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.If you and everyone you know are spendingyour money somewhere, then there is a great chance that thatcompany s stock is going to go higher and higher.Let s take a look at Yum! Brands.If I told you to buy this stock atthe end of 2002, your first response may have been  The stock isup 43 percent in the last year, it s too late. Look at Figure 7.18 itwouldn t have been too late.The stock meandered a bit in 2002, and you may have been an-gry that I had given you a bum stock tip that actually saw theshare price pull back.But during the course of the year, you wouldhave bought the stock (you should accumulate stocks in greatcompanies over time) and had an average daily cost of $21.At theend of 2003 the stock was changing hands at $34.By then I would have been back in your good graces, so youwould have had a buddy call me to find the next hot winner,and I would have said to him,  Try some Yum! His reactionwould have been  You gave that to my buddy and the stock is ccc_payne_171-198_ch07.qxd 3/13/07 8:00 AM Page 196196 TOOLS AND RULESFIGURE 7.18 Yum! Brands, 2001 to 2002Chart courtesy of Prophet Financial Systems (www.prophet.net).up 48 percent in the past year alone I missed it. Oh really?Look at Figure 7.19.Another year goes by and you keep eating at Taco Bell, but thefood tastes even better since every time you pay for your food, youknow that you are also paying yourself as a part owner of the com-pany.By now a few more people learn about this notion of buyingwhat you know and they want in, too.They say there is no waythey are going to chase the stock, but I ask them why not? Is thecompany any less attractive if the upside potential is actuallygreater than it was a year earlier? If you like the food, maybe thebillions of people around the world who haven t had a chance totry it yet will, too.So they go ahead and buy the stock at $34 at theFIGURE 7.19 Yum! Brands, 2003 to 2004Chart courtesy of Prophet Financial Systems (www.prophet.net). ccc_payne_171-198_ch07.qxd 3/13/07 8:00 AM Page 197Chasing Stocks 197beginning of 2004, and by the end of the year they re up 35 per-cent.(See Figure 7.20.)By now I think you get the picture, literally.The message doesn tstop with Yum! Brands; we could go through this exercise withmost of the publicly traded companies that you come in contactwith in your daily life.Okay, so you chase the stock at the begin-ning of 2005 at $46 and by November 2006 the shares are changinghands at $60, an increase of 30 percent in less than two years, thekind of move that generates real wealth in your portfolio.(SeeFigure 7.21.)Don t talk yourself out of owning stocks because they ve madegreat moves.The fact is you want stocks that are moving higherrather than lower.FIGURE 7.20 Yum! Brands, 2004 to 2005Chart courtesy of Prophet Financial Systems (www.prophet.net).FIGURE 7.21 Yum! Brands, 2005 to 2006Chart courtesy of Prophet Financial Systems (www.prophet.net). ccc_payne_171-198_ch07.qxd 3/13/07 8:00 AM Page 198198 TOOLS AND RULESSummaryWhen is it okay to chase?It s okay to buy a stock that is higher if it s higher because thecompany is executing, improving the top line, and expandingthe bottom line.You can chase a stock after a great earnings an-nouncement and solid guidance.It s okay to chase stocks for a trade after a brokerage firm has is-sued an upgrade, but make sure the stock isn t already up big.Wall Street firms are often late to the party, and when they saybuy at the top, it s time to consider selling into strength.It s okay to chase hype as long as you know it s only hype andyou re willing to take a quick profit or quick loss.It s okay to buy the dip when it is unlikely the news that drovethe stock lower will actually impact earnings.Don t buy the dip when the stock is down on really bad funda-mental news.Fundamentals don t improve overnight.At the end of the day, it s okay to chase if the stock isn t fully val-ued.You don t have to be the first investor in at the very bottom.There isn t an Admiral Perry Award, and the extra risk simply isn tworth trying to make an extra buck or two.With respect to dips,take your time the so-called dead cat bounce, where a stockbounces after a sharp decline, is also too risky a move for the effort. ccc_payne_199-220_ch08.qxd 3/13/07 8:01 AM Page 199CHAPTER8The Level Playing Fielde are undoubtedly a society obsessed with righting wrongs.From grade school activities in which there are no losers and noWwinners to the notion that we should penalize the most successfulfolks and reward the least successful folks through tax hikes andcuts, it seems like the nation is bending over backward in an effortto be fair.But we must ask ourselves if we are really taking a stepforward or if we are making adjustments that are against the na-ture of mankind or the nature of capitalism with respect to finan-cial markets.We use the phrase level playing field, but the reality is there is nosuch thing.Soccer and football fields are actually crowned in thecenter, allowing water to drain to the sidelines.In golf, the onlyflat spot on most courses is the area where you tee off.There haseven been talk of changing basketball courts by raising the rim ormaking big guys play farther away from the basket.This concept of fairness also grips the stock market.There is ahuge movement to get the folks investing the least amount ofmoney into the market the same information as investors riskingmillions of dollars.I think it s noble and wonderful but it has ac-tually hurt all investors, including the small investor.Instead ofinformation flowing freely to all, information has dried up, andit s actually more difficult now to get the buzz on a company.Inaddition, investors are relying more and more on messageboards and chat rooms to learn about stocks and make invest-ment decisions.I believe in fairness but I m also a realist.If someone pays $200for a theater ticket and I pay $100, I expect him or her to have a199 ccc_payne_199-220_ch08.qxd 3/13/07 8:01 AM Page 200200 TOOLS AND RULESbetter seat than me [ Pobierz całość w formacie PDF ]

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