Though I try not to look back at trades that I made, I couldn't help but look at these two:
The circled amount is where I sold. I referred to this investment as a stupid stock trick. Yeah, I did my research, and I liked the story. Earnings did not come up to snuff (another good reason not to buy before earnings which I rarely do unless I feel like I have a really solid hunch), and the stock was sold unmercifully down on a downgrade. But I held on. The stock then was upgraded by another and hence the positive move. (Also a heavily shorted stock!)Here's another. ASIA. Sold unmercifully down. I noted where I sold--I sold with impunity here.
As you can see, I have a real knack for picking the bottoms. ASIA also had heavy short interest.
The lesson. Remember, you have to respect your style, and you shouldn't MIX your styles half-way through. For my style, I should have had a reasonable stop loss (for these stocks, 8-10%) so that I wouldn't get to the disgust level (as you see here) and hit the eject button. Both of the above stocks were in my E-Trade cum Ameritrade account (my license to speculate account). It is a hair less than $20K after briefly grazing just above $23K.
Now I could have bought and held on with a much better result. However, what am I doing with that statement? I'm critiquing past actions with full information in the present. The information that I have today is not the information that I had at the time. Accordingly, I can only judge my decision based on the information that I had at that time I was making my decision. GaryK would refer to that as his "strict disciplines".
On these two items, I did not have strict discipline. I mixed styles with less than desired results. I should have either limited my original loss with a predetermined stop loss, OR I should have bought and hold. What I ended up being was a white-knuckled buy and holder that then capitulated. I think that it is like black jack. You have to be consistent about taking a hit on 16. If you sometimes take it and sometimes down, you skew the probabilities to your detriment.
Thankfully, I had the good fortune to have a little better discipline on this stock, SEED:
Rather than selling at the nadir, I sold at the apogee! That's not to say that this stock will not return to such heights. But the rise was nothing less than meteoric, and there were no fundamental reasons for such a huge move so I sold. On the contrary, I could have said that there were no fundamental reasons THAT I KNEW OF AT THE TIME, other than investor disgust, for MGPI or ASIA to be sold down. The trouble is, you and I will never know all of the fundamentals, for we will never have access to all of the information. Therefore, for my style, the stock price action speaks for itself. As Bill Cara is fond of saying, "we trade prices".It is not lost on me that the meteoric rise in SEED was pure, dumb luck. You'll remember, I was moaning about selling too soon. I sold two tranches at $10 only to see it go up to $15 by the end of the day. My last tranche was sold at ~$14. That $10 that I was lamenting, looks pretty good compared to the current share price! It does look like it is carving out a bottom, though.
Yesterday I sold my UYG (double long financial). It was a very small position. I'm certain that I'll wish that I still had it in hand. But Bernanke could have delivered a lump of coal yesterday! I do have some Tyson (TSN) $12.5 Jan calls and some Wellcare (WCG) Jan $40 calls. Here's TSN. With grain and energy prices so high, the costs of these protein producers have increased.
Here's WCG. You'll remember that WCG had its headquarters raided by Federal officials. I bought some of this at $24 and flipped it at $40. I re-entered at $34 or so and flipped it again for a modest profit. I decided that I didn't want the common stock exposure, but I wanted exposure to the stock. Therefore, I bought these calls three days ago when the stock was at $36. There was news of renewed contracts, so the stock jumped again. (I'm having good karma on this one!). 
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Today I will be driving to Charlottesville to visit The Barboursville Winery, most specifically Palladio, their wonderful restaurant. I'm going up there with two of my very good friends--former KPMG colleagues. I've known them for more than 20 years. We always have a good time together--laughing until it hurts at times!. I'm sure today will be no different.
So I'll miss most of today's market activity which is not a bad thing. Mark is in the bed with a mild case of the flu. Hopefully, I'll escape that malaise.
I hope that you have a good day.
