Chart Update, page-18426

No hOOts, if you are a trader, as a general rule, you should only have stocks that are trading above their 200 day moving average. (the long term trend is my friend).

If you are a fundamental investor, you should only be 'buying stocks' where their fundamental valuation is less than the share price. The fundamental investor has done an analysis of the underlying stock valuation relative to its share price, and based on their fundamental analysis believes the stock to be either over or under valued relative to their fundamental valuation.

Of course if the share price is above the fundamental valuation, the fundamental investor could just leave the position, acknowledging that whilst the share price is above fundamental values, the 'market' is happy to pay stupidly higher prices. So the fundamental investor would not add to the position, but might be happy to let the market 'carry' the price.

If the share price is less than the fundamental investors valuation over time, then either two things:
a) If the fundamental investor is correct in his analysis the share price will gravitate to the fundamental value (in the long term the share market is a weighing machine).
b) the fundamental investors analysis was wrong, his analysis of the underlying company was wrong, and because his analysis was wrong, the market correctectly priced the declining share.

So the key for the fundamental investor:
If you are fighting the tape, be sure your fundamental analysis is correct. The bigger your position, the bigger you had better be sure you are correct in your analysis.

For myself, as a fundamental investor, sometimes I am correct in my analysis, sometimes I am wrong (and the market correct in pushing down the share price). So to hedge risk I use a scatter gun approach, diversified portfolio, and limits on any portfolio size, and the larger my position, the more I need to be sure my fundamental analysis is correct.