streeter123 (80.40)

streeter123's CAPS Blog

My market downturn strategies

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August 17, 2011 – Comments (3) | RELATED TICKERS: ICON , LFUS , BRK-B

I'm posting this mostly in the hopes of having others post comments on their strategies during market downturns. These generally work for me - if anything it helps me be more disciplined - but they may not fit your style.

- Only add to current positions (ideally ones that have gone below my initial purchase price), and initiate new positions from my "Downturn Buys" watchlist - these are mostly high-flying stocks that I missed out of previously. I know I'm personally not in the right frame of mind to investigate a new position that I hadn't previously thought of when the market is going crazy.

Last week I bought more Iconix Brands (ICON) and Littelfuse (LFUS), and started a position in Berkshire Hathaway (BRK-B) - not really a high-flyer, but Buffet and Co. are some of the best at handling downturns themselves. I've had it on my watchlist since BRK-B split off from BRK-A.

- Ideally, buy on huge downward moves (as these might signal a real bottom), but consider that the market may very well continue downward, so be comfortable holding a stock at a loss for a while.

- Never buy on an up day after big market moves, as it very well may be a headfake. This served me very well last week. If I miss out on the start of a real rally, so be it - at least my current stocks are going back up (hopefully).

- Don't sell any current positions unless something significant has changed about the company itself, or to free up money for a better opportunity. I sold my very small speculative position in MannKind (MNKD) (a day too early, in retrospect) to free up some cash last week.

- Use Fibonacci retracements to get an idea of where a stock that I was already considering may be headed short-term (see http://www.freestockcharts.com/ - they have great technical tools for free) I'm not a "trader", and I don't usually bother with chart technicals, but this tool can be amazingly accurate after big moves.

- Try to gauge investor sentiment to see if people are talking about great deals, or if there is real panic or apathy. I use these as contrarian indicators, but a lot of times, it's not so clear-cut.

- Totally disregard anybody who proclaims to know what's going to happen next. Pretty much nobody is any good at predicting the future.

- After a decided upturn, consider good companies that have been left behind from the rally for (hopefully) temporary reasons. I was able to buy Under Armour (UA) and Lindsay (LNN) in 2010 for great prices using this strategy. UA was getting dogged for its slow shoe sales at the time, and Lindsay is cyclical to begin with, and had a huge move in 2007.

3 Comments – Post Your Own

#1) On August 17, 2011 at 12:15 PM, miteycasey (99.89) wrote:

Use Fibonacci retracements to get an idea of where a stock that I was already considering may be headed short-term

Totally disregard anybody who proclaims to know what's going to happen next.

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#2) On August 17, 2011 at 12:22 PM, streeter123 (80.40) wrote:

miteycasey - Nice catch. The key phrase is "may be headed", though. I take technical analysis with a grain of salt, but it's interesting to look at.

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#3) On August 17, 2011 at 1:10 PM, 123spot (< 20) wrote:

Great help! Thanks. The only thing I have to add in dealing with this volatility is that, on a surge of a stock I am sure I overvalued when I bought at the peak in 2007 (I'm afraid I did this with several), I will sell out of a partial position and pick it back up below vaue on the next drop. Case in point; I bought DEO @ $83 in 2007. Love this liquor distributor with global reach including China, and its dividend. As soon as it hit $84 I sold 1/2 my position and will buy it back in the $70's this or next week. I have therefore lowered my basis and will buy back more shares than I sold. Mistake corrected.

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