What happens to returns when you sell and buy back?

Lynn Ostrem on

Hi Laurie,

I was going to write this note privately, but then I decided it would probably benefit everyone on the board. We placed a stop loss order today that may execute if the earnings report isn't up to snuff this week. I won't share which company because it will pull the focus off my point.

We feel the stock has plenty of potential, but we would like to lock in rerurns when our stocks get too rich, and could very well buy this one back at a lower level in the future. I was trying to explain how that works within bivio. If we sell it, then buy it back at another time, the software resumes where it left off with the return. Could you please explain how that works so I can explain it to my members?

A long time ago, our club bought Lowe's. The stock went on a rampage, and we sold when we felt it was overpriced. That locked in a very good return. We bought it back a couple years later, under-estimated the home value crisis, and rode it down to a -2.1% return before selling it. But the -2% was from May, 2002 to November, 2008. If you just look at the last 2 years, to date, the return was -28%.

So the terrific return of the past helped to buoy the return, and we justified holding it longer than we probably should have since we knew that, overall, we were still in the black.

I think this is a good educational topic for all clubs. How exactly does bivio work with regard to these carryover returns? When should they be a consideration? And finally, how and when should we be using the option to change the date to view various investing periods? What I mean is, when is it beneficial to do that?

I'll be interested in others' experiences here.

--
Lynn Ostrem
garbagecop@gmail.com

Crow River Investment Club

www.bivio.com/crowriver

Jim Thomas on

> So the terrific return of the past helped to

> buoy the return, and we justified holding it

> longer than we probably should have since

> we knew that, overall, we were still in the black.

I'd say past performance (return) should play no role at all in portfolio management decisions. Buy/Hold/Sell decisions should be based on potential for future performance (and not at all on past performance).

-Jim Thomas

Jim Thomas on

> And finally, how and when should we be using the

> option to change the date to view various investing

> periods? What I mean is, when is it beneficial to do that?

Keep in mind that returns should only be compared over equal time periods.

For example, comparing the return for a stock you bought 6 months ago (an annualized 6-month return) with the return for a stock you bought 2 years ago (an annualized 2-year return) tells you nothing.

So, if you bring up bivio's Investment Performance report and the dates in the Return Since column are all different, it makes no sense to compare the returns. And, even if you adjust the report date range to make the Return Since dates all the same, you still can't compare the returns if some stocks were acquired via multiple purchases while others were not.

Of course, the same applies to the Member Performance report.

-Jim Thomas

Mail