I Eat Bear

Some may say it is easy to manage a portfolio, in the good times. Well, portfolios need managed in bad times too. And, if you have watched mine lately, there have been very few changes to it in terms of which stocks I have picked and stuck with. Yes, many of the ones I have picked have taken deep dives. I suppose that has happened to a few of you also.

Hindsight is always 20-20, and had I known ahead of time, exactly how the market would react, I would have done some things differently. The fact is, I should have known. So, if I had known, where would I have put my money, say 6 months ago? Chevron (CVX), Conoco Phillips (COP),
Transaocean (RIG), and Schlumbergger (SLB). Why? Well, mostly because they are incredibly stable, especially in downturns. Then again, CVX and COP are not likely to make large upward pops either, and I think SLB and RIG will, at some point in the fairly near future (within a year?).

Well, why did you not sell some on the big dips, or as they were falling? I guess there are two reasons to answer that question. One, is is I did not know how far, or fast they would fall. You can fault me for that one if you like, as I could have sold out, and bought back in cheaper. Of coarse that assume I know when they will bottom, and I am not privy to that either, but I suspect we are close to it right now. Which stocks specifically? Steel and coal top the list with US Steel (X), Acceletor-Mital (MT), and Arch Coal (ACI). They just happen to be in industries that have taken HUGE hits in the last few months, largely for the rises they face in terms of costs for raw materials to operate the businesses. But, the second reason that I have left them there I think is important also. I simply need those businesses in my portfolio for diversification. No, I can't say when they will turn profitable again, but sure as there is sunshine on some days, I am sure they will. The fundamentals on these companies is just too good not to.

Two others I have in the cellar in terms of performance I still like very much too. Freeport-McMoran (FCX), and Joy Global (JOYG). It was not that long ago, these were top performers in my portfolio. Since none of the fundamentals of the businesses themselves have changed, why would I want to sell them, especially now, for losses. The industries are just in a short term downturn. JOYG did have an earnings miss, and that certainly cost them in stock price, but they still have years of backlog for orders. Earnings misses happen to most companies at some point, just JOYG has them a bit more frequently than many. FCX is still a takeover target, pays a decent dividend, and is a premier gold and copper miner. Copper markets may be depressed right now, but there is still a global shortage of it compared to demand.

So, in short, maybe that is some justification for keeping some stocks, even though it would have been nice to have sold out at higher points, and bought back in at lower ones. I cannot undo that. But, as long as thes companies remain stars in the fields they are in, I am compelled to stick with them, yes, even on the downturns.

In this market, any stock still showing a profit, is a STELLAR stock. A GOOD stock is one that is down by only 10-15%. I have quite a few of both, but let me quickly touch on some of those in the down arena. National Oilwell Varco (NOV), Research in Motion (RIMM), Apple (AAPL), and Weatherford (WFT). These are all industry leaders, and most have production backlogs. If anything, I am still amazed they are down. I think some short selling has forced some of them down, especailly NOV. WFT aslo had a minor earnings miss, and I mentioned the beatings you get for that before with JOYG. RIMM and APPL are just in the technology sector, which is taking a beating right now, but it will recover, and projections are, it may be one of the first to recover. So, I maintain my faith in them.

So, what strategiy am I using right now? Well, you could say it is just sit and wait, and you would not be too far wrong. But, time is doing one thing for me. I am getting dividends. Maybe not much, but some. So, today I added a small share of Helca Mining (HL), and a few more shares of Manitowic (MTW). MTW has just dropped too far, in my opinion. HL, being a little more than a dollar from its 52 week low, stands to more than double to make it's 52 week high.
No, I am not adding large positions of either, but some.

Now, the lab does cost some, so periodically, I may have to divest some to keep my cash flow positive. Should that happen, EXCEL Maritime (EXM) and Dryships (DRYS) would be the first to go. Not because I don't like them, but because I have other shippers I like far better, specifically, Genco (GNK), TBS Internaional (TBSI), and Diana Shipping (DSX). Since I have decent representation in that sector already, that would be a place for me to look to divest. Still, I will hold them as long as I can, as who knows when the market in that sector may turn up. At the very least though, EXM and DRYS are on my watch list to sell.

So, in short I recommending two things. Maintain diversification, and continue to have faith in your fundamentally sound companies, and stocks. To do that, you may have to do a litlle, or a lot. Admittedly, right now, I am doing just a little, because I like the companies and stocks I maintain.. But, I do have an eye on it. And, just maybe, there is one more lesson here to.
Dividends can come in handy. They can provide extra income even in the downturns, to allow you to increase your cash position, or to add some stocks you think might rebound quickly.

And, last on my list of things to remind you of, is I am a long term investor. Typically, when I pick a stock, I plan to hold it for at least three years. If it is not that good, I typically will not buy it in the first place. Yes, I will rarely buy for a short term pop in a stock, but I have been burnt more often than not for that, so I do not recommend doing so. They are just too hard to get the right sell points on.

And one more item, I just thought of, but it is a good strategy, especially in this market. When you buy your stocks, consider putting a stop/ loss on them. It could keep you from losing money in this volatile market. Where to set that stop/loss depends on your risk tolerance, and the volatility of the stock. Don't set it too close to purchase price though, or you may be forced out, and end up paying more for trades than you potentially may have lost.

Comments: View Comments |  Tuesday September 23, 2008