The Ebay Ramp

Some of you may have heard of a company called Ebay!

Ebay is a fantastic company. However the greatness of Ebay is very obvious to many and the company frequently trades on P/E multiples of over 100. This means you couldn't really describe the shares as a bargain. Nevertheless the performance of the shares over the last 6 months or so has given me an idea for a (unoriginal I'm sure) investment strategy.

Short Term Profit or Long Term Hold

1. Find a great company that investors are very excited about. Ebay is the example that I will use. Google may be another. Taser is not as it is not a truly great company in the way Ebay or Google are. (Sorry about the lack of UK examples but post dot com bubble UK investors just don't get excited about their shares like our US cousins do.)

2. Follow the share price. When some bad news is issued and the share price plummets, take a deep breath and dive in. Now this is difficult. How can you know when a share price drop is over? You can't. But when you think the share is an obvious bargain then the time may be right. Yesterday Ebay was at $85. Bargain!

3. Wait for people to get excited about the company again and push the price up. When you think everyone has got a bit carried away then sell. Again it is impossible to know when a peak has been reached. But when anything but the best of news will cause the share price to fall the time may have come.

4. Repeat steps 2. and 3. for as long as possible.

5. What about if the share price plummets when you buy it? Well you chose a great company didn't you? So just wait for the price to recover. Obviously the price may never recover, but the greater the company the greater the chance. And Ebay is a truly great company.

An example of the above in action:

Last summer I bought Ebay for $88. This wasn't after a drop in the share price but I couldn't wait any longer. A few months later the shares were down %15. But Ebay is a great company so I wasn't worried. Then the market picked up towards the end of the year, Ebay had some good results and the shares were up to $115.

$115 was a pretty optimistic price so I sold and invested elsewhere. Six weeks later and the shares are at $85. Yipee! I am back in but this time, without injecting any extra cash, I have 18 shares instead of 14.

I plan to ride the Ebay ramp as often as possible!