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nwinski wrote:
> Ray Raffurty wrote:
> You make make a good point to which I would like to add : If you
> can not salvage some money, you are gambling.
>
> Suppose you bet $100 on a horse. You researched each horse in
> the field, applied the best handicapping techniques to stack the odds in
> your favor and selected one that gives you the best chance of winning.
> But, unfortunately the horse stumbles out of the gate and falls to the
> back of the field. Can you go to the window and get $75 back? Of course
> not. But in trading that is exactly what the astute trader will do.
>
> Ray,
> Your horse racing analogy doesn't hold. One could do great research
> on a company and its stock, then you buy it thinking you have found a
> hidden gem. It is earnings time and you are sure you are gonna win big.
> However, the company announces that it would have had a good quarter
> were it not for some just discovered accounting irregulaties indicating
> that thereby a billion dollars or so missing thereby possibly throwing the
> company into bankruptcy. So there ya go, your stock is now worthless yet
> under the same situation in the past you were right 80% of the time.
You are right about mind set determining if you are gambling are
not, but if you believe the above analogy can happen you are gambling.
Companies simply do not fail in the manor you described. Before you jump up
in indignation, let me explain what I mean: There are ALWAYS signs or
indicators of pending failure that the astute trader can recognize. Insider
selling, chart analysis, put/call ratios, (not to mention plain old fashion
stop loss orders) are just a few.
Lets look at the worst case I can remember: Bre-X Minerals
(Toronto exchange symbol BXM). You may recall it went from $30 to 0.03 when
it was announced that an Indonesian gold reserve was worthless and had been
fraudulently over valued. But, it did not happen in one day, despite what
CNBC may have lead viewers to believe. If you look at a chart of BXM you
will see a classic double top occurring in Jan. and Feb. of 1997. When it
broke below support at 20 in march it was obviously time to get out (a
logically placed stop would have done it). If you couple this with reported
insider selling (by the president and others) even my blind 97 year old
grandmother could have shorted this turkey with her pension funds. But even
if you where on a desert island in March and missed the technical signal,
when the stock collapsed on the news in in April it dropped to about 4 and
rallied to 6 before finally ending at 0.03 in May. So, you could have
salvaged 20-30%. Try that at the track or Vegas!
> So, this goes to show it is not one single out come that determines
> whether you are gambling. It is your approach and expectations about risk
> and reward that determine whether you are gambling, speculating, or
> investing.
I agree, but feel the most important difference is in the mind of
the trader. If one fails to take every advantage and head every caution one
is gambling.
Good luck and good trading,
Ray Raffurty
>
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