Down to Three Positions, I'm Ready for End of Bear Market

by: Robert Freedland October 27, 2008 | about stocks: CVD / GHM / IMO / NOV / ROL    

Robert Freedland

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Clearly my investment approach shows the greatest weakness on severe contractions and large degrees of volatility in the market.  While trying to step aside and then re-enter equities, I feel like I have been getting my face slammed in a revolving door over and over again.

I may have gotten smacked once more. As I discussed previously, I have adjusted my own trading system to reduce the number of trades in a very down market by increasing my loss tolerance to 16% losses on my last five positions. Even this apparently is not enough.

Early Monday I sold two of my five remaining positions.  I sold my 102 shares of Covance (CVD), which has been behaving particularly weak this past week, at $48.23/share.  These shares had been acquired 4/9/07 at a cost basis per share of $62.61. Thus, I had managed to incur a loss of $14.38/share or 23% since purchase, so out they went.

I also unloaded my recently acquired shares of Imperial Oil (IMO) at $29.31.  These shares were just acquired 10/20/08 at a cost basis per share of $35.17.  Thus, I had quickly incurred a loss of $5.86/share or 16.7% since purchase - yikes.

So I am now down to three positions:  Graham (GHM), National Oilwell Varco (NOV), and Rollins (ROL).  I will try to hang onto those unless they too incur a 16% loss, at least for the time being.

And on any new positions, I will try to limit their size to 1/2 of the average size of the remaining positions.  In this way, my commitments to the market should diminish if I tend to be 'whip-sawed' frequently into buying and then selling positions as the market gyrates.

Will this work? I frankly don't know. My brilliance is rapidly losing its shine.  My performance is moving right to the mean and I am ready for this bear market to be over, even though that may take months or years.

Disclosure: The author owns GHM, NOV, and ROL.

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This article has 9 comments:

  •  
    Oct 27 03:02 PM
    Good luck, my brother in loss.
    Reply | Link to Comment
  •  
    Oct 27 03:42 PM
    You know you don't have to do anything, if you're not smart enough to realize that you shouldn't be trading...
    Reply | Link to Comment
  •  
    Oct 27 10:46 PM
    16% loss tolerance might work fine in a bull market but not in a bear market as vicious as this. you can get stopped out before the day is over.

    my approach has been selling deep out of the money put options on well capitalized, low debt level, dividend paying players, #1 or 2 in their niche. i've often hedged certain of these positions by buying puts. the past two months i've had to repeatedly roll my positions into lower-strike puts because of this relentless grinding down of all equity prices. needless to say i've lost money but my losses have been far less than being long stock.

    the lack of a bounce is very bothersome and speaks volumes about the health of financial assets and the extreme levels of fear that exist. i was never a believer of "dow 6,000" but now i'm not so sure. we've traded at 7 times earnings before (early/mid 70s) and it could happen again. many strong players are already there, e.g. DE, ITW, DD, we also have brand name, well capitalized players at 3 or 4 x earnings, e.g. GCI, FCX.
    Reply | Link to Comment
  •  
    Oct 28 08:22 AM
    Sell puts. Not entirely naked though. Put up the money with the broker rather than purchase the shares and sell in the money puts more than 1 strike price away.

    You can lose money on this as well though.
    Reply | Link to Comment
  •  
    Oct 28 09:14 AM
    Why is the loser posting ? Every time he appears in an article, he is selling at a loss ..If I wanted losses, I would follow Cramer and Fast Money or I
    would simply call my broker..
    Duh, don't we need to see winners ?
    Reply | Link to Comment
  •  
    Oct 28 01:39 PM
    You bot CVD at a good entry point. If you have a stop loss of 16%, why don't you take profits of say a 1/3 when you have a 20% gain, another 1/3 at 40% and so on? This will make some profit for you.

    You bot IMO in a declining trend. Why try to catch a falling knife? It seems to me that you don't have a trading plan except to sell at 16% loss.

    In this market I would be sitting on cash or trading the short ETFs.

    I would wish you good luck. But you really need more than luck if you want to survive in this market.
    Reply | Link to Comment
  •  
    Oct 28 04:22 PM
    I've managed to minimize my losses quite handily by buying SIJ on margin. So as my regular stocks take a beating, SIJ offsets the losses. There will be a bottom eventually. So sometime after that, I will take my profits on SIJ and then ride my regular longs up. The nice thing about this is that even with the markets volatility, my portfolio remains relatively stable. I don't even have to worry about missing the bottom as that just means I don't make as much as I could; but I'm not losing. These days, even the good companies are being punished. So I'm keeping track of the fundamentals as usual. That determines when I should buy or sell; not the stock price.
    Reply | Link to Comment
  •  
    Oct 28 05:04 PM
    I'm not sure where you get the idea that selling at the bottom is a smart move. What informed investor sells at a loss? No one. What you should be doing is leaving those alone and buying more NOV, ETP, and other dividend opportunity stocks when they are breaten to a pulp. Look at CRDN on bad earnings selling BELOW book value.
    I just don't get the "panic investor" approach. Selling off your principle? Sorry, that's just stupid. Especially when everyone knows the market will rebound 15-20% within 6 months or less.
    Reply | Link to Comment
  •  
    Oct 30 04:58 AM
    who cares what you've been buying and selling?
    Reply | Link to Comment
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