On the week

I subscribe to Zack’s Home Run Investor where I get occasional (more or less rare) good ideas. Here are the writer’s comments on the week:

The trail of tears otherwise known as Home Run Investor continued to add working years onto many of our lives this week (loss of capital). There were numerous stocks that were crushed this week, and to go over it all will just anger me… …As bad as the performance has been for the stocks in HRI, I do want to point out that all of the stocks that have reported (and we kept) have beaten estimates.

That’s just in case you were feeling bad about your own results this week… It wasn’t just you. Markets can be irrational.

Saul

For FAQ’s and Knowledgebase
please go to Post #2848

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Thanks for reminding us again. Its days like this which test an investors patience and conviction in the picks.

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Thanks Saul. Yes, it’s been a volatile past few weeks. A month ago my portfolio was up 15% YTD. Then a week and a half later it was flat for the year. Then the following week it was up 7% again. Now it’s down 3.5%. The news on HZNP was the worst because I also sold and the loss chopped off 2% that would not recover. I’d need to make a 68% return on the reinvested capital just to recover. Then I realized that that is not a good way to think about it. I remembered one of your Saulisms: don’t think in therms of baggers for any one position but think of the overall portfolio performance. Down only 3.5% is not that much and the big picture future looks pretty good to me. I’m invested in many solid companies plus a few that are riskier but have great potential. For the most part, I’m very happy with how I have my capital allocated.

This board has been great and it’s helped me a great deal. Thanks Saul!

Chris

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I came across this board by chance shortly after it started and immediately fell in love with Saul’s vision and what it could do for me and my family. Up until that point I had been more of conservative investor focused on dividend paying companies. I looked at Saul’s recommendations and made my own decisions regarding whether to invest in the individual companies. I ended up being fully invested with a portfolio that was virtually a mirror image of his with some exceptions and with a percentage allocation that was similar to his. I didn’t invest in Z and I overweighted PFIF and HZNP. I also didn’t invest in the start up companies that Saul took small positions (i.e. KREB).

At the beginning of the week, I sold almost all of my holdings and went to cash. My sense now is that it is essentially a coin toss regarding how many of these companies are going to do over the long term. We can talk all we want about increased earnings etc but in the final analysis I am unable to understand them well enough to get a grasp on what the risks are. I realize that risk is inherent in this type of investing and that losses are to be expected in many of these companies. Some will fail completely. I accept that. Unfortunately I have lost confidence that the remainder will be successful enough to make up for the ones that fail.

Saul’s experience over that past 20 years would indicate that this is a successful way to invest. His returns have been remarkable. However does the past predict the future especially in what seems to be an overvalued market such as this? I am not so sure. Was HZNP a good company a month ago? Yes by all means. Is it now? I don’t think so. Could its demise have been predicted? Possibly but for most of us probably not. AFOP was a good company to invest in a month ago. Is it now? I don’t think so. In the final analysis, it all comes down to one’s ability to feel comfortable with the future of the companies that one invests in in such a way that the combined results of all of them taken together will be positive. Can we make those predictions accurately enough to tilt the odds in our favour? I am not so sure.

All the best to everyone.

Cleverbear1

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Cleverbear1,

Welcome to the board. I’m sorry you have lost faith in the companies we enjoy investing in.

Stock picking is best done with at least a 3 year investment horizon. And we should all be prepared to suffer up to 50% losses occasionally. However, history has shown that stocks are your best investments if you have the patience and stomach to hang on and actually be ready to buy more when stocks are crashing downward for no apparent reason. Fortunes have been made that way.

Please come back whenever you feel comfortable. Some of the very best investment minds hang out here.

Best wishes and best of luck,

Jim

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http://www.barchart.com/stocks/marketoverview
http://www.barchart.com/etf/marketoverview

Quillnpenn -

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I believe, we have some Newbies’ pain on the board. Knowledge is power and several folks on this board are providing the rational for their stock picks. If the reasoning is solid, then you’re in a good position to hold on. Many of these picks are high beta stocks and will rise and fall faster than the index.

