Interesting IBD lecture on why Buy & Hold can be so costly, and how to use charts to avoid disaster stocks:
-You buy a
stock. Soon, the market suddenly starts to decline on heavy volume.
-Watch what the stock does.
-A pull back to its 50-day moving average in quiet trade, is an okay sign to stay long that name.
-On the other hand, when a stock that "slashes through the support line on heavy turnover," that’s a red flag.
IBD adds: "Did
the stock trigger any other sell signals such as a downward reversal,
the largest decline since its breakout or a 7% drop below your buy
point? If so, it’s a good time to unwind your position."
click for larger chart
then started its long decline. It went into a free-fall in November
2000, suffering a 63% loss (point 2). Volume was 65% above average
This alone should have been a sell signal for
investors. And the fact that the market entered a bear period should
have alerted them that this decline could continue for a while.
the time March 2003 hit, the stock lost all its gains and more (point
4). After some attempts to rebound, it is now still trading around 2.
Buy-And-Hold Strategy Will Often Backfire
Investor’s Business Daily, Friday March 24, 7:00 pm ET