*slowly sinking into thick skull*
Ok....
The fundamentals of the stock are all important and effectively I guess you are saying that the price movements create opportunity and as long as the fundamentals remain sound you effectively ignore the current price as a reason to exit the stock. Yes?
Do you never adopt some sort of 'stop loss' measure based on price though?
Unfortunately some of the fundamental criteria are going to be reflecting historical information such as earnings figures from up to 6 months ago.
Let's say we use the example of an airline that has reasonably good fundamentals reported just after the last 6 monthly report.
'Chaos' strikes in the next month or two with a) a dramatic rise in world oil prices(no hedging) b) large outbreak of SARS in Australia and c) an onboard terrorist incident.
Share price drops 35% but based on last REPORTED earnings, debt etc. things are still looking fundamentally sound. Possible new borrowings, lower earnings etc. have not yet been reflected in official reporting. Things are moving very quickly!
A 35% drop may instantly invoke a big BUY opportunity for you and you proceed with this purchase.
Two months later, another dramatic 'chaos' event occurs which causes the share price to drop another 25% from which point the company is critically damaged and doesn't recover.
My point is, although the fundamentals are very important, wouldn't it also be wise to incorporate a 'stop loss' strategy to cover you?
Price drops may often be followed by 'herd like' behaviour but on some occasions the herd gets it right. A large proportion of price may well be sentiment but price also dynamically reflects events as they occur(admittedly TOO much on many occasions).
Many fundamental criteria reflect historical reporting and hence are going to have a time lag which under certain circumstances may be critical.
While adopting your general philosophy, wouldn't it be wise to also incorporate a 'stop loss' of say 25% regardless?