Getting The Fill (aka buying on the way down)

One week ago, last friday morning, I wrote that I was waiting for the fill on three "good to fill" orders I had placed weeks before. They were:

$AMZN at $40
$GOOG at $320
$AAPL at $90

I got my fill on $GOOG earlier this week and mid-day yesterday I got filled on the $AAPL and $AMZN. I am pleased that I was able to buy stock in these three great companies at these prices.

Of course, when you buy on the way down, you have to be cool with watching the value of your stock go down. At the hedge fund annual meeting earlier this week I saw a hedge fund manager talk about buying bank debt at 80 cents on the dollar and then watch it go to 60 cents on the dollar. He has kept buying it as he thinks 80 cents is a bargain and 60 cents is a fire sale price. But when you play this game, you have to be able to take the 25% paper loss on that 80 cents trade.

I like to focus on my average cost on a given stock. And buying on the way down lowers your average cost. I have taken my average cost in $GOOG from over $400 to around $350 and if the good till filled orders I placed this morning get filled, I’ll take it to below $320.

I am using the exact same strategy with $AAPL and $AMZN. I like the fundamentals of these three companies, I am certain they’ll make it to the other size of this mess with those fundamentals intact, and when the market gives me the opportunity to buy the best businesses I understand well at 8-12x current cash flow, I think you have to take it.

As the prices go lower, I am increasing the size of my buys. I am not betting the farm on any of these investments, but if the market wants to give me $GOOG at 5x cash flow, I am going to put even more money behind that trade. That would be $160/sh by the way, and I don’t think its going anywhere near there.

What’s interesting to me is the analysts have now gotten bearish on $GOOG as Henry Blodget reported yesterday. That may be the final shoe to drop. Cynics always say that the analysts are the "last to know".

I believe that online advertising will be flat YOY in 2009 and that search will gain share and gain between 5% and 15% YOY. I think Google’s revenues will grow next year and I also think they’ll finally work on their cost structure.

So unlike the analysts, I am bullish on Google and getting more so as the price goes lower. Same with $AMZN and $AAPL. So I’m happy to finally get the fill and just placed some more orders at lower prices. Buying on the way down isn’t fun but you have to think like a buyer not a seller.

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