The current market correction is self induced and will be short lived. We are nowhere near a recession. The economy is still recovering and we are still adding jobs. Guys, the FED hasn’t start with the interest rate hike as yet. All that is happening is the market is shaking out the weak hands. Hang in there; it will come roaring back up. If there is any sign the economy is falling into recession, the FED can only do one thing at this point, pump more money into the economy – that’s good for stocks.

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http://www.barchart.com/stocks/marketoverview

Thanks Quillnpenn. That graph of how the entire S&P 500 crashed last week is really useful. It makes it evident that all those companies are down on average, but that all those companies aren’t suddenly having business problems that they didn’t have two weeks ago.

Saul

For FAQ’s and Knowledgebase
please go to Post #2848

Cleverbear, You have to invest in what you are comfortable with. However MF Rule Breakers and MF Stock Advisor and MF Hidden Gems all tend to be growth stocks like this. However the Fool does have a newsletter called Income Investor that you may be more comfortable with.

Best, in whatever you decide.

Saul

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The current market correction is self induced and will be short lived. We are nowhere near a recession. The economy is still recovering and we are still adding jobs. Guys, the FED hasn’t start with the interest rate hike as yet. All that is happening is the market is shaking out the weak hands. Hang in there; it will come roaring back up. If there is any sign the economy is falling into recession, the FED can only do one thing at this point, pump more money into the economy – that’s good for stocks.

Thanks LegoAbs, I couldn’t have said it better myself.

Saul

On markets and recession-- market drops almost always precede the recession, not the other way around. When markets start their decline the coming recession is hidden in the fog.

But at this point most of my indicators are still “go” even if some weakening is taking place.But they always lag the top too.

We are certainly “due” for a correction of some kind, no market goes straight up forever. Will this be 5%, 10% or more? Who knows.

I wouldn’t flinch at a decline to 15,500 on the Dow, approximately 10% from the high. In fact I am taking a good hard look at my portfolio and raising cash from a few positions so that I have some capital available in that scenario.

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I think Ben Carlson’s recent posting is spot on as usual. It talks about the downside of positioning your portfolio for a correction. There’s a reason most great investors don’t try to predict the macro…it’s difficult and at the end of the day does not really benefit your portfolio. Here’s the link and the post:

http://awealthofcommonsense.com/peter-lynch-stock-market-los…

Peter Lynch on Stock Market Losses

Posted on August 2, 2014

“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” – Peter Lynch

I recently came across an old Peter Lynch interview for Frontline on PBS from the mid-1990s. In it the legendary former mutual fund manager discusses a wide range of topics from how he got started in the investment business to the crash of 1987 to the psychology of average investors.

Lynch’s thoughts on losses in the stock market are still relevant today:

"Now no one seems to know when they are gonna happen. At least if they know about ‘em, they’re not telling anybody about ‘em. I don’t remember anybody predicting the market right more than once, and they predict a lot. So they’re gonna happen. If you’re in the market, you have to know there’s going to be declines. And they’re going to cap and every couple of years you’re going to get a 10 percent correction. That’s a euphemism for losing a lot of money rapidly. That’s what a “correction” is called. And a bear market is 20-25-30 percent decline.

They’re gonna happen. When they’re gonna start, no one knows. If you’re not ready for that, you shouldn’t be in the stock market. I mean the stomach is the key organ here. It’s not the brain. Do you have the stomach for these kinds of declines? And what’s your timing like? Is your horizon one year? Is your horizon ten years or 20 years?

What the market’s going to do in one or two years, you don’t know. Time is on your side in the stock market."

The most important point here is that no one knows when or why corrections happen. Investors are continually searching for reasons for stocks to fall. It almost becomes a game for some to say that the can predict the exact event that does it.

There’s always something to fear that will possibly derail the market — profit margins, valuations, earnings shortfalls, economic growth, rising/falling interest rates, inflation/deflation, geopolitical risks and the list could go on forever.

The problem is sometimes stocks rise and fall for no apparent reason whatsoever. Occasionally these issues “matter” but other times the market simply shrugs them off.

