On October 13 I sold off my entire portfolio. Thinking back to that date, I did it to purge myself of all the confusion that was circling through my mind.
It was an emotional response and, looking back at the positions I held and at their current price, my account balance would be unchanged if I had done nothing. I can't remember what particular decision drove me to the sell off, but I recall the feeling of relief when I did it. I had been grappling with the current holdings and was confused about what to do, so selling was the only conclusion I could reach.
Then on October 26 I bought ADBE again. 1000 shares. And then I bought BIOD, then more BIOD after it crashed from 3.61 to 2.16, then I bought NBG and SKF as a hedge, then I bought CHK and VLO because commodities were on the rise and the dollar was falling with the new round of QE2 announced by the Fed. Finally I bought SH as a hedge to the portfolio, and sold 500 ADBE shares to lighten that position.
So I have come full circle to being almost fully invested. With a vastly different portfolio. My total positions amount to 35% of my portfolio, with 28% of the portfolio invested in SH, so I am net long. My current positions arranged by size of investment are: ADBE, CHK, VLO, NBG, and BIOD. For hedges I have SH and SKF.
Per my calculations assuming the worst case scenario and every position get cut in half, I stand to lose 10% of the portfolio. Best case scenario I can make 28%. So it looks like a good profit to loss ratio.
So now I wait, until either scenario come to fruition or until I panic again.
Thursday, November 25, 2010
Thursday, October 14, 2010
The End of A Strategy
Yesterday I sold off my entire portfolio. After nearly nine months of high churn and mediocre investments, I decided that I was lucky to be at break even and that it was time to chart a new course.
The market is rallying and I do not know why. I don't understand what the market is anticipating. I do not see 2011 as being a good year. The US treasury market is in a bubble, China is experiencing a real estate bubble, the labor market is not recuperating, and the Fed is about to start another round of easing by buying government bonds.
Does any of the above sound like a recipe for a buoyant stock market? I don't think so. I can't think of a single reason why stocks should continue to perform well. Well, what about the earnings?
JPM and AA reported earnings this week and were in line with expectations. As I type this AAPL has hit a new 52 WH. GOOG has just reported earnings and the stock is up nearly 10% after market. NFLX is just off its 52 WH. All three of these stocks have not been in my portfolio in the last 12 months. In general, these companies have done well on the bottom line. But are they reflective of the overall stock market? Perhaps they are and people are laughing their way to the bank as I write this blog.
But when I put my glasses on I do not see anything that remotely resembles signs of optimism. Cheap money is what is driving today's economy. And when money is cheap strange things happen. I think we are in the midst of the last sprint before the proverbial falling off a cliff. The same mistakes that were made at the burst of the dot com bubble are being made now. Except that now we have no new wars to stimulate the economy, no new tax cuts, no housing market to generate jobs and riches, and no breakthrough technology.
Furthermore the geopolitical tensions in the middle east are simmering. There is a high likelihood of another military incursion taking place which may embroil powerful nations putting further strains on the oil supply and ultimately leading higher oil. That is without taking into account the continued slide of the dollar because of the continued money printing by the Fed.
So where are the good news? Where are the bright spots? Perhaps this is the story of two Americas. The employed and the unemployed. Perhaps I am projecting my own fear into the investment landscape. But I just do not see what will move the economy forward. Where is the growth going to come from? I do not see it, which is why I sold off the portfolio.
The market is rallying and I do not know why. I don't understand what the market is anticipating. I do not see 2011 as being a good year. The US treasury market is in a bubble, China is experiencing a real estate bubble, the labor market is not recuperating, and the Fed is about to start another round of easing by buying government bonds.
Does any of the above sound like a recipe for a buoyant stock market? I don't think so. I can't think of a single reason why stocks should continue to perform well. Well, what about the earnings?
JPM and AA reported earnings this week and were in line with expectations. As I type this AAPL has hit a new 52 WH. GOOG has just reported earnings and the stock is up nearly 10% after market. NFLX is just off its 52 WH. All three of these stocks have not been in my portfolio in the last 12 months. In general, these companies have done well on the bottom line. But are they reflective of the overall stock market? Perhaps they are and people are laughing their way to the bank as I write this blog.
But when I put my glasses on I do not see anything that remotely resembles signs of optimism. Cheap money is what is driving today's economy. And when money is cheap strange things happen. I think we are in the midst of the last sprint before the proverbial falling off a cliff. The same mistakes that were made at the burst of the dot com bubble are being made now. Except that now we have no new wars to stimulate the economy, no new tax cuts, no housing market to generate jobs and riches, and no breakthrough technology.
