Penn Wealth Publishing

2016.02.21 Journal of Wealth & Success Vol 4 Issue 2

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10 wealth & success volume 4 issue 2 February 21, 2016 wealth & success Copyright 2016. All Rights Reserved. investment intelligence Momentum Investing It is human nature to love bargains, but often the most expensive pick is the wisest one I once had a client ask me what the craziest investment comment was that either a cli- ent or prospective client espoused to me. There have been, admittedly, some doozies over the course of two decades, but one immediately sprang to mind. "Did you see that XYZ Corp is sitting at $X per share? It can't go any lower, let's buy some!" I'd like to say this faulty logic was lim- ited to clients and their family members, but I recall an old-school broker at a former investment firm who held a similar belief. "Let's scoop a little more up while it's on sale!" he would tell the client. He said it so many times during the "dot-com" bubble burst that I began visualizing him working in a Good Humor ice cream truck, scooping up a cone for an eager kid holding a fistful of dollars outside the levered window. Of course, he had also told them to buy the holding when it was at the bar- gain price of 50% higher. This was back in the days of dot-matrix printers, and I remember walking into his office before a meeting to find him, scissors in hand, cut- ting off the side of the page that showed the unrealized loss for the holdings, but neatly stopping before he got to the yield column. He would point out what a great percentage the company was spitting out in the form of a dividend; he just wouldn't mention that the yield was so high because the dividend hadn't changed but the price of the stock had been halved since they bought it! Don't get me wrong, there are true bargains waiting to be plucked by astute investors on a daily basis, and there is a heart-racing thrill involved with uncov- ering a great opportunity that has been overlooked by the masses. But I will never forget that 90% of the stocks this broker told his clients to buy while they were sitting a such a deep discount ended up never coming back. When someone tells me that a stock is sitting at $4, so it can't go any lower, I ask them what happens when it goes to $2? Do they buy more? Do they cut their losses (probably too late at that point)? Do they simply chalk it up as a costly mistake and move on? Fishing for deep value companies can be a blast; just make relatively sure that the fish you are about to hook isn't already rotting. Now, let's take a trip to the opposite side of the spectrum and consider a strat- egy known as momentum investing. The grandfather of this movement is widely considered to be Jesse Livermore—a pro- fessional trader during the earliest decades

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