On Chasing Higher Prices

For the past week or so I've been wanting to add to a 'starter' position in Johnson & Johnson (JNJ). My valuation work has me liking it below $60, and last week I had limit orders in at about $59.50.

As the chart indicates, price never came in for a fill, and today the stock gapped higher on big volume on positive earnings news. Technically, previous resistance at $61.50ish has now become support. Seemingly the stock is now significantly out of range.

It can be hard to keep emotions in check in such situations. "I knew that price was heading higher!" "Why didn't I raise my limit price a dime or so last week?" "You're letting the stock get away from you--better grab some up here at these higher levels in case it's never going to come back down now." "Way to go doofus...another example of being penny wise and pound foolish."

After that bout of second guessing, I remind myself that I am building this JNJ position on an investment thesis rather than on a trading thesis. And investment performance depends on finding attractive gaps between intrinsic value and market price. My work has identified a price that provides a comfortable margin for error.

If I give up on that analysis, and blindly chase the stock higher, then my margin for error goes down and my risk goes up.

So I'll sit on my hands, revaluate the story in the context of the ongoing information flow, and keep an eye out for a price point that I deem more favorable to long term investment returns.

position in JNJ