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August 24, 1999

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Re: time to sell???

Author: Mgk


I don't mean to misinterpret your question. But it sounds rather forlorn. Please correct me if I am wrong. The likelihood is strong that there are many others who feel similarly confused, discouraged, conflicted, etc. I hope you do not consider it condescending if I say that now may not be a particularly good time to be assessing these options.

Due diligence would already have dictated whether this equity was a reasonable investment for you prior to your initial or subsequent purchases. Some people will have bought this as a "long-term" holding, which might mean anywhere from 6 mos. for some to 10 years for others. A lot has changed in 6 months, however, not much substantive change has occurred if your outlook was for 5 or 10 years. Personally, I feel that any young, unproven company with unproven technology/ business model should be evaluated by its individual investors before 5 years - which is why some of these stocks don't really seem to fall within the official Motley Fool guideline of "long-term" (meaning 5-10 years). This has only been a public company since February. So there is little opportunity to assess it based on past performance. Any such company's price, and therefore valuation, is likely to be volatile, as the market decides on its merit or potential in the form of share price.

That said, I am sure you are aware of the many investment counselors who note the importance of "cutting losses". For some this is purely mechanical. When a stock reaches a point which is a certain percentage below the purchase price - it gets sold. This figure may be 10% for some, 30% for others. Again, an individual assessment. Others point out, again with merit, that if the initial reasons for considering a stock to be a worthy investment at the price paid have not changed then the stock at a lower price is an even better buy, and that short-term factors may account for a temporary devaluation in price.

As investors, we all make mistakes. Even with the best due diligence. That's why it is important to know ahead of time, what we can afford in our given circumstances. To set targets for either dropping a stock or for accumulating more seems the only reasonable way to be prepared for the inevitable fluctuations that will occur. You must be well aware of the factors which have currently driven the price down. (If not, then by reading previous posts on the board, you'll find helpful info.) These factors will change, and we will likely see a rebound. How soon? And to what price levels? No one knows that for sure.

I would add that this is a stock which has always attracted a strong interest from short sellers. This is likely to continue. This is typical of volatile stocks, especially any that can be construed as 'net sector'. And this contributes to the volatility (sometimes actually driving it). Also, with future price gains, many people who held through the dips will sell when the price regains the level where they bought initially. These will be people who are frightened by the volatility, and realize that holding this stock is too uncomfortable for them to risk further losses. This current dive will not soon be forgotten. Through the coming period there will need to be a time of renewed investor confidence before higher prices can be sustained.

Some helpful guidelines to follow: don't sell into a panic slide; don't buy into a panic rise; don't let anyone (esp. strangers) decide for you about buying or selling.

Offered with only the best intentions. Sorry it's so long.