Buyin' The Dips!

Discussion in 'Stock Market Forum' started by JR Ewing, Aug 25, 2016.

  1. JR Ewing

    JR Ewing Super Moderator Staff Member

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    I'm still holding a bit of SRPT I've had for a while, plus I recently bought more on the recent weakness.

    I sold 20 of the 30 shares of VKTX above $20 on the big recent pop. I am still holding 10 shares.
     
  2. JR Ewing

    JR Ewing Super Moderator Staff Member

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    In short, I tend to gravitate towards stocks with strong sales growth, strong volume and institutional ownership, high trading volume, other strong fundamentals, outstanding or promising products or services, etc.

    I read "The Intelligent Investor", and also "Security Analysis", a couple of books by Peter Lynch, and also several of Jack Schwager's "Market Wizards" books, and later "How To Make Money In Stocks" by William O'Neill. In more recent years, I've really learned a lot from books written since the crash such as "The Quants" and "More Money Than God".

    I suppose you could best describe my personal investment style as multi-strategy.

    Just to put things into perspective, I am an accredited investor myself. I say this not to boast, but to give others a sense of perspective. I have mentioned in the forum that I have over 1000 long stock positions at any given time. I also have a couple hundred other positions at any given time - put and call options, short stock positions, a handful of commodities ETFs, a few mutual funds in my retirement account, a handful of other investments at any given time such as REITs, a few higher yielding bonds and other debt instruments here and there, etc.

    How this plays out in my portfolio is that my very best individual long stock ideas are each no more than 5% or so of my portfolio. Any individual short stock positions are usually no more than 1 to 1.5%. The odd quick day trade or whatever - where something very unusual is happening that makes it highly likely that a substantial profit will be made at very minimal risk in a very short time period - may be 1-2% of my trading portfolio.

    Most of my positions are much smaller than 5%. For stocks, I basically have my own little "5 star" system that I use to rate any given stock based upon about a dozen metrics that are important to me. I may own as much as 6 figures worth of a stock, or as little as $100-200 into some speculative microcaps. I am a big believer in dollar cost averaging - I rarely buy more than $10k worth of a stock at a time even if I plan to own as much as $200k - 300k eventually - I will buy a little of it a time each week or month or whatever for maybe a year or longer.
     
  3. JR Ewing

    JR Ewing Super Moderator Staff Member

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    These days, I have one stock I own six figures worth of. I have dozens that I own tens of thousands of dollars worth of, and probably a couple hundred that I own thousands of dollars worth of. And several hundred more that I own less than a thousand dollars worth of.

    I am generally far less active in my bigger positions - these are the companies that I tend to view as longer term investments. They tend to be larger, more stable companies. I am generally going to buy and hold far more of a multi-billion dollar company that trades millions of shares a day, trades above $20 a share, and that earns lots of money than I am of a volatile $5 million dollar biotech company that trades for $1-2 a share or less and has poor fundamentals.

    But I am often buying a little bit of that smaller company because it could be very likely to eventually shoot up much higher for one reason or another. Such that if its drug does well in trials and gets FDA approval eventually. And if it shoots up big in the future, I take profits when I can - something like buying TBRA a while back when it fell over 50% at $4.80 a share, then selling it 55 days later at $34.90 a share when it was announced that they were being bought out by Allergan. That's unusual, but that's why I buy so many of those when they sell off hard - and buy them in such small amounts. The higher the risk, the less I'm buying. The higher the short term run up in a stock, the more likely I'm selling some or all of the stock on the big jump.

    I like both value and growth, and many companies I buy often fit both categories. It is important to separate investing based upon fundamentals from speculation / short term trading. I almost always spend far more money on a solid investment than on a speculative trade.

    I tend to be somewhat of a contrarian in the short term, but over the longer term I probably am more into the trends than I am into buying the companies that have been beaten down to almost nothing over many years or whatever. I may buy into the latter when I see that they may be turning around, or when big activist investors are starting to nibble at the carcass or whatever.

    But most of the time I'm buying good companies that are going up in recent years that have stumbled in the short term.

    I have learned a great deal not only from experience and formal education, but also from listening to and reading up on the greats and what and how they do things. I've been a big follower Ray Dalio's ideas on portfolio construction. Basically having your money divided up into a number of different "buckets" of assets, so to speak. The main idea being that you're always making money somewhere no matter what happens in the markets, and that any damage to your portfolio is reasonably minimized when things get ugly.



    I've learned that it is very difficult or impossible to consistently predict the broad markets very accurately. There probably aren't very many people on earth who picked both the top and the bottom of the markets from Q4 '07 to Q1 '09 to the month and within a few percentage points or so. Even Buffett doesn't bother trying to figure out what the broad markets will do short to mid term, and he's the eternal optimist longterm.

    It is possible that we could continue on without a recession or a prolonged bear market for quite a while. I am encouraged by recent de-regulation, and with the way the markets seem to be holding up as rates have recently been hiked a bit a couple of times after 8 years of zero interest rates. I just hope that we don't see another 2008 type of scenario for at least a couple of more decades or so.