Furthermore the geopolitical tensions in the middle east are simmering. There is a high likelihood of another military incursion taking place which may embroil powerful nations putting further strains on the oil supply and ultimately leading higher oil. That is without taking into account the continued slide of the dollar because of the continued money printing by the Fed.
So where are the good news? Where are the bright spots? Perhaps this is the story of two Americas. The employed and the unemployed. Perhaps I am projecting my own fear into the investment landscape. But I just do not see what will move the economy forward. Where is the growth going to come from? I do not see it, which is why I sold off the portfolio.
Tuesday, October 5, 2010
Speaking of Profits!
I took some profits yesterday when the market swooned 1%. I paired back my investments thinking that the market was headed towards a bad place. As soon as I paired my losses, I felt this nagging feeling that I was doing the wrong thing.
Today the market rallied nearly 2% and yesterday's nagging feeling turned today into real regret. Yesterday I sold RIMM at 49, BIOD at 4.75 and EK at 3.9. All were profitable positions, but less so yesterday than they were on Friday at the close of trading.
I wanted to hold RIMM for a significant time frame, but in the end I was only able to hold it from an average price of 46 to 49. Why did I sell it? Well, I did not want to see all the profits disappear. Some profits is better than a loss! Unfortunately, I did not pare back on my SH position. As a result, I am currently net short the market, and today's 2% rally set me back by $500. The loss of $500 did not bother me at all. It was the knowledge that if I had not altered my portfolio that loss would have been a net gain today.
Why did I sell on Monday? Well, I was nearly 100% invested on my retirement account. I was nearly break even once again, and I did not want to see the portfolio take another swoon if the market began to crack. In essence it was an emotional response driven by the news of the day. Nothing had changed other than my own perception of the news, and my perception turned out to be incorrect.
So now what do I do? I have altered my portfolio to the point of confusion and I feel like I should sell it off and wait for a more opportune moment or a few months to see how things play out.
This week is a big week. AA reports earnings, and MON reports earnings. If the past is prelude, the earnings are likely to be good, but the guidance poor. There are so many signs that companies are going to be guiding lower for the next quarter and the next year. Currently the game is turning towards what will happen in 2011. It's no longer about 2010. Perhaps that is what is bugging me at the point. I have no idea what is going to happen in 2011, at least I don't see anything good happening.
Euphoria has seeped back into the markets, and I truly think that the euphoria is about to end.
Today the market rallied nearly 2% and yesterday's nagging feeling turned today into real regret. Yesterday I sold RIMM at 49, BIOD at 4.75 and EK at 3.9. All were profitable positions, but less so yesterday than they were on Friday at the close of trading.
I wanted to hold RIMM for a significant time frame, but in the end I was only able to hold it from an average price of 46 to 49. Why did I sell it? Well, I did not want to see all the profits disappear. Some profits is better than a loss! Unfortunately, I did not pare back on my SH position. As a result, I am currently net short the market, and today's 2% rally set me back by $500. The loss of $500 did not bother me at all. It was the knowledge that if I had not altered my portfolio that loss would have been a net gain today.
Why did I sell on Monday? Well, I was nearly 100% invested on my retirement account. I was nearly break even once again, and I did not want to see the portfolio take another swoon if the market began to crack. In essence it was an emotional response driven by the news of the day. Nothing had changed other than my own perception of the news, and my perception turned out to be incorrect.
So now what do I do? I have altered my portfolio to the point of confusion and I feel like I should sell it off and wait for a more opportune moment or a few months to see how things play out.
This week is a big week. AA reports earnings, and MON reports earnings. If the past is prelude, the earnings are likely to be good, but the guidance poor. There are so many signs that companies are going to be guiding lower for the next quarter and the next year. Currently the game is turning towards what will happen in 2011. It's no longer about 2010. Perhaps that is what is bugging me at the point. I have no idea what is going to happen in 2011, at least I don't see anything good happening.
Euphoria has seeped back into the markets, and I truly think that the euphoria is about to end.
Monday, October 4, 2010
When To Take Profits
Taking profits is one of the toughest aspects of investing. In many ways selling a stock is like parting with a friend with whom one has spent time and effort to know and to understand. After all, one never leaves when the relationship is going well and there is still much to give each other.
