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Teacherman1 (58.21)

Monday as Friday

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October 17, 2011 – Comments (5)

So what actually happened today that is really different than what was happening last Friday?

As far as I can tell, the answer is "nothing".

Over the past few weeks (maybe even the last few months), the market has been based primarily on psychology: moving up or down on news, perceptions, hopes, fears, "what ifs", "maybes", headlines, theories, politics, "pronouncements" and "pundifications".

It has been helped along by being overall, a "trader", rather than an "investor" market; which has been further exacerbated by the ETFs, HFTs, redemptions from hedge funds, and each participant trying to "out guess" the other guy.

After the relatively "big" run up of last week, I was expecting this "correction" to occur, but I expected it to take place late Thursday, or on Friday. Traders seldom like to hold over the weekend.

As a result of my "expectations", I took some "significant" profits on Wednesday, both to protect those profits and to have cash available to take advantage of the next "dip" in this "shcitzo" rollercoaster ride.

It can get very frustrating for anyone trying to use logical analysis to determine when and where to put their (likely) hard earned money.

Some will tell you to "invest" in "dividend payers", but even here there are many different "flavors".

Do you go only into large CAPS with a long history of paying dividends (usually at a fairly low yield), or those who because their share prices are depressed, are currently offering almost unheard of yields.

Of course, you seldom get both good dividends and growth from the same company.

Others will tell you to buy for the "long term", but how many have the patience to wait out the "long term"; and what is the "long term" anyway?

For some that could be a couple of years, for others at least five years, and for still others, ten or even twenty years.

With the constant changes occuring today; in technology, in politics, in life styles and countless other areas that make up the fabric of our world, how can you tell that what is relevant and "hot" today, will even exist in the long run.

With the continual and accelerating contraction of the "attention span" and "gratification time line" prevelant in our society, it should not really come as a surprise that "trading" has come to the forefront as the way to "play" the markets.

Even here you have to make choices. Do you do "day trading", use options, do "swing trading", rely only on the charts, or come up with some sort of "magic formula" using one of the many "touted" platforms provided by those who make money no matter which way the market moves.

I am not going to pretend that I have the answer, because each of us needs to do what we feel comfortable with, and what we have the time, knowledge, and experience to make work for us.

For some, maybe sitting on the sidelines is the best thing to do; at least for now.

I will offer (for what it's worth), a "simplified" explination of what I am trying to do.

Over all, I am trying to find companies that I want to hold for the "longer term". Not "long term", but "longer term", which is the phrase I use to describe a period of 2 to 4 years.

I am trying to focus on the company, and what I see, after doing my DD. My DD consists of analyzing the financials, using most of the standard metrics such as P/E, ratios of short term assets to short term liabilities, quality of assets, debt to worth ratio, earnings history (or in some cases earnings expectations), "burn rate", etc, etc, etc. But this is only a starting point.

I then attempt to thoroughly understand the company. Where it's been, where it is now, and where it is going (or at least likely to go). I want to know what it does, who the people that run it are, what makes it different, who its competition is, who does business with it and why. Basically, what its "story" is.

I then pick a share price that I feel comfortable owning it at. I try to wait until that price comes to me, rather than grabbing for it (though not always successfully). I determine how much of it I want to own for the "longer term", and take anywhere from 10% to 25% "bites", as I build up to this level.

This is easier to do in volitile markets, because if you are patient, it will either go down even further, or come back to you after a "short term" run up. Sometimes I end up having to "double down" and buy more than I want to hold for the "longer term", just to get back to my "want to own it" price.

When I do this, I will sell off the "excess" when it "bobs" back up. I am even willing to sell off the "excess" at a loss, if I am reasonably certain that the loss will be recovered when it eventually comes back up.

I will also take "short term" profits if it suddenly "pops" while I am accumulating my desired position, and then wait for it to come back down to my desired "longer term" hold price. It almost always does.

It is a matter of making "adjustments" to my overall portfolio to achieve the desired "longer term" results.

I also like to look for "special situation" stocks, without a pre-determined holding period in mind. I try to avoid attempting to "maximize" profits by waiting for the top or bottom, but rather seek to "optomize" them by adjusting as they do or don't do what I expected them to do when I picked them.

I did not intend to write a book length blog when I started this, and I can understand if you have no desire to even read it, but thought that in the interest of maybe helping to "clairify" the thought process for some others (as I attempted to "clairify" it for myself), there might be one or two who could get something useful out of it.

I welcome all comments, corrections, differences of opinion, expansions on any or all areas, or just plain old fashioned "pot shots".

After all, this is JMO and worth exactly what I am charging for it.

5 Comments – Post Your Own

#1) On October 17, 2011 at 3:36 PM, truthisntstupid (85.31) wrote:

I doubt if anyone would take pot shots at you, Teacherman. 

I think a lot of people are in for a hard time down the road...

NFLX @ something like 90 times the last 7 years' average earnings...

AMZN @ around 175 times the last 7 years' average earnings...

GMCR going for 358 times the last 7 years' average earnings...

I think the people buying these are setting themselves up for a "lost decade" similar to that which people that bought MSFT or MDT in 2000.

Good old-fashioned wisdom from decades ago could help people avoid taking these chances.  Let the traders keep making short-term money on "hot" stocks.  

There are some ridiculous valuations out there.  Thank heavens I'm an investing bookworm.  

 

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#2) On October 17, 2011 at 6:01 PM, HarryCarysGhost (99.70) wrote:

Good afternoon Teacherman,

Thank you for writing this, I always find how others invest compelling and will probably read your post a few more times to make sure I have a full understanding.

Mr Market has been a see-saw for quite a while now, part of me wishes I had the capital to trade these wild swings. Alas, I'm not a big shot so back to the divis and occasionaly juiceing my port with the pennies ;)

Cheers. 

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#3) On October 17, 2011 at 7:11 PM, HarryCarysGhost (99.70) wrote:

Not sure if my last sentance might be misunderstood-

 Alas, I'm not a big shot so back to the divis and occasionaly juiceing my port with the pennies ;)

Alas, I'm not a big shot so back to dividend reinvestment, while occasionaly juiceing my portfolio with  penny stocks.

Thanks again Teacherman

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#4) On October 18, 2011 at 4:04 PM, Teacherman1 (58.21) wrote:

Hi Truth and Harry.

Thanks for reading and for your comments.

Sorry I didn't reply sooner, but had a power outage, and went to bed early.

Have a great week.

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#5) On October 18, 2011 at 5:35 PM, Euro247 (35.68) wrote:

Nice Blog +1 rec

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