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 did what all investors did today. I watched in rather a state of disbelief as many of my gains were diminished by the relentless selling on Wall Street. Thus, with this perspective, I would like to share with you a letter from a loyal reader, William S. who writes for my views on the market melt-down:
I'd just like to get your opinion on this market that is falling today. Even though fortunately none of my holdings are going into losses from my buy points, I am still watching plenty of nice gains vanish in a day that have been working for weeks or months, which is very frustrating. Does a day like this cause you to do any extra selling to lock in more gains than you might not otherwise, or do you just take it and keep a longer term view assuming you believe in your stocks and the companies behind them (which of course can be two different things).
Hope all is well...
Thanks so much for writing Bill. I believe, as I responded, that you were writing to me just as I was writing my previous entry. Let me try to more directly respond to your inquiry.
I too watched many nice gains either vanish or diminish as the selling developed. Do I respond with any 'extra selling'. I didn't. Maybe I should have, but that isn't my strategy.
You are absolutely right about the stocks and companies being two different things. In the long run, the best companies shall have the best stocks to own. That is my ultimate belief.
So what do I do when things are melting down? I watch my portfolio, and if any of my stocks hit sale points, I sell. Thus far, nothing needed a sale. I have several now that are in small loss positions, and I wouldn't be surprised if my VCA Antech (WOOF) which is showing a bit more than a (5)% loss hits that (8)% loss limit tomorrow if the selling persists. If so, I shall unload shares.
Is this the best way to deal with a precipitous correction? Probably not. But I don't know that I can do any better. I don't know when a correction is done or just beginning. I don't know what the market will do next week or next month.
When I do have gains, you know that I am quick to take some of the profit off the table. It is my concern about events like today that drives me to keep hedging my bet you could say. And when stocks start losing money, then I am quick to sell them completely. I am trying very hard to avoid losses.
But I believe that the companies that I own are the right companies to be shareholders in. That doesn't mean I shall blindly hold on to them. No, I shall continue to stick to my trading rules. If I need to liquidate half of my stocks tomorrow morning, then that is what I shall do. But I personally use my own trading rules to guide my own actions. It is less stressful (?) to have a plan of action than to fret about when to pull a plug or to (?) start nibbling on dividend stocks as I heard Jim Cramer talk about tonight.
I will not be buying on weakness. The old problem of 'catching a falling knife' holds true. But I do not plan on panic either. Maybe it is wiser to panic (?), but it is better imho to face a chaotic market with reason than with rash decisions. Is this the best approach? Will my own approach even remain profitable in the face of a ferocious correction?
I guess that is what this blog is all about. It is not that I have all the answers. Or even the best approach. I am just trying to find an approach that will work for me. I have tried to anticipate market actions and to plan on my response each time. Thus far it is working. Let's see how it works tomorrow.
Good-luck my friend! Figure out your own 'rules' and apply them. You will not win every time against the market. But each time you face a difficult market environment, you shall be wiser if you are able to assess why what you did worked or why it was unsuccessful. I shall keep you posted.
Updated: Tuesday, 27 February 2007 10:17 PM CST