    The best way to prepare for whatever may come in the future is to be prepared ahead of time. Either resign yourself to a more strategic long term investment style, or else design your portfolio in such a way that you are virtually always making money somewhere in your portfolio no matter what the markets do, and are likely hedged against huge losses when things get ugly - with the understanding that you're going to likely be under-performing in one or more areas of your portfolio when one or more others are doing well or holding their own in varying market conditions. Either way, learn to manage risk, stay diversified, and control your emotions.
     
  4. JR Ewing

    JR Ewing Super Moderator Staff Member

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    I typically have at least 40-50% of my money in long stock positions. I always have at least 5% in cash, typically more. I like to keep at least 5% in one or more good, solid gold ETFs. Perhaps another 5% spread out in other commodities such as silver, crude, etc. I'll usually have a few bucks in puts and calls, and I may also carefully sell a few covered calls and the odd put. I try to buy options when they are relatively cheap and when I think there is a high probability that I can make enough profit on the option to make it worth fooling with, and of course when there is minimal risk to me.

    I am very careful with actual short stock positions. I tend to use them on bigger, less volatile companies. I am likely to limit actual short stock positions to larger, lower beta, less volatile companies - particularly when they shoot up usually high overnight on earnings or whatever. The chances of bigger companies going up even higher in the short term after already jumping up double digits are very small. And the chances of them going up 50-100% or more overnight like a small cap biotech might do on occasion are virtually non-existent.

    Bets against more volatile stocks are either handled with put options if I can buy them at a reasonable price, or perhaps with a very small, very short term short stock position in some cases.

    Some stocks should never be shorted - at least not overnight or longer - by most investors. And if you cannot get a cheap put option on them, just leave them alone. A stock that appears overpriced may keep going up. Or just because it stalls doesn't mean it will drop. A "sell" does not necessarily mean a short sell, nor does it even necessarily mean sell ALL of a holding.

    Just remember that the market has a general upside bias, and that your potential downside is theoretically unlimited with shorting, and that this is moreso with smaller stocks in certain sectors and industries. No shame in putting perhaps 5% of your money in something such as SH that shorts the S&P 500 if you want to have some short exposure.

    Markets are basically leading indicators of what all is likely to play out in economies. But of course they are beyond our control. If you subscribe to the theory that a stock's performance will basically be 40% market-driven, 30% sector-driven, and 30% driven buy the company itself, you can control up to 60% of the movement of your portfolio if you don't worry about the direction of the market and just focus on buying what you see as the best stocks in what you see as the best sectors to invest in at any given time.

    With that said, I think it's important to not get too hung up on any one or two sectors or any one or two stocks. I think it is essential to own at the very least one or two stocks from at least 5-6 sectors. I think it's perhaps an even better idea for most investors to find at least one company they like in each of the 11 main sectors if possible.

    And we need to keep our emotions in check and not get too hung up on past performance. It is important to keep in mind that unusually big runups in very short periods of time are usually not sustainable. Don't think that because your favorite stock is up double or triple digits overnight or even in the last year that it will necessarily continue - very unlikely that it will continue extremely extraordinary performance very much longer - it will likely slow down, eventually stall, and perhaps reverse itself the longer it runs up so much.

    Having some cash onhand and putting some cash into your portfolio each payday will allow you to buy more shares when stocks and markets sell off, and to seize new opportunities that may present themselves.

    It's been nearly 10 years since the big bear market and the recession. Recessions historically typically occur every 7 years or so. I have learned to be pretty agnostic about the markets in the short to mid term, and to be cautiously optimistic in the mid to long term.
     
  5. Chartman

    Chartman Senior Investor

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    Some great comments and advice there @JR Ewing . I particularly like the comment about emotion because as we know it can be easy to get wrapped up in the occasion and carried away. History shows that those who are able to separate their investment decisions from emotion (a gut feeling about a stock is different to emotion) are the ones more likely to make big money in the longer term. Although not always easy, think of any investment as simply buying and selling empty boxes - nothing inside, no emotional attachment. Sounds very easy but…..
     
  6. JR Ewing

    JR Ewing Super Moderator Staff Member

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    Yes indeed. That's another advantage to being well diversified. It's much easier to handle the reality of an investment that doesn't go your way if it is 5% or less of your $ than if it is 50% of your portfolio. If I was as smart and influential as Buffett, Icahn, and Peltz perhaps I'd be more likely to keep most or all of my $ in 8-10 investments at any one time. Since I'm not, I stay much more diversified than that.
     
  7. longtermbull

    longtermbull Administrator Staff Member

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    How do you manage around 1000 different stock positions at any one time? I would guess this would be a nightmare trying to monitor each and every stock price on a regular basis? However, I get the idea you are a serious investor and may well have different computer systems at your disposal? Surely nobody could keep an eye on 1000 stocks manually :)
     
  8. JR Ewing

    JR Ewing Super Moderator Staff Member

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    Having things well organized and making good use of things like automated alerts is very helpful. Of course it also helps that the more volatile positions are usually smaller positions. I always take a close look at any stocks trading above or below 5-10% of the previous day's close.
     
  9. JR Ewing

    JR Ewing Super Moderator Staff Member

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  10. gowiththeflow

    gowiththeflow Senior Investor

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    Did you make a good turn on ESIO @JR Ewing ?

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