Quote:
Originally Posted by Rain Man
I'm going to explain, and you'll likely laugh at me.
In 1991 and 1992, I bought Dell stock twice when it was a very young company. I was living in Austin at the time, and it wasn't a lot of money, but I was a poor grad student at the time. Both times, I doubled my money, sold out, and thought I was a genius. However, if I hadn't sold, that $4,000 in stock would've been worth $250,000 by the end of the 90s. I was standing in the middle of a gold mine, and I walked out. It. Kills. Me.
So now I have a strategy, and I stick to it religiously. I buy stock in lumps of $4,000 or $5,000. When I get to the point where I've made 20%, I sell out my original share and leave the profit in. That way, if the stock goes down I haven't lost any of my principal, and if the stock goes all Dell I'll still get the upside, albeit in a smaller dose. But I won't completely miss the boat.
I've been using this system for about 6 or 7 years now. The result is that I'm slowly building my own mutual fund of dividend-paying stocks with growth potential that I've hand-picked. It disseminates my risk but also gives me enough concentration that I have the potential to beat the market significantly.
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Your philosophy is perfectly fine and I don't laugh at you at all, but in cases like this you're basically risking $1,200 for no good reason at all.
There's precisely TWO things that can happen here with Heinz. ONLY TWO.
1. deal closes. You make a buck more than you would have if you'd sold now.
2. the deal doesn't close, and the stock tanks. That second part isn't speculation. If the deal doesn't close FOR ANY REASON the stock will tank.
Given that, you can buy the shares back cheaper if the deal doesn't close so you don't miss your Dell opportunity. Of course, Heinz is to young electronic growth stock what Cassel is to young growing quarterbacks, but I digress...
So yeah, I think you need a small carve-out from your normal rule, and you can even include the caveat that you will buy back in with profits if the deal tanks.