Hello Friends! A pretty DISMAL day in the market wouldn't you say? As ALWAYS, please remember to do your own investigation on all stocks on this website before taking any actiona and please consult with your investment advisor to make sure that all of your decisions are appropriate and timely for your particular needs.
It is always nice to get an email. Especially from a reader who stops by regularly. As I always warn, I will be posting your questions in the blog with just the initial of the last name.
Terry H. writes:
I would like to start off by saying "thank you"! I
visit your site often, and appreciate the step-by-step
explanations to your picking methodology.
My question pertains to 2 of your picks from the past:
ABTL (now off 25% from the date of coverage) and
SCHN (off almost 20%)
Do you see this as a discount, or were the
fundamentals really that much "askew"??
I often combine your breakdown of the financial
characteristics with my desires to identify demand of
an innovative product.
Autobytel seems to be be moving in the right direction
through its attempts to minimize the unpleasantness of
dealing with car salesmen and catering to a more
Once again, thank you for sharing your addiction to
Terry, let me try to respond to these stock questions one by one.
Autobytel (ABTL) was posted on Stock Picks on 3/17/04 at a price of $12.93. ABTL closed today at $9.40, this is down a large $(3.53) or (27.3)%. If you had purchased this stock at the original price, I would hope you would have unloaded this after the stock hit your loss limit, as you probably know, I am at 8%. However, let's look at the news and see if we can figure out anything!
By the way, I do NOT own any ABTL, but DID purchase some SCHN and stopped out after it hit (and passed) my 8% stop.
In a news story on Yahoo, on 4/23/04, it is reported how ABTL shares dropped 24% on soft ad revenue. Basically, as the story states:
Shares of Autobytel Inc. (NasdaqNM:ABTL - News), a Web-based car-buying service, plunged 24 percent on Friday, a day after the company reported quarterly earnings that were below Wall Street expectations and said advertising revenue softened in the latest quarter.
Clearly, much of the market's movements are based on expectations. Unfortunately, disappointments are punished severely, and surprises are rewarded out of proportion to the news. The market always does more than is indicated imho. I have found that these kinds of suprises are completely unpredictable for the amateur investor. All we can do is try to ride out the storm if we have profit cushions and feel that fundamentals are intact, or sell if we hit out loss limit point. This is why we cannot just find a single stock, but rather must spread out our risk with a whole portfolio of stocks of similar style. I use 25 positions...but whatever # you feel appropriate is fine!
Question #2: How about SCHN? I posted SCHN on Stock Picks on 4/2/04 at a price of $37.62. I also purchased 300 shares of SCHN the same day at a price of $37.45. Unfortunately for me, I sold these same shares six days later on 4/8/04 at a price of $34.38 for a loss of $(3.07) or (8.2)% in just under a week! I hate it when I lose money quickly like that!
However, SCHN closed today at $28.85, down from our pick of $37.45 by $(8.60) or (23)%. You can see how wise it may be to take a quick loss than to hold on for a recovery! Sometimes these stocks bounce back...but then again...
The IRONY of all of this (is there a PUN in there somewhere?), is that Schnitzer Steel TODAY, announced increased expectations for the 3rd quarter upcoming. They ALSO commented optimistically on the upcoming quarter. Then WHY is the stock down?
I am starting to realize that my stock picking method works better with companies that depend on some type of manufactured product and its continued increased penetration in the marketplace rather than the price of a commodity. I did NOT have good luck with Pogo Producing (PPP) either, even IF fundamentals were nice. And Lord knows, SCHN has good numbers.
What is driving this stock is the China connection and the associated skyrocketing price of scrap metal. This stock has dropped along with the scrap metal price (I assume) because China is now jawboning its own industry and talking down its uncontrolled growth. This influence of the market is far GREATER than the underlying business.
So in conclusion, I do NOT try to be smarter than the market. I do not think harder than the other analysts nor do I claim to be smarter. I pick stocks when the market rewards them with strong price moves AND they have great fundamentals underlying their stock price. I sell stocks when the market either hands me a loss or hands me a terrific gain.
A very wise investor once said it is never wise to fight the tape. When stocks drop on me after I have purchased them, I step aside. However, I hope to have sufficient GAINS in my investments that I can ride out any short-term corrections and avoid going in and out of equity.
I very much hope that answered your questions.
Thanks again for writing and being a loyal reader. Your words of encouragement are very much appreciated. If you have additional questions, or if other readers have questions, please email me at email@example.com