Invest with O'neil

7/15/08

Here I have been sitting for several weeks now and sleeping peacefully at night, fat dumb and happy that I was all in cash -- eagerly but patiently waiting for the market to turn so I would have some cash to invest when the odds favored the market to rise -- also feeling quite superior that my regular account (closed transactions) was actually up 8% or so for the year.

Am I not correct in my assumption that O'Neil's general aversion to low priced stocks is to some extent based on the difficulty in getting out in time when the price moves against you?

Why did I buy ALTI this past week?

I got the surprise of my life when I received in the mail on 7/14 a confirmation from Fidelity that I had bought 

        Total Cost

ALTI : on 7/19 1000 shares at 2.2182 2,226.20

  500              at  2.1682 1,092.10

ALTI: on 7/11 500 at 1.8982   957.10

    7/14             500                at 1.8182   917.10

_________

5,192.50

The purchases on 7/19 cost 2.2122 per share

The price at close of business on 7/14  was 1.80

This means that this particular purchase is down 0.412 or 18.73%

The total purchases on 7/11 and 7/14 is 1,874.20/1000 = 1.874 per share

These are down 0.074 per share or 3.95%

The total cost of all 2500 shares is 5,192.50 or 2.077 per share

This average share is down 0.277 or 13.34%

I must sell it all immediately.

My problem is why you bought it in the first place.  I was feeling so relieved that I have been sitting in cash waiting for a confirmed rally to occur before buying anything again.  It may take several months or only a few days but the market will tell me when the tide has turned and there is plenty of time in the future.

In the meantime I have been quite pleased that my account for this whole year was up $2,228.59 or about 8.9% -- not bad in this terrible bear market!!

On these current transactions I am down (before selling out)  approx. $692.50, but the account is still up $1,536.09 for the year or about 3.83%

You have had several profitable trades this year.  I wonder if they were all bought or not during a "confirmed rally" period?

I would like you to write your thinking down as to why you should or should not have bought when you did -- particularly these last two transactions while it is fresh in your memory.  I think you were gambling against the odds.  The things that bother me about this is first of all that the market had not yet told us that the correction was potentially over and that a new confirmed rally was potentially on.  The tide has not yet turned in our favor.   Secondly this was a low priced stock that inherently makes it more difficult to get out quickly at a 7-8% loss.  Thirdly, my account is not renewable which makes any risk taking more dangerous.

Why did you buy?  Did you know something that the market did not know?  It looks to me as if you were gambling against the odds.  Somehow or the other I must stick with the odds as best I can determine them and patiently wait for a confirmed rally and a slow recovery in the future whenever that may be.

I would hate to conclude that you are addicted to gambling.  There is no place for that in investing.  I hope and pray that you are not doing that with your own money.  I want to help you while I still have something left as you get back on your feet with a job but I can't support a gambling addiction.  We will both go down the tubes and it is not necessary.