As Monty Python used to say: “And now for something completely different…”
My investing practices have changed dramatically over the decades. What I’m about to describe is what I do today, as a retired geezer with lots of free time to research stocks and the markets, someone who is withdrawing/distributing from his portfolio. Someone with no new sources of funds…and as someone who laughs at the Wall Street nostrum that “price is truth”.
I maintain a fairly limited portfolio. I don’t switch/replace stocks all that often, but the portfolio does morph over time. What I have been doing nowadays, more than ever, far more than I ever thought I would do is “swing trade” or, as others call it “channel surf”.
I mentioned earlier, in an unrelated post, that share prices of individual stocks vary greatly over the course of any 52-week period. 50% swings are common, 100% to 200% swings aren’t all that rare either. As a consequence, I try to maintain a portfolio consisting of companies that offer good potential growth. I study their financials in depth. Once I’ve found what I consider a decent company, I wait for decent entry points. That’s waaaaay easier said than done. I must assess the general state of the Market, the state of the sector and the state of the specific company. Yeah, I look at charts and trading statistics (RSI and MACD being my stalwarts), I follow Market trends and chatter, I listen to “analysts” (gag reflex often triggered). In short, I try to assess any and all information, then try to make an informed decision. Yeppers, I try to “bottom fish” catching solid companies going through bad spells (as a former corporate executive, I lived through many of those).
Once I establish a position, it’ll either grow in value or fade. If it grows in value, I have to make a decision when to harvest profits. It’s ALWAYS best to sell when one can, rather than to sell when one must. I always keep cash on hand. At present, my cash is 18% of my portfolio. This indicates I’ve serious doubts about the Market. At other times, when conditions are fine, my cash pile may be 5% or less.
When a stock has had a great run (at least a 20% gain), I’ll trim a bit. I rarely exit a position entirely. I sell good companies with the intention of buying back shares at opportune times. I use a laughably simple technique: I have a notebook I’ve kept for a decade. When I sell a stock, I jot down the ticker, the number of shares sold, the share price, the trade total. On the next line below, I write down the profit enjoyed (or the loss mourned). I leave the next line blank. I leave the line blank because I intend to buy back shares at a lower price sometime in the future. Funny thing about that: over the course of time, that empty line usually gets filled. For example: I sell 100 shares of XXXX @$10/share for a total trade of $1000. Let’s say the profit was 20%. The 3rd line remains blank until such time when I repurchase shares. Let’s say, months/years later, I buy back the number of shares I sold at $6. I note the cost. I’ve now completed a single cycle and will celebrate the original profit enjoyed and the shares repurchased at discount. To be sure, there are empty “3rd” lines sprinkled about. There are, indeed, companies long held that never recover. I parted company with CREE after decades. I had made good money for many years, but the company seems to have lost its way. I don’t foresee buying back those sold shares.
Now, here’s the point I wish to emphasize: investor forums are filled with “price is truth” types who cheer wildly when a stock is rocketing higher. Oh, yeah, pom-poms flail madly. Then (for any number of reasons) the stock price begins to fall. In short order a “precious gem” becomes a POS. I witness these reactions daily. Makes me sad. Makes me sad that folks aren’t asking the right questions: Is this a good company providing valuable goods or services? Is the management competent (or even adequate), why the drop in share price? More often than not it’s just a matter of Market sentiment. In this age of algo trading, wherein 80% of trades are by machines, price is just price and truth is something a whole lot different.
And yes, there are times (particularly when dealing with volatile stocks) when I swing trade a particularly volatile stock multiple times over the course of months, compounding gains upon gains. This may come as a surprise to some but I enjoyed a 46% increase in my portfolio by trading a whole lotta shares of…wait for it…ENPH and FCX.
Investing isn’t easy. It’s been a lifetime pursuit for me and I’ve screwed up lots, learned lots and profited much.
May we all live long and prosper!