A few days ago I disclosed buying one of the publicly traded exchanges. In about 20 minutes (exaggeration) it dropped 20% (not an exaggeration) but now the position is up a little.
In the few days since I bought the stock the story has not changed. As the story has not changed it is still, in my opinion, the right stock. Relative to a couple of days the timing was very bad. So to the title of this post, right stock wrong time. Obviously time may prove me wrong about right stock but after a week I am neither right nor wrong hence my belief it is the right stock.
If you pick stocks this sort of thing will happen occasionally (hopefully not more often than occasionally). Some folks believe in setting stop orders 8% below anything they buy. We can't arbitrarily say that is wrong but using this trade as an example I would have been stopped out the next day (the timing really was unlucky) but in very little time the position is now up, slightly.
I think the point here has to be not panicking out of a stock if it goes down with no meaningful news. The stock, as best as I can tell, dropped on an opinion that clearing derivatives would be a risky business. If you buy a stock for a long term catalyst it cannot be the wrong stock within a week unless they pack it in on that catalyst right away.
Another aspect of this is the extent to which a stock is a proxy. Let's say you buy a stock or fund that is meant to zig when the stock market zags. This means that if stocks are doing well it is likely that the zigger will be doing poorly, maybe very poorly. In that scenario of doing badly it is doing what it is supposed to (going the other way from the stock market) so I don't think that would necessarily be a sell.
I bring that point up because in the past people have left comment asking about selling something meant to be a zigger that was down when the market was up. It would be ideal for a diversifier, in this sense, to be going the other way from stocks.
Obviously the context of this post is managing a diversified portfolio. Not everyone has or wants a diversified portfolio.
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14 comments:
These days, buying individual stocks is like playing Russian Roulette. Seems like you would be better off exploring sector plays with ETFs. Guess we need guys like you to provide the market with liquidity. Ha!
I especially like the hedge funds' forced selling to meet customer's redemption demands. Nothing like buying high and selling low.
Some interesting tables lately at Bespoke about the stocks that ouperformed during the oil guys' administrations--energy and materials. An Obama portfolio seems a little less self-evident to me, though I'm starting to see ideas along those lines on some sites. Do you have any sense that the new administration offers ziggers or zaggers here Roger?
Thanks much.
Been there, done that, got the T-shirt.
Bought a junior gold a few weeks ago: successful explorer and producer with proven reserves and revenue stream to match (net cash flow from one mine in a politically okay country with another coming online) and the whole kit and caboodle selling for barely 2x book and at a significant discount to net assets so, even if gold price falls some more, it looks like the time is right, gold stock prices generally have already been pretty well sold off, so ...I buy just in time for gold stocks to really get smashed taking the junior with them.
So what's a fellow to do? I guess buy some more ...so I did. Stock price looking much better now but it's a crazy world out there for sure, y'alls better look out now.
Why is anyone purchasing stocks
heading into a serious recession?
what do you think the market was pricing in as it was dropping 45%?
I agree Roger...but why buy so early if this recession will
last 12-18 months or more?
I liked your advice way back,
there will be plenty of time
to buy in or something like that.
Don't you see more serious down
a lot days?....like maybe Friday...
jobs report example.
i have blogged about this quite a few times. we know the market is down a lot now. we do not know what it will do later. buying a little stock below SPX 900 is not the worst thing someone can do. further the risk of down a lot after going down a lot is much less. my cash level is still very high, I could add several more names and still have more than 20-25% in cash. buying when prices are low is difficult because there is fear that that go lower. the way i view it, gotta step up some at these levels if you raised cash early as I did.
this is interesting
http://finance.yahoo.com/expert/article/futureinvest/118916
I generally do not use stop losses. I know that goes counter to conventional wisdom. On thinly traded stocks (and I often buy stocks that trade less than 100K shares per day), your stop loss at times to the market maker is like playing chicken. I've had more than one instance where my stop loss (and not an obvious one) was hit exactly, and then went back up again. I'm not on any medication for paranoia, nor should I be!
EBS--everyone's hot stock today, was my most recent example. I digressed from my discipline of NOT placing a stop loss and put one on it. (THis was before IBD found this stock--back in May or so). Darn if my stop was not hit to the penny and did a U-turn. I do not find that coincidental.
I think that if you have a process (such as what you outline Roger on the stock that you bought which subsequently dropped), and are consistent in its application, then these sorts of things are normal course of business. Being wrong is part of the risk.
Clearly your position size and diversification allowed you to accept such a loss as 'okay' given your overall thesis.
Made several orders at the same time awhile back and forgot to set a limit on the thinly traded issue so it went as a market order like the others (don't mind market orders for high volume, big cap stocks but always use them otherwise); it sure was amazing how quickly the spread grew -- cost me 20% more a share than I intended to pay -- getting an education continues to be expensive even when , or perhaps particularly when, you think you've already learned the lesson (sigh).
Roger,
I realize between Green Faucet, your blog and others that you have written a few times about absolute return products. I would appreciate your thoughts on Mish's firm (Sitka Pacific) and their Hedged Growth Strategy. It is doing very well YTD as well as every year since inception in 2005.
Thanks- BTW their fee is 1.75% and everything is transparent in your brokerage account.
http://www.sitkapacific.com/about.html
Not a whole lot to say as there was not a whole lot of info. The result has been excellent, I did not find any mention of what determines favorable conditions or unfavorable. It seems like they use individual stocks but the minimum account size is only $50k. that level could be problematic in terms of commissions paid to your brokerage firm, even twice that level could be problematic. I'm not saying it is, i don't know and they don't say (at least I could not find it).
Hi Roger,
Sorry to bother you however was curious to know if you knew anything about a local RIA whom I am considering in Florida. I noticed that you have spoken at a few conferences with Ian Naismith (partner Anthony Welch) of Sarasota Capital Strategies and was hoping to get your third party view of their tactical ETF strategy?
Thanks much!
i have seen the name on the programs at these things but don't actually know them
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