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Tuesday, 28 August 2007
How I am Dealing with the Market Correction

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 advisers prior to making any investment decisions based on information on this website.

It was another lousy day in the market.  The Dow closed at 13,041.85, down (280.28) and the Nasdaq did just as poorly, closing at 2,500.64 down (60.61) points on the day.  My own portfolio wasn't spared, EVERY SINGLE POSITION closed lower, for a loss of $(2,355.29) on the day in my trading account.

So WHAT is a trader supposed to do?

And how am I dealing with this rout?

Part of this blog is to see whether the trading strategy that I have been using will be successful over the long haul.  And that includes bear as well as bull markets!  So NO, I have not changed my strategy.

My approach to the markets is to let my own portfolio tell me what to do.  That is I manage each of my holdings independently and the combined effect of all of these decisions is my way of responding to the market.

I am already down from 20 to 15 positions. Currently, only my VCA Antech (WOOF) is flirting with a sale, down to a $(541.41) loss or (6.28)%.  If the stock makes it to an (8)% loss, the entire position shall be sold.

I am monitoring my other positions as well.  I know where I need to sell each and every one of my holdings.  As you may recall, after an initial purchase, I allow a stock to move to an (8)% loss before selling.  I also sell stocks as they appreciate at different intervals.  After a single partial sale at a 30% gain level, I move my 'stop' up to a break-even level before selling all remaining shares.  After two or more partial sales at 60% or higher, I move my stop up further to 1/2 of the highest appreciation level sale.  For instance, if I have sold a portion of a holding, with the last sale at a 90% gain, then I would move my sale point up to a 45% appreciation level before unloading all shares.

A couple of points in addition.  If I sell a stock on 'bad news' I 'sit on my hands' with the proceeds.  That is, I either apply it to my unfortunately significant margin level, or if that is paid down, I simply save it as cash.  I continue to pull back my investment exposure until I am at a 25% invested posture.  With 20 stocks being my maximum, the minimum portfolio size is planned to be 5 positions.  At 5 positions, if any of these stocks are sold, then for the time being, I shall be replacing those positions with new stock investments that meet my criteria.

So when stocks decline, I do not look to find 'value' in the depressed issues.  Perhaps I should, but that is not my strategy.  I do not depend on diversification into bonds and other forms of investments to protect my stocks.  Instead I manage my holdings aggressively and in a very disciplined fashion.  I do not try to anticipate the market.  I don't know where it shall be a week from now.  I do not try to outsmart the market.  I simply try to listen to what the market is telling me and to respond to the price actions of my stocks in my own portfolio.  

I hope this will be successful for me.

I wanted all of you to know that I too am feeling the pain of the stocks dropping in price.  I shall keep you all posted as I write about and struggle with managing stocks in good times and bad.

Bob 

 

 


Posted by bobsadviceforstocks at 5:45 PM CDT | Post Comment | View Comments (2) | Permalink

Tuesday, 28 August 2007 - 7:10 PM CDT

Name: "Lisa G"

Hey Bob - I am a regular fan of your blog and have instituted some of your ideas in my own trading account.  I especially like the disciplined sales strategy. 

For stocks that fall back to a 50% appreciation point after having had a sale - is that considered a sale that would allow you to purchase another stock for the portfolio? or does that sale require you to "sit on your hands" as you say and wait.

 Thanks for all your insight, consistency and commentary!

Tuesday, 28 August 2007 - 9:19 PM CDT

Name: bobsadviceforstocks
Home Page: http://bobsadviceforstocks.tripod.com

Lisa,

Thank you for your kind words.  They are the kind of comments that truly keep me going and writing on this blog!

From my perspective, sales on "bad news" are reasons to "sit on my hands" and not reinvest the proceeds.  These are all of the declines and any sales on fundamental news stories that are less than positive in nature.  In other words, a decline to 50% of the highest sale point is a "bad news" sale.  The only "good news" sales are sales that are either at appreciation targets, sales due to a take-over, or sales that occur when at a minimum number of positions.  These sales would all entitle me to add a new position.

Within the "bad news" sales that would prevent me from adding a new position, would also be the sales at appreciation targets when at my maximum number of holdings.  While not truly bad news, just like the sale at a minimum which is not truly good news, at these extremes I am not "entitled" to do what I normally do.  I think you probably follow me.

You will have to keep me posted and let me know how your adaptation of some of the things I am doing is working out.  If you have any ideas for "improvements" don't hesitate to let me know!

Bob 

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