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Stock Picks Bob's Advice
Saturday, 29 October 2005
A Reader Writes "...I wondered if you have an ideas as to why."
Hello Friends! Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice. As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisors prior to making any decisions based on information on this website.

I was delighted to see that I had received another email today. This time from Linda B. who wrote:
Just wanted to say that I've been visiting your website for about six months in order to learn all I can before investing a small inheritance (< $20K). I have learned investing basics in an investment club but recently got out of it -- and want to do my own careful investing. I'm so afraid of losing my windfall, and am pretty much still a novice at investing, so I really do appreciate your analyses and explanations. So far, I haven't gotten my feet wet, but have to grit my teeth sooner or later and take the plunge.

I've been looking at KSWS and appreciated your recent comments on it. But then it dropped precipitously after earning were reported -- and I wondered if you have an ideas as to why.

Thanks again -- I start each morning by visiting your website with a cup of coffee and an eagerness to learn what you have to share that day.

Sincerely,
A neighbor in Minnesota,
Linda B.
Linda, thank you for your kind words. I hope that my writing gets you going in the morning and doesn't instead give you any indigestion :).

I believe that you are wise to be afraid of losing your windfall of $20k inheritance. It is wise to be cautious, to have a plan, and yet be willing to take limited risk to allow that windfall to appreciate.

You ask about KSWS that I recently wrote-up. Let's start out with an updated "Point & Figure" chart on KSWS from Stockcharts.com:


Here we can see that while the stock pulled back a bit, the stock was actually up $.04 yesterday to $29.57. Overall, the stock price picture does not appear to have truly broken down. It helps to get the big picture right. By the way, I do not own any shares or options on this stock.

Looking through the Yahoo "Headlines" on KSWS, I really couldn't see any news to tell me why the stock might be pulling back on the short-term. I really believe that the biggest effect on stocks is the "M" of CANSLIM that William O'Neil likes to talk about....he is the publisher of the Investor's Business Daily and he is quite brilliant, although a bit more politically conservative than I am :).

The "M" is the MARKET. That is, the trading environment has been awful recently. That is why my portfolio has shrunk from 25 to my current 19 position level. Not because I was "thinking" and decided to move into cash, but because the stocks I own are hitting sale points. And none are signalling me to do any buying.

Thus, even with a great stock, you are bound to lose money if you try to fight the overall market.

What to do? Well, if you were investing your $20k, let's assume that you wanted to invest in 12 stocks with about a $1600 investment per stock. In that case, I would start at "neutral", that is invest half of your cash in 6 stocks leaving the rest in cash. Only add a position above 6 if you get a sale at a gain. And allow your 6 to go down to 3 positions if things are sold at losses.

Just an idea. But you are right to be cautious. I am just not good at timing the market, knowing when to move in or out. I just want to let my portfolio make the decisions for me!

Thanks again for writing. I am a big fan of Minnesota living just across the river, but I confess I was rooting for the Packers even if I didn't watch the game :). Maybe next year?

Regards from Wisconsin.

Bob


Posted by bobsadviceforstocks at 4:29 PM CDT | Post Comment | Permalink

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