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I had some disappointments last week, the worst of these was MBI, off approximately 10%, similar to the rest of the Financial Guaranty and Mortgage Inurance stocks. As noted previously, I think MBI has done a good job underwritng their subpirme business and I don't think they will be seriously impacted as this debacle plays out. Hopefully this will become evident over the next six months and the stock will recover, reflecting additional demand for their products and improved pricing power. I will hold the position.
I spent some time thinking about Friday's selloff and speculating about whether it will continue next week, whether it is the beginning of a serious correction, how long that would last, and so on. I gave it up. Because I am focused on the individual stock, and invested in stocks that I believe represent quality at a discount, market swings are not a big part of my strategy. From a tactical point of view, it is embarassing to make a large move and catch a downdraft in the market or a new piece of negative information on the stock involved. To limit this, I usually enter my positions on a 40/30/30 plan: 40% of my planned total to start, and two additional increments of 30% as I monitor the news/earnings and market action of the stock.
Last week I added to my position in JNJ after reviewing their cost cuts. I added to MBI because it had gone down; and, with a decent earnings report in hand, I felt that market fear created a buying opportunity. It is likely that the market will be volatile next week, and I will look for opportunites to add to my existing positions at an advantage.
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