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|This bulletin was published on Saturday,
Jul 31st, 1999 just for you.
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I plan on reviewing the entire list of Rollers this weekend more closely than usual. This may change my suggested buy and sell prices of some of the remaining stocks also. My goal is to weed out our borderline or weaker performers. I expect to dump a fair number of stocks. My belief is that too much time is being wasted on the poorer performers. After answering last night's email (which is included in this Daily Update) I realized it was likely many of our Rollers probably have spreads large enough to prohibit us from profiting from them to any degree. Besides that…the list has simply gotten too large! So I'm going to axe all the Rollers with suggested buy prices over $25. also.
What should be left are just stocks with a buy price under $25. and a cyclic range equal to a minimum of 10% of the buy price with the spread figured in. Meaning that if a stock has a suggested buy of $10. the smallest acceptable cyclic range would be $1. So the sell price would have to be $11. or greater. Now that won't be acceptable either though, if the spread is figured in (and it will be.) If the spread is .06 we'll double it making it .12 (I say "double" it because we're going to buy AND sell the stock) and subtract this from the size of the cyclic range.
In the case of the stock with a suggested buy of $10. and a spread of .06 the lowest sell price allowed would be $11.12. The actual mechanics manifesting this thought are simple…with a spread of .06 we have to place our buy order .06 higher than what we think the price will drop to, in this case that's $10. Hence we buy at $10.06. The predetermined high for this stock is $11. so we'd have to set a sell order for $10.94 a share in order to sell it when the listed price hits $11. The difference between 10.06 and 10.94 is .88, which is less than 10% of what was paid for the stock to start with.
Okay you say…what is the minimum sell price acceptable for the stock in this situation? Easy question! 10% of 10.06 is 1.006 or rounded off…1.01, adding this to 10.06 brings us to 11.07, now by adding the spread we'll encounter when selling, which we can only guess will be .06 again…we have 11.13. We already know that although we expect the stock to hit $11.13 that we're going put in a sell order for only $11.07, because when the listed price hits our predicted high of $11.13 the sell or bid price will only be $11.07.
Of course this is much easier to see if larger spreads are used to experiment with, ie: .25 or .50. I came up with the 10% rule because I personally believe less is not worth fooling with, plus it locks in some room for error or the unexpected poor performance of the stock once we've purchased it.
I hope this makes sense to you? If it doesn't…send in your thoughts and we'll kick it around a bit more. Recheck my math too! It's very easy for me to type in an error, caused by brain flatulence, when attempting to explain a subject such as this one in great detail.
If you'd like to view the past Weekly Bulletins, there are a variety of places to go. Take you're pick! You'll find they're easily accessible for your viewing at Delphi Forums, RS100's Premium Board, Yahoo! Clubs, MSN Clubs, The Motley Fool, Lycos Clubs, and The Raging Bull.
I know what your thinking... What idiot?! Would have seven different message boards for their web site and post the identical information on each!? Well the answer is simple...LLH that's who :-0) If you've read this far you're probably expecting to stumble upon my reasoning for this about now? So here it is: each of my message boards are located in popular "communities" catering primarily to the financially minded web surfer. When one of these investing voyagers of the net drift onto one of the RollingStock100 message boards, the inclination is to click over and check out the web site that's sponsoring it...namely this one, RollingStock100.com! It's just a method of attracting future members by giving them a trail of bread crumbs to follow.
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