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Tuesday, October 25, 2005

Casino bluf

That said, it is not enough to go out and buy Home Depot (NYSE: HD) or Best Buy (NYSE: BBY) simply because you like the stores and both companies are top players. Get an idea of what the stocks are worth -- compare P/E ratios, cash flows, dividend payouts, or whatever else you think is relevant.

Or if you're interested in a growth business that is difficult to value -- such as satellite radio plays XM Satellite Radio (Nasdaq: XMSR) and Sirius Satellite Radio (Nasdaq: SIRI), or Motley Fool Rule Breakers selection Overstock.com (Nasdaq: OSTK) -- at least have a gauge on where you expect the company to be four or five years down the line. If your expected return from the current stock price doesn't justify the risk, then at least you know not to buy.

MCU Tip No. 11: Poker's stupidest question: "Why didn't you quit when you were $17,000 ahead?"
The lesson: Always look ahead. If the business quality and valuation favor a hold, then the correct decision is to hold on to the stock.

Top poker pro Phil Ivey -- often referred to as the "Tiger Woods of Poker" -- once said in a TV interview that so long as you're playing well and the game is good, it is to your advantage to keep playing until the game breaks up or you get tired.

This makes perfect sense. If a stock you buy doubles or triples but the long-term prospects for the business and the stock's valuation are still favorable, then why sell? And when the stock falls 20% in the short term for no good reason, don't panic and kick yourself for not selling -- this is the time when long-term investors salivate and get greedy.