A Greek Tragedy

[Phaedrus]

Yesterday I sat down and read the WHS threads in their entirety. I have never done this before and will never do it again. It reads like a Greek tragedy - the passion, the pain, the bravery, the folly.
The initial extravagant euphoria was a very human response, only too understandable as WHS rocketed to new highs. One cannot scoff at such a natural reaction. What I find hard to understand though, is how this incredible optimism continued on regardless, after WHS had peaked. Here are some comments posted after the all-time high of $7.90, after a clear trendline break sell signal and while WHS was making progressively lower highs :-
"I'm looking to buy more" ($7.48)
"If there is a better buy and hold stock in NZ i cant think of one"
"Yep, this is the best one in Australasia. Its the NZSE40-50 future leader..."
"Anyone able to explain near 5% sell-off in WHS the last couple of days.... A great buying opportunity to fill up the Xmas stocking !!!"
"I say buy up large. They will never be this cheap again."
"Stephen Tindall is a god!"

WHS went sideways, making lower highs for over seven months before the support at around $7 collapsed. This was a very significant event, yet its sole effect on the WHS enthusiasts was to spur them into ever more rousing exhortations to buy. I am a sympathetic chap by nature, but have no sympathy at all for those that lost a lot of money on WHS. There was plenty of warning. There was a very clear breach of a trendline that had been intact for a year. Any moving average from 100 to 300 days had signalled an exit. Most every technical trend indicator had signalled an exit. A linear trendline that had held good for nearly 5 years was broken. You had over seven months to see the writing on the wall. The definitive final warning was when the $7 support was broken. No-one, surely, could misinterpret this.

Yet, unbelievably, the optimism continued unabated :-
"If you are looking at this stock long-term, like me, dips such as todays, in a market that was resplendant with red ink today anyway, dont matter too much. I have done my research...."
"Dont sell, buy."
"Mine were bought at 7.50, 7.20 and yesterday 6.55. 7.50, to me, was still a great price compared to where it will be in years to come."

So confident, so brave, so foolish.

We learn from history, or we are doomed to repeat it.

[KJ]

I held WHS shares and it cost me a few thousand dollars.However it was quite a good learning experience.
For memory I sold in the $6.00 to 6.50 range.I bought back in in the $5.00 range and sold at about the same price.
The things that I learnt were:
(1)I needed to improve my exit strategy-I now use a little TA-I am not great at it but knowing the basics helps
(2) do not fall in love with a stock-be more objective
(3)hold more than 3 or 4 stocks
(4)do not blindly believe that the management are great and that they can do no wrong-this management group have proved themselves to be very ordinary.

[Gryffyn]

Thanks Phraedrus - I entered into a discussion about this with some WHS stalwarts a week or so back and they just refuse to believe that it won't end up good for them. No matter that they could have saved heaps by selling at any of a number of points. Sigh.

KJ as summed up a nice and simple plan to avoid destroying wealth.

[belgarion]

P, right again. Although the FA's were councelling caution too. Begs the question if TA and FA are in agreement ... why go there? Me? Made about 25% playing short-term bounce backs ... That said ... I feel it is now time to start paying closer attention.

FA suggests that WHS is still over valued and the bottom line annoucement of being 'towards the bottom end of the range' doesn't tell the whole story. Im looking for where the money has gone, on what and when. I.e. is there a hint at stabilisation? Can WHS win in the Oz market? Will another Oz competitor fail? etc. etc.

I have allocated a sum to buy WHS when I feel the time is right and have spent about 1% of this sum 'dipping a toe' into the murky waters ... call it a 'watch hold'.

One thing about 'market darlings' ... they rise well above value ... and they fall well below it too ... (TWR,TRH anyone?)

Watching and waiting ... [}:)]

[Capitalist]

You will relate to this from Brett Steenbarger www.brettsteenbarger.com Phaedrus ;).

<<Consider the following scenarios:

1.A highway patrol officer aims his radar gun at passing cars to determine who is speeding. He notices a vehicle traveling 45 miles per hour in a zone that only permits 30 mph. As it passes the patrolman, however, the car accelerates to 50, then 60, then 70 miles per hour. The officer lets out a sigh of relief, noting to his partner, “Well, we don’t have to worry. He’s going down the road so fast, he’ll have to slow down eventually!”

2.A psychologist meets with a client who has been complaining of feelings of depression. For the past several weeks, she has not been eating well and her sleep has been disrupted. At this meeting, however, the client divulges that she now can barely get out of bed and is entertaining regular thoughts of suicide. “That’s good news,” the psychologist responds. “You’re feeling so bad, you’ve got to be improving shortly!”

3.For the second time in a row, the stock market declines over 3% in a single session, with the number of issues making new 52 week lows swamping the number making annual highs. Volume and volatility have picked up on the decline and a well-known market analyst concludes, “We’re seeing a capitulation. This is a great time to buy.”

In all three examples, people are making inferences about a reversal of trend based upon its increasing trajectory. Interestingly, where the first two situations seem absurd, the third has been a staple of recent market commentary. It has also been a major reason why investors have held onto positions through the recent decline >>

[belgarion]

KJ, Points well made ... I feel that WHS holders would have benefitted from understanding how to use 'stop-loss' sells in conjunction with 'target' buys. We hear quite a it about using stop-losses on ST but not enough about how they can be used to good effect with 'target buys'.

One issue to consider when using both is whether the Tax department considers using both as being 'trading' ... My accountant seems to believe my behaviour couldn't be interpreted as such as it's not frequent enough. Has anyone got different thoughts?

[zyreon]

good news, you'll be able to write option contracts on WHS shares come august (??), maybe y'all can buy up some puts ;)

[Halebop]

Great parallels Cap! The 3rd is a state I can easily be lured into despite intuitively understanding the dangers of the 1st and 2nd. A timely reminder.

[craic]

Stop losses or simply selling stock that is losing ground is a legitimate means of protecting capital and cannot be regarded as trading for tax purposes.