Subject: Re: Fwd: Re: Next Inning Alert - CRUS FQ2 Earnings: Selling Way Overdone Sent: Oct 21, 2010 4:28 PM
If you're going to invest in tech stocks (many other sectors as well) you should expect volatility and that it will have an inverse correlation with market cap and the long-term dependability of the company's earnings stream. In other words, CRUS should be more volatile than most tech stocks due to its relatively small market cap and past history of highly uneven results.
One of the reasons I like using a multiple buy strategy is that it takes advantage of volatility. You never know what price will prove to be a bottom or a top. However, when you are planning to build an allocation over time you'll actually find yourself pulling for a dip so you can buy more shares at a lower cost. Then, as (if) things work out as you've planned and the stock goes up, you can again take advantage of volatility and begin hedging with covered calls or thinning (again with several moves just as you did when building the position). You can see how the first half of this strategy worked with building the DRWI position in the NI portfolio. Even though I started buying way too high (we know that now), by sticking to the multiple buy strategy I ended up with an average cost basis of only $7. As a bonus, as (if) the price goes up to my double digit objective I can thin by first selling shares that are at a high relative cost and, thereby, manage what would be the tax liability.
The bottom line here is there's more to it than just picking good stocks - technique / strategy makes a lot of difference in the long-term results and, more important, in minimizing stomach acid.