This past Thursday’s 2% loss in the S&P 500 is a case in point. The headline writers tried to come up with the news of the day to explain why the market fell, but there wasn’t much there. It’s not always a neat and tidy explanation except for the fact that there are times when there’s more selling pressure than buying pressure.

Investors need to concern themselves with the fact that stocks do go down occasionally. Trying to continually predict the spark that sets it off can lead to more harm than good. Seth Godin had a good take on the idea that bracing for impact too often can be to your detriment:

Worse than this, far worse, is that we brace for impact way more often than impact actually occurs.[…] All the clenching and imagining and playacting and anxiety—our culture has fooled us into thinking that this is a good thing, that it’s a form of preparation.

It’s not. It’s merely experiencing failure in advance, failure that rarely happens.

When you walk around braced for impact, you’re dramatically decreasing your chances. Your chances to avoid the outcome you fear, your chances to make a difference, and your chances to breathe and connect.

Understanding stocks can and will fall is helpful to prepare yourself mentally for how you’ll react once they do. But bracing for impact at all times can be counterproductive to a good process.

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Saul,

Doctors read X-rays for an evaluation on how the patient is doing.

We traders / investors read charts to make an informed decison.

http://discussion.fool.com/the-mess-started-on-or-about-july-28t…

Just a thought,
Quillnpenn -

On markets and recession-- market drops almost always precede the recession, not the other way around.

Market drops have predicted 14 of the last 8 recessions.

http://abcnews.go.com/Business/story?id=88394

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Saul,
I was thinking about whether i should sent this note to your e-mail or post it to the board.
I first was going to sent it to you only, but I think it concerns everybody on this board, so I am posting it for all to see.

I have the feeling that some people here are just copying exactly what you do, Cleverbear comes to mind. When I read his post I thought to myself OH MY GOD, this is not what this board is about.

I appreciate your openness and I hate people starting to complain the moment stocks do not go up.

It seems to me they are all your best friend, as long as the stocks you invest in make them money, but the same people start to complain on a down move.
Everybody is still responsible for their own decisions

As for me, I enjoy the board, there are some great minds here and I will continue to read and make my own decisions
You have proven that you are a much better investor than most of us here
You do not have to prove anything

Though I think this board should come with a warning.
VERY VERY AGGRESSIVE TYPE OF INVESTING, YOU MIGHT LOSE MONEY

In the end, we are all responsible for our own investment decisions, the stocks that you invest in are ideas for other people, but we all follow at our own risk
As an example:
AEYE I never got comfortable with the company, whether it was the management or the business model, so I didn’t invest.
It ran up too much too fast and I think it was this board that caused the sudden increase in volume.
It went from 400K to over 1.0 million shares being traded per day
Saul, I think you have a bigger following than you realize :slight_smile:

Please keep doing what you are doing, it is very much appreciated
Erik

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I wouldn’t flinch at a decline to 15,500 on the Dow, approximately 10% from the high. In fact I am taking a good hard look at my portfolio and raising cash from a few positions so that I have some capital available in that scenario.

DJSK,
I agree and am doing the same.

I’m doing rather well in this market (though I am posting this on 8/9, not 8/3) and I have 16 stocks out of 72 that come from or are associated in some way with this board.

But the stocks I have are less than half the story. The other and more valuable part is the camaraderie, expert advice, vision, transparency and honest evaluations that go on here. I wouldn’t miss it if all my micro stocks went south.

I wouldn’t sell SZYM until it was close to $8 and on justifiable news. Same with all the other developing stocks like CALL, PFIE, KRED, AEYE and AIOCF.

My top 17 largest positions (includes 4 from this board) are all in the black except for BOFI and UBNT (which are just barely losing a few points) but you can bet I am NOT worried about those two and once they catch afire, I should have a Saul type year. Once I get used to Saul’s style, ie, good size positions in growth stocks, I should do even better than I have ever done. Can’t beat that.

No complaints here and I only wish I had jumped harder on some of the great stocks represented here, like PSIX, SYNA & CELG.

Mykie
Caveat: I am an eternal optimist but so far, so very good.

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