Expert: Paul Henneman - 6/14/2006

Question
Paul:  I have sold a number of stocks and mutual funds in the last few days, either to stop losses or to protect profits.

I would like to buy-back some of them. What is your opinion:

      1.  Is there a percent increase that should trigger a buy-back?

      2.  If so, what is the increase ... and over what period of time?

      3.  Finally, should I divide the buy-back into segments attached to upward increases (like 50 shares a x% ... more at a higher increase ... and so on)?

Your opinion would be greatly appreciated,
Steve

Answer
Steve,
  Thank you for your question! Unfortunately there is no clear answer to this, each person you ask may give you very different criteria for buying back the stocks. I have two points that I would like to offer as my contribtuion:
1. The most important thing is the quality of the stocks and/or mutual funds. You can never tell when the best moment to sell and/or buy investments is. It is far better to do the research to ensure that you are in solid investments. That is how you out perform year after year, rather than trying to time in short time frames.
2. If you are ready to buy back, my suggestion would be to do it in stages. The market may have bottomed out depending upon who you listen two, or may continue to decline for some time to come. No way of knowing. My recommendation would be to buy back every other week with 10% of your available cash on hand from the sells. This would mean that in a total of 20 weeks (about 4 months), you would be fully invested again. The benefit of doing it like this is that your risk is mitigated if the markets continue to drop in the weeks to come. Likewise you get some benefit if markets rise. The main purpose is to spread out your risk and avoid making that terrible and perfectly wrong decision. It can also help you sleep at night!
Also keep in mind that you do not need to buy into the same stocks or mutual funds during this process. If you continue your research and find something better, you can proceed with future buys in a new direction during this 20 week process.  All investments should be analyzed in terms of if they are the best place for your investments to be now. I see so many investors make the error of analyzing their investments by how much they have lost or gained. Instead of looking at profit and losses, i believe strongly that one should solely focus on the here and now, is it the best place for your money to be now? Past profit and losses are irrelevant, as the way the overall market values a stock or mutual fund can be slow or quick to change.
Imagine you reinvest all of it tommorrow, then the markets continue to drop! The above process shoud apply some protection from that.

I hope this helps! Please do not hesitate to follow up with me if I could be of any additional service,

Sincerely,.
Paul Henneman
President
ValuEngine, Inc.
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