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February 17, 1999

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Subject: Strategizing
Author: IFindKarma

Vic in post #3108: For those new to the board, you should know that you can't simply get an answer to a question here. You also have to sit through the lecture regarding the assumptions underlying your question!

An answer to a question without a reason why is like a castle in the air. Eventually one's gotta build some foundations or that sucker's coming down.

I wrote:
Where will CMGI be in a year? I really have no idea.

Vic responded:
Ditto.

I wrote:
But my strategy is to hold on to CMGI through thick and through thin, and time will tell if that was the right strategy for this particular stock.

Vic responded:
Not Ditto, but everyone knows that. The difference between us is that time is more valuable to me than to IFK. I'm older and I have three kids hitting college age in ten years. I absolutely cannot afford to wait one year and then learn that I was wrong.

I totally understand, and agree that Vic is doing the right thing for Vic. And it gets to the heart of something fundamental that The Motley Fool does teach us, which is that every one of us has a different situation in life, and every one of us must develop a strategy to accommodate our personal situation.

I am relatively young, debt-free, with no dependents except a working wife who makes more than me. (Er, so I guess you could say that I'm dependent on her.)

"It would have been so easy to lose my nerve when CMGI was in the process of tumbling 62%. The bears were out in full force saying the worldwide recession was coming now. (That was six months ago... 'nuff said.)"

My strategy to stay in CMGI this year is not a strategy I'm keeping with all of my stocks. I do have some sell rules that if triggered will liquidate a little more than half of my current holdings (and thanks to everyone who sent me information about the tax consequences of so doing -- ouch ouch ouch). If what remains gets totally creamed in a down market that takes years from which to rebound, at least I'll have roughly half to start over with again (and much, much more than I started with 4 years ago -- someone who started later than me might want to have more aggressive stops like the 8% WO'N recommends). As Vic says, my cashing out is not a lack of confidence in the market, but rather just a cold, logical decision to keep some insurance and live to see another day. As Dave Naas says, it's always nice to have some dry powder on the sidelines (of which I presently have none).

So what's my strategy? Simply put, the things that get sold in my portfolio are the long-term gains, the losses, and the short-term gains that are relatively small.

As a result, I am mentally prepared to sell half my holdings if certain events are triggered. I am also mentally prepared to hold onto my CMGI shares even if certain events are triggered telling my other stocks to exit the market.

I think back to last year. I bought my first CMGI shares at then-46 in May, and watched them nearly double to 91 by July. I felt like a genius. Well, as Db is prone to say, everyone feels like a genius in a bull market. We all know what happened next. The rug was pulled out from beneath the market and it plunged, and with it, CMGI fell from 91 to 35. I watched it all the way down, less with a sense of nervousness than with a sense of morbid curiosity of how low it could go. I had a lot less understanding of the market then than I do now, because I had never watched the markets closely before. (Yes, I have been in the markets since 1995, but until 1998 I had a full service brokerage and paid some monkey to watch the markets for me just so I could be young and stupid and ignore every bit of advice he gave me, which in retrospect was a good thing.)

It would have been so easy to lose my nerve when CMGI was in the process of tumbling 62%. The bears were out in full force saying the worldwide recession was coming now. (That was six months ago... 'nuff said.)

Why'd I hold, back then? Because I didn't know any better. I had no idea where CMGI was going short-term or medium-term, but I believed that 10 years from now that CMGI would have left its current market cap far behind. (Back then, the market cap was in the $1 billion range, but I'd been following the company since it was in the $200 million range -- ugh, I missed the first 5-bagger because I am shy about small caps.)

So why will I hold now? It's a gamble, and the gamble starts with this: I have been watching this company closely since late 1997, and I studied their history before then. I studied their upper management, their deal making capabilities, their track record. Each day I'm a little more convinced of how great this company is.

"So why will I hold now? It's a gamble, and the gamble starts with this: I have been watching this company closely since late 1997, and I studied their history before then. I studied their upper management, their deal making capabilities, their track record. Each day I'm a little more convinced of how great this company is."

Ah, but there's a big difference between a company and its stock, right? I admit, holding onto CMGI shares is a gamble where the risks are very real but the potential rewards are enormous. Frankly, what I originally put into CMGI (on 2 separate occasions) was what I was comfortable with losing on this gamble.

I might change my strategy if the company or the investors in CMGI start to behave differently -- this was the reason I sold most of my AMZN shares in November of last year (and, I might add, I subsequently missed out on a tripling since then). But for now, the reasons I invested in CMGI originally are still intact, and for that I'm willing to ride out the storm. In so doing, I am confident that I am not maximizing my returns. But my goal here is not to maximize my returns, but rather to have a hybrid strategy for my money and my investments that hedges some bets while keeping other bets intact. It's part of an ongoing, longer-term strategy I'm developing for myself.

There may also be a difference in our faith in either our own ability to choose good companies. After may experience last summer, I refuse to have faith in any company or to depend on my own ability to pick stocks. To ameliorate the risk that I may pick a bad stock or buy a good one at a bad time, I've chosen an intermediate term investment method.

And I think that's great. There are a handful of companies that I absolutely love -- CMGI, Dell, America Online, EMC, Microsoft, Cisco, Berkshire Hathaway, Pfizer, The Gap -- but I do understand that just because a company is insanely great, doesn't mean that its stock will perform the way I want it to. The market doesn't care what I want.

I don't have control over the markets or the stocks, but I do have control of my strategy, and the more I learn, the more I can evolve my strategy... which, like the discussions on these boards, is very much a work-in-progress...

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