Thoughts on Build a Bear?

[nightlyraver]

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I haven't quite perfected the buy stock X and then sell it when it drops 5% technique yet... I hope the OP runs good with this strategy. If I buy a stock and then it drops in price, I tend to buy more, NOT sell!


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Here is how I see it - before you buy a stock you should always perform a risk/reward analysis. Obviously, if you are wrong about the reward part and the stock goes higher than expected, you are very satisfied. In every other case, the analysis is critical - you need to know if the reward will be at least greater than how the S&P500 will perform (or else the trade is pointless), and you need to be cognizant of how much you stand to loose if the stock performs poorly.

This is where I think you are going wrong. If you have concluded that the risk is 5%, and the stock in fact goes down 5%, you seriously need to reevaluate. At this point, you may have to conclude that you were seriously wrong with your analysis and the stock is no longer a buy (and perhaps a sell). Of course, the stock may have also moved down for no good reason at all, and you decide to buy more.

In the case of BBW, the stock did in fact drop by close to 5%, but I doubled down on my investment when it did. This was because I still felt it was a buy - mostly because the whole market moved down because of the sub-prime BS - but I still had a stop loss in effect less than 1.5% from where I made my last purchase. I did this because if it continued to slide I would accept the fact that my assumptions were wrong and the stock had an unknown level of risk from my point of view.

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p.s. Can you please tell me the price of BBW, or any other stock for that matter on 9/15/07? Let me know how certain you are about these predictions, whether it be 30%, 50%, 95%, or 100% certainty.


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In September it will very likely be priced somewhere between $26 and $35. There is a small chance that the price could hit $40 by then. It is pretty unlikely, IMHO, that the price will fall below $25, but not out of the realm of possibilities.

I don't feel like typing out how I came to this conclusion, but I feel that only some drastic market-wide move, or BBW unexpectedly missing earnings, for these estimates to be wrong.