3 posts tagged “finance”

It's been an interesting ride the last couple of days. Back in December when my colleagues' financial advisers were selling of shares left and right, I took heed and dumped about 20% of my assets in money market accounts. Suppose I should have gone all the way, but that's a bit steep IMHO as I've ridden out all the prior technical corrections since I started investing in 2002 like a good armchair investor.

Looking back, however, those rules change when you're in a legitimate recession, as opposed to a technical correction or cyclical trend. I never rode out the 2001 recession, so I never had the emotional experience of getting seriously shellacked. Looking at the telltale recessions signs, this one was actually quite easy to call, after the fact. Plenty of information out there from the investment houses, and even I caught the drift. I simply didn't realize the scope of the snowfall. I was, in fact, a bit overly steadfast.

I'm calling a bottom once we stay below 11,000 for more than 3 days. Then I'm going back, all in.

Whew!

After the Fed maintained rates, the market finally grew some confidence, replenishing support levels for several of my long positions. If you've been keeping track, I went long on Whole Foods (WFMI) after it fell from 64. I dug deeper at 55 and even at 47, after the stock went through a cyclically enforced multiple contraction: basically, Whole Foods' stock was expensive relative to other peers in the food industry, such as Safeway and Krogers. It's PE was up in the 50's, while the competitors were half that amount. Hence, in a time of economic uncertainty, investors will not pay for stocks that are at a premium to earnings - in fact, those who are risk averse will actually short these positions and reap the earnings thus far, subsequently dropping the share price for others.

Now, as I learned with Apple, high profile stocks with high multiples are very market sensitive, and are the first to fall to cyclical impacts. However, despite my humble and limited experience, I have learned that staring at chart prices is a complete waste of time - as you are not looking at the long term prospects. 

The question I asked myself when Apple tanked from 60 to 50 the day after I bought it, was the same question I asked with Whole Foods fall from 64 to 47.

Did anything about the underlying fundamentals of the business change? 

The answer was no. Did the competition overtake? Did the company make a poor fiscal choices? Did management jump ship? Did any experience on a consumer level hint that the jig was up?

No.

So what's the explanation? Most investors, I'd hate to admit, are not looking at the long term. Long term wisdom is rare and it defines a successful investor (or gambler, for that matter). If you know something the market doesn't (or doesn't want to listen to because they are being emotional) then you have an edge.

I've learned it's a rookie move to bail on a stock (or mutual fund) if for only the stock price drops. Sure, this sounds obvious. However, you'll never truly know how it feels untill  you have a sizeable position, lets say,$10,000 in a fund, and it depreciates by $3,000. This happened to me with  Vanguards International flagship (VTRIX). It's doubled for me in the past few years thanks to expansion in emerging markets, so when I lost almost 60% of that growth in this past May's bleeding, I panicked and I sold. Man, I have a knack for selling. Would you believe I sold at the absolute low, the trough at 35 before it immeidately ran back to the 40's?

Sweet. Selling actually cost me that $3000 I earned. Had I sit tight and researched more before pulling the trigger, I would have realized the truth behind my newest favorite saying:

Selling does not erase the loss. If it's down already, hold ship.

If you think about this, this strategy is (practically) infallible in the long term. The stocks will rebound just by the nature of economic expansion, even if by just accounting population growth. In other words, for one to state the market will not rebound (or grow) is not have confidence in economic expansion, period. In which case, we have a lot more to worry about than the market.

Selling should only be qualified by a change in fundamentals, market cycles or ... selling into strength. As in, you've made sizeable gains, and it doesn't pay to be greedy. Even the best play will sour at some point, when the big boys call the game over.

Now, having learned that lesson (from hard-learned experience, not just from a book), and the lesson of Apple, I applied this to Whole Foods. Did it bounce back from 47? Yes, its at 55 now. Why did I buy? Becuase the fundamentals didn't change from the time I bought at 64. Yes, the market was not favoring the stock in this cycle, but cycles come to a close. When the economy rebounds, Whole Foods will be dramatically undervalued. I've already made 18% on the play at 47. When it rolls back to 64, I'll have made nearly a 50% gain on the 47 buy.

All this tells me is that I bought WFMI too early. Sure, easy to say with 20/20 hindsight. Did I research? Sure, in fact it was down from 80, so 64 seemed like there was a misvaluation. Truth be told, this is my first market cycle to contend with, and I need to ride them out a few times to place my bets at better times.

Such is the fun of investing.

Sanebull is an innovative and functional desktop for active traders. I thought I was in love with Google Finance, but this takes a drastic leap forward in terms of creating a unified dashboard. Although I'm a big fan of the live updates, until charting is implemented, I can only bank on this site for it's potential. I'm looking forward to account management features, as reentering your stock picks is less than ideal.

More than just targeting the finance sector, which is IMHO the wisest of decisions when creating incubator software for a specific audience, I really enjoy the overall framework built for window management. By far the best implementation I've seen to date.