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austinhippie (81.67)

Irrational Mr. Market can make long-term investing strategies look like short-term strategies

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October 08, 2012 – Comments (0) | RELATED TICKERS: BIDU , REX , CMG

     Ok, so maybe the recent market volatility made me feel like a big chunk of my portfolio was for "flipping" because, I identified some irrational areas of the market, bought in and then others piled on to what otherwise could have been long-term positions, but I ended up having to sell more quickly than usual because of the volatility taking those stocks from irrational lows to equally irrational highs.  In the moment, it felt like I was flipping stocks - momentum trading, perhaps.  But actually it was just long-term investing that played on the maxim that when you buy, you should know when to sell.  So those stocks went quickly from buy to sell, not because a portion of my portfolio is for "flipping" but because my steady systematic, long-term investment strategy required me to sell.  

     When I buy a stock, even a very rapidly growing growth stock, I buy at no more than 20 times future earnings.  When I look to sell is when I have someplace more effective to put my money or when the future price to earnings ratio gets to be too much above 40.  I recently went through this with CMG and GMCR.  In the distant past, it happened for me with CROX, UA, PNRA, VE, and FTE.

     I've owned all the companies mentioned but do not currently own any of those above.  Companies I do own that are in the relevant section of my portfolio include: BIDU, REX, MNST, SBUX.  With all of these, I identified an irrational valuation catalyzed by varying impeti - for BIDU - suddenly people realized it is a Chinese company - gasp -oh no; for MNST, CMG, and SBUX, it was an earnings report that wasn't what investors had hoped for.  And for REX, it's just that they are so small - even the Motley Fool doesn't know what they do.  But, it's my current favorite place for new money.

 

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