JDJD.Com$7.3 billion$39.0 billion
MBLYMobileye$1.5 billion$1.34 billion
XNETXunlei$1.0 billion$78 million
We learned this week that the most successful investors in Silicon Valley put their money into Snapchat at a $10 billion valuation. Some think it is nuts, others think Kleiner Perkins just has cash to burn. However, I am not sure, so my advice to you is — be careful. Here are some rules to consider as all of these companies begin to sell stock to the public:
  • Make sure the business isn’t a one-trick pony and peaking
  • Make sure there has not been too many rounds of financing- see ZYNA and GRPN
  • Make sure not to chase an IPO price that has been adjusted more than once