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September 2, 1998

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Subject: Re: What Happened to Buy & Hold?
Author: rbednarski

Didn't lose a penny today. Didn't sell any thing.

Incorrect! And it's this attitude held my many investors that sometimes scares the hell out of me.

Whether or not the statement is correct depends on the time frame of the one making it. It could be correct for him but incorrect for you. It is only incorrect if you anticipate selling in the near future. If you are holding with a 5 year or 10 year time horizen then I think it is correct.

I have a house that I paid $x for. If I don't plan to sell for the forseeable future do I really care that other people with similar houses have sold them for less than $x? Nope.

For those of us that are long term holders, we know that Dell is a high volatility stock. So in the course of holding it for 10 years we expect (or at least we should expect) that at some point there will be a significant drop. In the past those drops may not have been as dramatic as the recent drop, but we are only talking about a drop of 20-25%. In a stock in which investors get grumpy because their return in a given year is *only* 50% year that is not something to get all bent out of shape over. The cost of enjoying the volatility of a two week stretch of repeated up 5 and 10 pt days is enduring an occasional 20% drop in a week. I don't know of any way to get the former without subjecting yourself to the latter. And if, when the dust clears, the stock is still substantially higher than it was 6 months ago then it is still doing the things that we long term holders expect of it.

Look at the prices over the past year:

  Jan 2, 42.88  Feb 2, 52.28  Mar 2, 67.81
  Apr 1, 68.50  May 1, 84.25  Jun 1, 78.31
  Jul 1, 93.94  Aug 1, 109.19  Sep 1, 108.38

To my way of thinking, i.e., long term, all of the intra-month price gyrations are just noise. So I don't really consider that I made money when it flashed up to 128 nor do I consider that I lost money when it slumped back down to 100.

I recognize that you may not share the same long term view, but I hope I have at least convinced you that there is nothing scary when a long term investor simply expresses the long term view that price noise does not equate to making or losing money. To a long term investor money is made by the long term increase in the value of our holdings.

Someone on Nightline last night made a point that I think a lot of people are discovering: People have been asked about their risk tolerance and perhaps have answered without really understanding what it means. We are all tolerant of the risk that our money will double every year (g). But it is a market like this one that teaches us what our real risk tolerance is. She went on to say, "if you are worried about what the market will do tomorrow, then you probably shouldn't be in the market at all." I think that is a little extreme, but I think that it illustrates that there are a lot of folks in the market (not you and not most of the folks here) who have no bsiness being there.


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