Safety Margin

Liquidated the long position of Ford out of frustration. This company has no hope at all. Strongly felt the pains for not selling it at $9.13. Recall the moment of reasoning. Thought it would not go down to the price which justifies the commissions (double, $60). But didn't ask further questions of why not?

Always ask the following questions when havinglong position:

1 How much is room for growth within the planned holding period?

2 Is it a good buy at the current price level?

Answers of the two questions lie in the valuation of the firm. Actually, the question should be asked as

Is the price still under its intrinsic value?

It's not easy to answer the question. If not very sure, MUST liquidate it ASAP, especially if it has increased 20-30% of the price.

When buying a position, ask the following question:

What's the downward moving range and occurrence percentage?

What's the upward potential and occurrence percentage?

The answers of the two questions MUST be used to judge safety margin of the purchase.