I Eat Bear

We have all had a stock that takes a dip. Most of us had ridden a stock down way too far. I wish I could give you a golden rule about when to sell, but, truthfully I can't. I am not sure anybody can. As mentioned before, charts can help with that decision, but ultimately, it should be your faith in the fundamentals of a company as to whether you keep or sell it.

And, not every decision you make will be a good one. Don't let that get you down either. Practice makes perfect, everywhere except the stock market. Sometimes, things there just don't make sense. Stock may exceed earnings estimates, and the stock price may fall. And, I have seen earnings misses, and the stock price go up. Mostly though, and earnings miss means a big drop. I find myself guilty of that today, with (STP) Sun Tech Power. I should have known better. A day late, and some information short, and I am guilty. On the day I was so busy looking at charts, I neglected to look at recent news. While the chart looked good, and still does, they predicted an earnings miss, and today they got it. The result was a 15% drop in stock price today. Yes, I had added another 100 shares to it just the day before, so my losses now, are bigger than before. OOPS.

If a stock is good enough to buy in the first place, it may be good enough to hold for a longer term. OK, solar is risky, and often over-priced right now. The P/E ratios are sky high on most of them, and that is particularly risky in the bearish market of late. Not something a person who goes by "I Eat Bear" should be doing? Possibly, that would be correct. Then again, a good uptick in the sector could make me right where I want to be.

Now, the market has a fairly long memory, so it may takes a few months before STP looks like it may recover on stock price, but I think it will recover. And selling now, would likely be a big mistake. I do not want to lock in losses.

And, to tell on myself some, I was trying to sell half of my position in (GME) Gamestop. But I pressed the "buy" button, instead of the "sell" one. Ok, I laughed, and then sold to the correct level. Sure it cost me some, and the stock just is not showing me signs of quick recovery, despite a decent chart. Yes, I kept some of it anyway, but, it still is not my favorite sector.

Then again, I will mention two of my still favorites. Both BHP and DO were down pretty good after I first bought them. But, they are both either back into positive territory, or very near to it.
My point on this, is making money on a downturned stock, is still making money, in the long run. There will always be stocks that are down for some short periods. You did not plan on the downturn when you bought it, but it did drop anyway. Hopefully, that will be the case with only a few of your purchases. In a diversified portfolio, some stock go up, and some down, on most any given day. Maybe they dropped due to the whole market dropping, or maybe just that sector that day, or as did DO and STP, they had an earnings miss. But, if the fundamentals on a company are good, hold that stock. While you may have lost money on the way down, you could easily make money on it, as it recovers. To turn it back into a profitable stock may just take longer than you expected.

Maybe I should practice what I preach sometimes too. One of my golden rules, is never ride a stock down more than 20%. Usually, down 10% starts getting me to look at the company fundamentals a little harder, and often that will lead to reducing some positions in that stock.
But, to be very honest, I have been wrong on some there before too, and kept them beyond that 20% drop level. I know I am not alone in that boat either. All I can say there, is shame on me.

But, you need to have FAITH, in the companies you are picking. You picked them for a reason. Don't let short term market adjustments cloud those decisions.

I am pretty sure I was right to make BHP, DO, and yes, even STP part of my portfolio. Maybe my timing was bad pertaining to when I got into them. But, as I withstand some of the short term pains, I do expect long term growth from these, and my fingers are not on the "sell" button for any of these,,,,,,, TODAY. They are not my children. I will part with them, when the time is right. Will it be during this game period? My guess right now, would be NO.

And to add a little humor here, well, am I always right? Heck NO! Then again, my portfolio is making money. Maybe not fast enough to win the game round, but I have not lost FAITH either.
My picks still have a chance because I made good risk vs reward decisions, and have enough diversification to withstand some short term losses, especially in a single stock.

Now, pardon me, while I go kick myself a time or two, for some of my blunders.

Comments: View Comments |  Wednesday February 20, 2008