Here's how it's supposed to work

Here’s how it’s supposed to work…if you are lucky. I’ve mentioned on several occasions selling stable stocks, that don’t go down in irrational downdrafts, to use for cash to buy the stocks that are down, a lot, for no good reason. Well I sold all out of my JCOM mostly the beginning of last week to buy other stocks in my portfolio.

JCOM had been between $48 and $53 for months and months. I sold out of it at $49.50 on average and it closed last Monday at $49.25. Since last Monday’s close my entire portfolio is up 11.9% (roughly 12% if you want to round it off). JCOM has moved from $49.25 to $49.70… up just 1%. Clearly that was a good sale and allocation of cash.

On the other hand, I sold AMBA at an average price of $41 a week or so before. Before, actually, it started crashing. It finished today at $41.45 so I don’t have any regret about the sale, but it did close as low as $35.25 Monday a week ago, so it would have been nice if I had bought it back there, but I didn’t. However, the stocks in my portfolio (all of which you know about) which I did buy, have done very well, as you can tell from the total progress of my portfolio.

Again, I haven’t a clue what the market will do tomorrow, and a little retrenchment wouldn’t surprise me a bit. But this seems much more like a correction that is finishing, than like a bear market. Just my opinion.

Saul

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Hi Saul and other netizens of this board,

So this time around, I did apply Saul’s method of getting out of some positions and adding/starting others:

  1. I sold CBOE, which had not done much lately but went up when the market volatility went up.
  2. I also finally got out of PNRA. PNRA had ticked up a bit and having studied it a fair bit I realised that while the PE is decent its nowhere near a SBUX or CMG with respect to growth opportunities. The slow growth was showing nicely in the comps, so I took the opportunity to get out of it.
  3. I also sold out my KO calls. Why? Because KO was holding up nicely in the downturn, had gone up a fair bit, and because earnings were due in a couple days. In fact, this was an official MFO position and I sold exactly one day prior to MFO sell alert. I was impressed that my sell logic was pretty much matching with MFO’s reasoning. Anyways, the KO trade was a great one. A good 100% profit in exactly 1 year and 1 day, while the stock itself moved some 20% up in the same time period. Hats off to Jeff Fisher over a MFO for some really astute calls (ahem!). Folks, consider joining MFO when it opens … it can have a meaningful impact on your portfolio.

I ploughed the sale proceeds into MA, SSW, and PRLB (all new positions); these three looked like great long term investments and were offering good entry points. I 'm particularly excited about PRLB … I did a fair bit of research into PRLB and I thought its prospects looked really good. I will share my notes later tonight along with my valuation estimates etc.

How did I do? I 'm up a good 13% with respect to the trough I hit some 10 days ago. I did no explicit hedging, and I even experienced a 25% hit on Netflix post earnings.

Anirban

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Saul,

You are a constant and courageous investor. I took some advantage, but was not aggressive and courageous enough to harness 12% gains in the past week+. I certainly see that it was possible. Crazy roller coaster!

A follow-up question to try and understand/learn not to pick a fight…

Does the 12% gain to entire portfolio you mention come from the “low point” on that Monday? Or, is it for calendar year? What percentage loss was there over the month before that? The DOW’s high was Sept 19ish. Where is the benchmark for that 12% gain?

Since mid-September, I had a roughly 20% reversal (from plus 10% to minus 10%) on the year and as of today I have nearly clawed back to even.

Thanks for nuggets of wisdom and launching this great board.

KLVanLiew

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Does the 12% gain to entire portfolio you mention come from the “low point” on that Monday? Or, is it for calendar year? What percentage loss was there over the month before that? Since mid-September, I had a roughly 20% reversal (from plus 10% to minus 10%) on the year and as of today I have nearly clawed back to even.

Hi KL,

I thought this was pretty clear “Since last Monday’s close my entire portfolio is up 11.9%”. That’s what it was. It wasn’t from the “low point” on that Monday (whatever that was). It was from the close that Monday (last week) to the close this Tuesday (yesterday). Like you I had dropped over 20% over the previous weeks and I am not back to zero for the year.

What the points of my post were, were

first, that selling low-beta stocks that haven’t fallen, and thus are unlikely to rebound, can be a good source of cash to buy stuff that has fallen a lot

second, that selling out at the bottom, when everyone is panicking, is not a good outcome. (The time to have gotten conservative, and sell the wildly over-extended stocks, was when everything was booming. Which was what I tried to do with my 3D printing stocks, etc).

Hope this helps.

Saul

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Saul,

You are a constant and courageous investor. I took some advantage, but was not aggressive and courageous enough to harness 12% gains in the past week+. I certainly see that it was possible. Crazy roller coaster!

I don’t think I will ever be able to analyze the finances and prospects of companies like Saul can and does. I don’t think I will ever get even close to that. But what I can do is control my emotions and the aspects of my personality that might get in the way of me being a successful investor. Saul not only shares his company analysis on this board, but he also lets us see his experience and emotional control. In my book, that is just as important.

Jeb
Long SAUL

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Echo that. Thanks so much for teaching us here on this board, Saul!

Zangwei

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Saul,

It helps. Once again, thanks for the input and clarifications. Your points are excellent, taken, and emulated (or at least attempting to be). It takes as much intestinal fortitude as knowledge, to truly and timely “buy low and sell high”, rather than run with the bulls or from the bears. You exhibit such fortitude and share such knowledge. I(we) appreciate your candor and cleverness.

Placidly picking proper points of entry and exit from earnings-producing equities,
KLVanLiew

Amen. Well said Jeb.

But, keep trying to be like Saul (and the Gardner Bros., giving a deserved and proper nod to the Founders of the Foolish Feast), I am.

Foolish Friend,
KLVanLiew

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