PayPal Holdings Inc PYPL has taken a real beating over the last 12 months, with the price dropping 80% between the high of July 2021 and the low of June 2022.
So the question remains, how significant is this 51% rise in Paypal's stock price and is this a stock to consider for the portfolio?
It depends on which school of thought you fall into.
If you are a fan of Warren Buffett and his undervalued approach and, based on your objective analysis, believe that PYPL has bottomed, then it may be one to consider. You possibly are already invested based on this 50% rally.
However, the downside is that PYPL can continue to drop or remain at these low levels for months, even years for no return on your risk. It may also take PYPL an age to move back up towards and supersede its current all-time high.
Warren Buffett has deep pockets to hold positions in negative for long periods. Everyday investors who want optimal returns in their portfolio over the next 3 to 5 years and beyond do not have that luxury and want to be smarter with their approach.
Regular readers know I got against the under-valued approach and instead fall into the trend-following school of thought made famous by Richard Dennis and The Turtle Traders.
Look at a performance table of the best investors and traders, and you will find Warren Buffett mid-table at best, whilst at the top, you will always find trend followers.
Below, I have the daily timeframe.
To even entertain the idea of adding PYPL into my portfolio, I first want to see the price move above the daily 200 simple moving average (d200sma). This will confirm a bias from bearish to bullish and suggest the start of a trend. This is not enough for me to buy. I will then apply patience and wait for the price to also move above the weekly 200 simple moving, which currently sits at $160.
Once the daily and the weekly timeframes are aligned, I will consider a position.
However, there is every chance I may never buy into PYPL until it starts printing new all-time highs, and that is simply because I do not buy into brand names.
Instead, I buy into stocks with solid performance history and that are setting up to repeat the performance going forward, particularly stocks already printing new all-time highs.
McKesson Corporation MCK, a stock I wrote about last week, is an example. It has moved 50% since the start of the year, printing new all-time highs and 10% this month.
It is stocks like this that will grow your portfolio significantly over a much shorter time period rather than holding onto brand names that will struggle going forward.
Switch your thinking from wanting to be right to wanting to make a profit, and you will see a complete change in your performance over many years.
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