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Friday, 4 January 2008
On Today's Decline

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.

I am really at a loss for words to explain away today's miserable action in the market.  For the record, the Dow closed today at 12,800.18, down 256.54 points, and the Nasdaq closed at 2,504.65, down 98.03, with the S&P off 35.53 at 1,411.63.

In my own trading account, I had a loss of $(2,016.31) putting my current account value at $59,136.68.  Every one of my 13 stocks declined except for Covance (CVD) which managed to post a gain of 2.18% on the day.  In other words it was an awful day in the market.

And yet what is the individual investor, especially the amateur investor to do?  Seriously.  What is the proper action to take.  Is it time to sell everything and move to cash?  Perhaps.  Is it time to ratchet up the buying as things are about to rebound?  Maybe.  Or is it wisest to stay invested and 'ride out the storm?'  It is possible that's the right action.

In other words, I don't have any magic answers for this question.  I am sure some of you arrived at this website expecting answers, after all some of you Googled me with the term "stock advice". 

So let me tell you my strategy if you don't know it already.

Except for an occasional trade that doesn't particularly stick to the rules, my planned portfolio management strategy is to stick to my own rules.  That is, I am currently at 13 positions (12 plus the 100 shares of FMC from my recent trade.)  I shall drift down further towards a minimum of 5 positions depending on the price action of my holdings---or move towards the maximum of 20 positions again dependent on the price action of my own stocks.

How does that work?

I have set up sale points (at least in my head) for every stock I own.  Both on the upside and the downside.  As my stocks appreciate, hitting targeted appreciation points at 30, 60, 90, 120, 180, 240, 300, 360, 450, 540% etc. appreciation points, I implement sales of 1/7th of my holdings.  These sales are what I call good news sales and give me a "permission slip" to add a new position.

On the other hand, after an initial purchase, I execute sales on the entire position should a position decline to an (8)% loss for me--regardless of my duration of ownership.  If I have sold 1/7th of a holding at the first sale point, which is at a 30% gain, then I sell all remaining shares at the break-even point, instead of waiting for a stock to decline to an (8)% loss.

These sales on the downside are considered 'bad news' sales and require me to 'sit on my hands' with the proceeds---essentially moving me away from equities and into cash.  

If I have sold a portion of a stock more than once at appreciation points, that is at 30, and 60% or higher points, then the entire position comes up for a sale if the stock should decline to 1/2 of its highest appreciation percentage sale point.  That is, for instance, if I have sold a stock three times: at 30, 60, and 90% appreciation points, and the same stock now declines to only a 45% appreciation level, the entire position is sold.  And the stock, regardless of the fact that it carries a profit, is still considered a 'bad news' sale.

And I once again sit on my hands unless that sale brings me under 5 positions, which would instead give me a signal to add a new position to the account.

It is this method that allows my own portfolio to respond to the long-term moves of the market.  I haven't really had a bad bear market to deal with in the past few years as I implemented this approach.  But I hear some growls that might just be a bear in the vicinity.  

Will this work?

I don't know.  I hope so.  But I don't know of anything better than more 'shooting from the hip' guessing or just trading from the gut, or arbitrary decisions that don't make much sense to me.

In general bear markets are shorter than bull markets and the overall direction of the market is up.  Those things I am pretty confident about.  But what the market will do this coming Monday or a week from Monday is anyone's guess.  

I don't know if that answered your questions.  But I shared with you what my plan is.  I planned this when times were good.  I have been around plenty long in the stock market to remember times other than good that I have lived through.  

Good luck with your investments.  If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.

Bob 


Posted by bobsadviceforstocks at 10:50 PM CST | Post Comment | Permalink

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