6 comments:
Thank you for sharing your less than successful trades. Trading can be a solitary profession and sometimes when I (occasionally) take a disciplined and well intentioned loss only to see the stock rebound, I question my action. I have become very adept at getting lucky (SEED), but then giving it all back when I expect lightening to strike again (bought back in at 7). My last step will be when I sell covered 7.5 call options (to reduce my cost basis) right before it takes off to $14 again! Do you decide before you buy when you will sell a stock at a loss or do you let the market conditions dictate your decision? I have a few long-term holds with substantial losses. These companies have low monthly RSI numbers and I have room to purchase more stock. Do I sell and take the loss buy back at lower levels or hang on to reduce the cost basis by “doubling down”. Not looking for advice, just wondering how you manage your long-term holdings.
Enjoy your blog and recipes!
Miggs
Hi Miggs: First, I'm not a professional trader--so keep that in mind. I actually had a loss as high as 20% on SEED, and did a rare thing for me, I bought more only because I believed in the "story". However, most advice is not to double down on losses. And I think that is good advice.
In general, I think that it is a good discipline to be clear on where you are going to get out on a stock on the downside. A 30% loss means that you have to double your performance. That's hard to do. 20% is about my max--and that is all the room I gave SEED. Also, these very thinly traded stocks are tough. SEED is thinly traded--which has its own dimension of risk. I'm not sure if there are any short term catalysts to propel it upward. Note, too, that they just appointed a new CFO--that is always a worry with me. On the upside, the consistent advice is "always sell 1/2 on a double".
The sudden rush of money in was not a SEED story, but a China market machination story---many China stocks were taken up precipitously over a two day period. It was parabolic (and in addition to the parabolic move that many China stocks had already made.) What did SEED trade? More than 20 million shares. Unbelievable. Unsustainable. So the stock performance was not so much because of the SEED story, but rather because of the market machinations at the time. There was no doubt that there was money moving around these stocks.
I also noted that Fidelity's short shares were 0--from being more than 10K. That means, to me, that folks are selling it short in droves. That was a warning flag which is why I sold all of my shares. Plus, I had a large position--it was a concentrated position among my longs. Most would tell you that concentrations are not good either. So I had a large gain and took it due to my concentration.
It's worth noting that having substantial losses in more than one stock can affect one's psyche. Rev Shark on Real Money made the observation that sometimes you just have to clear the decks and start over. You have to know your own risk tolerance and your own conviction. Know your style. I don't know what your stock thesis is or what your style is, but I would ask you this, "What would have to happen for you to consider that your thesis was wrong?" Also, you should ask, "What are the upside (downside) potential catalysts?" Additionally, look for technical support in terms of where you are holding. If you are already at solid support, additional downside risk could be limited. Nevertheless, stocks can languish at these levels for long periods of time. In determining whether to commit new capital to an already losing position, rather than think about reducing your cost basis, you might want to ask (1) Do I want to increase my portfolio concentration in this stock? and (2) Is there a better deployment of my capital?
I suppose in a rising market lifts all boats. I'm not sure what kind of market we are in!
Profession was the wrong word for me to use, I am not a full-time trader. It just seems like I spend too much time with the market to call it a hobby.
Thank you for your insight! I need to define what will get me out of a position besides a profit!
Miggs
As galling as Kudlow may be to some, he is one of the few that makes statements about our economy based on factual evaluation of data. He has been generally correct for the entire investment cycle beginning in 2001 and I have done quite well with an investing philosophy consistent with his economic projections.
For example, he has from time to time presented data on why this "housing crisis" is not going to have a large overall effect on the markets, unlike most who are content to jump on the financial armageddon bandwagon because its the popular thing to do. Doing my own research of publicly available data from various agency (primarily HUD) and regional fed sites, I am able to corroborate much of his conclusions.
Supplement this with the fact that he has an insider track with some of the more important authorities, and this puts him in a position to make insightful commentary.
Regarding Kudlow: I'm glad that Kudlow resonates with you. However, I find that he has a monoline opinion and he never had a clue about the potential impact of CDO's. As the proverb goes, "Beware the man with one book", I'd add, "Beware the person of one opinion."
We have different political parties, religions and sports teams because we all are attracted to different points of view. Thanks very much for expressing yours.
Leisa,
A while back you mentioned day trading RIMM based on Pivot points. What tool(s) did you used for charts?
How do you rate the method?
JogyP
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