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Unpredictable Markets? Heed Your Own Voice

by: Robert Freedland October 10, 2008 | about stocks: LDK / SVT    

Robert Freedland

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'Egg on my face' anyone?

After spending the last five+ years on my blog repeating endlessly the mantra of 'listening to my portfolio', what did I do?  The darndest thing about my blog is that I have to do all of these dumb things so publicly!  My portfolio was down to one position, my Covance (CVD) stock and I knew that I had these 'permission slips' to be buying shares.  So with the first sign of a bit of strength in the market the last couple of days, I was in there full bore, moving back up to my minimum of five holdings.

And you know the rest of the story.

As reported: (10/9/08):

Stocks plunged Thursday, sending the Dow Jones industrial average down 679 points - more than 7 percent - to its lowest level in five years. Stocks took a nosedive after a major credit-rating agency said it might cut its rating on General Motors and Ford, further rattling investors already fretting over the impact of tight credit on the economy.

Specifically, the Dow closed at 8,579.19, down, 678.19 or 7.33% on the day, and the Nasdaq dipped to 1,645.12, down, 95.21, or 5.47%.  And the S&P dropped to 909.92, down, 75.02, or 7.62%.

And I was buying this morning.  WHAT was I thinking? My own portfolio was talking to me.  It was SHOUTING at me!   And was I listening?  Of course not.

This morning LDK Solar (LDK) was acting well.  It was even on the list ot top % gainers.  I purchased 280 shares this morning at $23.7511.  LDK went almost straight down from there.  (Do I need to tell all of you once again that I am an amateur investor?)  In fact LDK closed at $20.53, down $0.95 or 4.42% on the day.  Thus, I have already racked up a loss of $3.22 or 13.6% on the day.

Unless the stock opens up sharply, I will be selling this stock Friday morning. So much for owning a Chinese solar stock. With my own probable sale of stock, I cannot rate this a 'buy', yet the selling has gotten so overdone:

LDK SOLAR IS RATED A HOLD

However, that wasn't enough.  I was a glutton for punishment on Thursday. In the same moments as buying shares of LDK, I became convinced of my brilliance in catching the turn of the market, and purchased 700 shares of Servotronics (SVT) at a price of $8.2785.  SVT closed at $7.15, actually up $.15 or 2.14% on the day.  This was well under my own purchase price; in fact, I am currently at a loss of $1.13 or 13.6% since purchase.

Similarly, while I cannot possibly suggest a "buy" on this stock, the selling is also overdone, and even though I have may well be selling my own shares, I feel it appropriate to deal with this stock:

SERVOTRONICS IS RATED A HOLD

I have never (that I can remember) lost money so fast on initial purchases.  Ouch.

This position will also be sold tomorrow morning unless it experiences a sharp rebound - as it has also exceeded my own arbitrary 8% cut-off for losses.

These really are both interesting stocks, I would love to tell you about their wonderful prospects, the great recent reports, but in this fiasco we call the Stock Market, I shall once again need to retreat with my tail between my legs.

Servotronics also has interesting, if speculative financial records and prospects.  My own probable sale is not because I do not like SVT.  Or that I don't like LDK.  Or any other stock I hold.

Losing money is painful, and limiting losses is essential to any investor who is interested in being around tomorrow and the next day to try once again to divine some rational approach to the endless pain in the world of stocks.

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This article has 8 comments:

  •  
    Oct 10 06:09 PM
    Not to sound like a total bear, but you need to stop trying to pick the bottom. Capitulation takes a long time and even if we have hit a short term bottom, the true bottom usually takes place a few years after, ex. 1929 we had the great crash in october, but the market fully bottomed out after choppy movement in 1932. The global economy is most likely headed towards a severe recession, I wouldn't bet on the fact that stocks would be a well performing asset class. However if you must pick stocks, perhaps the best strategy to pursue would be value investing.
    Reply
  •  
    Oct 11 08:15 AM
    there is forced margin selling and ldk is likely to earn in excess of $5.00 in 2009. if you are an investor you buy. timing may not be perfect but you dont stop yourself out just because the next day the markets decline continues. be patient. unless you dont believe governments will address global warming. seems like they will. buy ldk
    Reply
  •  
    Oct 11 08:15 AM
    market bottomed in 1932 after the fed shrank the money supply & after it became clear that hoobert heever was not going to do anything to restore the health of the economy (following the advice the bankers were giving him). i think we have a lack of parallel here.
    > jack
    Reply
  •  
    Oct 11 08:35 AM
    1000pt swings in one day, and you're putting in 8% stop loss? This is terminal buying time. With the valuations so incredibly low, either you believe this is not the end of the world or it is. In other words, anything you buy now, you have to either believe it will revive and bounce or you sell because of genuine fear that it goes to zero.

    For example, some people may think Ford and GM will not go to zero, but that's a bet I wouldn't take. On the other hand, I have added to LDK, always a volatile stock anyway, an battened down the hatches. When they report in November, either the world will have ended or you can count on a major rehabilitation of this stock based on the usual phenomenal earnings and growth of revenues. 8% stop losses in this market, why bother? You'll be stopped out in the first 20 minutes.
    Reply
  •  
    Oct 11 11:49 AM
    Each of us have our own unique "set of rules" by which we apply our trading methods. Robert uses an 8% stop to limit his downside, others commonly use a 10% threshold. What I got out of this article was the authors willingness to share with the reader his errors or mistakes that were made in applying his personal trading system.

    Each of the responses above would have been more educational if they contained an example of the same.

    I for one, contradicted one of my "trading rules" by going into the oil and gas sector to purchase stock BEFORE the EIA numbers came out last Wednesday. My trading rule is to wait until after those numbers are released to do ANY trading. My hunch that day was that the numbers would show only a modest rise in the inventories, not the dramatic numbers which came out. I found myself selling off the purchases I had made only an hour earlier, now at a loss.

    Robert was candid enough to share with us his "learning event" and I complement him for doing so. Now, how about the rest of you?
    Reply
  •  
    Oct 11 07:23 PM
    We are concerned about possible effects of zero or negative electric reserve margins in the US in the time frame 2010-2012 on markets.

    home.comcast.net/~bpayne37/pnmelectric...





    Reply
  •  
    Oct 12 10:20 PM
    I don't like to be trite, but,
    " when they raid the whorehouse, they even take the piano player".

    Buy the piano player
    Reply
  •  
    Oct 14 12:48 PM
    I think LDK is a good buy. One of only two solar companies that I would recommend without too many reservations. You have to have some risk tolerance, however, if you plan on investing in solar. Expect the worst in the short-term and ride it out.
    Reply
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