Are you a regretful seller? Are you a regretful buyer? Let’s cover both sides of a trade and get to the right strategy. Here’s my take on Ollies (OLLI). (April 26, 2017)
OLLI
Lets look at Ollie’s ( NASDAQ:OLLI ). This is like my new best friend. I have owned this stock for a while, you can see the little drawings that I have had here. Key buy point at $33.00 and we have had several tags of the 50-day moving average. This is kind of a regional discount store back East, Southern states basically. Their fundamentals are monstrous; almost as monstrous as the number of shares short; 42 percent of the float is short and the stock is moving up.
The bottom line is this, this stock is going higher. Just yesterday I told members that I had sold some of my Ollie ( NASDAQ:OLLI ); and I did, it just was time to take a little off the table. When you are up 15 percent, even in a short period of time, it is okay to take a little off the table. But don’t take it all off, and this is the point of this video. Imagine selling everything yesterday, “Okay, this is the top, it has got to be the top. I am out of here. It has been a nice trade but I am out of here.” And then today the stinking thing is up another 3 percent and now you are kind of feeling like a fool. It felt okay yesterday, nice trade. Today you are wondering, “Maybe I should get back in.” This is the conundrum that the all in or all out trader has.
If you just see a particular price level and you say, “I’m in right now,” and you take a big position you are really setting yourself up to be shaken out if the stock falls even a little bit. I mean, you take a big position at one cost basis, like right here right now, this is where my cost basis is because I bought all at once and it is at this specific price. That is a high-risk situation, because if the stock goes against you your trade is going against you BIG, because you have got a BIG position.
On the other hand, you see a stock moving up like this, and you have a BIG position right here at 38.75, well you are subject to getting shaken out just like you were if you had gone all in and bought a BIG position to begin with. Actually, no. That is not true. Because if you are buying, you buy a little bit here, maybe you are buying some here, maybe you are buying some here, and here, and kind of like, “Oh, I sold some yesterday but I still have all of this.” Well my cost basis on this, on any stock that you are doing this kind of stuff, your cost basis is always BELOW where the current price is, because you bought at lower levels.
You are increasing your cost basis on the way up, you are like averaging up, but you are correct about a stock. That is the biggest issue I have with averaging down. “Oh, if you liked it at 50.00 you have got to really like it at 35.00.” No. The last 15 points suck to the downside. I liked it at 50.00 but I don’t like it at 35.00 and I wish I had not liked it at 50.00. What am I going to do now? That is what happens when you are averaging down. But when you are averaging up you are getting rewarded for being correct, not penalized for being wrong. In both instances you are buying more stock. You are changing your cost basis. Your cost basis is growing closer to the price of the stock when you are buying again.
But again, if you are buying all the way down you are getting penalized for being wrong. If you are buying on the way up you are getting rewarded for being right, and you have got more of a cushion because you have already got some reward. I mentioned this just the other day on something else; it is the difference between losing a lot of money, like all of YOUR money, versus a good trade being just like a little bit less good. I hope this makes sense. I like Ollie ( NASDAQ:OLLI ). Do I regret selling some yesterday? Sure, I wish I didn’t, but I am happy that I have more. And if this stock continues to go higher, I may even increase my position from there.
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