Similarly, who wants to sell a stock when it is making money? Who's to say the peak has been reached and that there are no more profits to follow? Why abandon a good investment?
In investment parlance, one is seeking to maximize investment returns, and if stock has reached the peak of its earning potential then it should be sold. The idea is elegant and straight forward, but in reality it's difficult to implement.
What after all is a maximized investment return? Is it 5%, 10%, 15% or some other percentage? According to the theory, the return needs to be risk weighted. A riskier investment should return more than one with less risk. Fair enough. But again the question remains: how can one implement this risk adjusted rate of return theory?
For example: BIOD was up 40% twice since I bought it. Most recently it was up 2K, and I did not sell it because I expected more. Now half the profits are gone and I only have 1K left. Do I sell? RIMM is up about 10% since I bought it. It's gone from 46 to slightly over 50. Do I sell?
How can I judge what is a fair price to sell these stocks? Before I answer that question I also have to state that both of these positions were down about the same percentage, 40% for BIOD and 10% for RIMM.
The market has no friends. It's a cold, erratic and often illogical amalgamation of opinions. The market focuses on one thing today and another one tomorrow. Bad news are greeted with price increases and good news with price decreases. In the mist of this madness, how is one to implement this elegant risk adjusted return theory.
Min-Max is my answer! As painful as it is to part with a good friend, profits have to be taken at the max level. For BIOD this would be the $6/share level and for RIMM it would be $55/share level. One of the fundamental rules of trading, one which I have not yet learned, is that before making the trade I should have a stop loss and a profit target. This rule makes sense but implementing it seems to require discipline.
Again, it's a nice theory, but then I would not have held on to NFLX, APPL or GOOD during their meteoric rise. How then to know when to use this stop loss/target profit idea and when to discard it? A small profit sometimes is not better than a small loss if it means giving up bigger profits. In retrospect this is always clear, but peering into the future to see this is what makes it difficult.
Similarly, who wants to sell a stock when it is making money? Who's to say the peak has been reached and that there are no more profits to follow? Why abandon a good investment?
In investment parlance, one is seeking to maximize investment returns, and if stock has reached the peak of its earning potential then it should be sold. The idea is elegant and straight forward, but in reality it's difficult to implement.
What after all is a maximized investment return? Is it 5%, 10%, 15% or some other percentage? According to the theory, the return needs to be risk weighted. A riskier investment should return more than one with less risk. Fair enough. But again the question remains: how can one implement this risk adjusted rate of return theory?
For example: BIOD was up 40% twice since I bought it. Most recently it was up 2K, and I did not sell it because I expected more. Now half the profits are gone and I only have 1K left. Do I sell? RIMM is up about 10% since I bought it. It's gone from 46 to slightly over 50. Do I sell?
How can I judge what is a fair price to sell these stocks? Before I answer that question I also have to state that both of these positions were down about the same percentage, 40% for BIOD and 10% for RIMM.
The market has no friends. It's a cold, erratic and often illogical amalgamation of opinions. The market focuses on one thing today and another one tomorrow. Bad news are greeted with price increases and good news with price decreases. In the mist of this madness, how is one to implement this elegant risk adjusted return theory.
Min-Max is my answer! As painful as it is to part with a good friend, profits have to be taken at the max level. For BIOD this would be the $6/share level and for RIMM it would be $55/share level. One of the fundamental rules of trading, one which I have not yet learned, is that before making the trade I should have a stop loss and a profit target. This rule makes sense but implementing it seems to require discipline.
Again, it's a nice theory, but then I would not have held on to NFLX, APPL or GOOD during their meteoric rise. How then to know when to use this stop loss/target profit idea and when to discard it? A small profit sometimes is not better than a small loss if it means giving up bigger profits. In retrospect this is always clear, but peering into the future to see this is what makes it difficult.
Thursday, September 30, 2010
Turning Points
Turning points, or inflections points, are crucial price points where the stock price begins to head in the opposite direction. If a stock price is declining, the turning point marks the bottom of the descent and if the stock price is increasing, it marks the top of the ascent.
Turning points is a theory based on Min-Max analysis. Barring bankruptcy, and any other unforeseen situations such as fraud like in the case of Enron and Worldcom, all stocks have a base price which can be determined by using the financial statements. Total share holder's equity, working capital, market cap multiple to sales, etc, can all be used to determine a stock's base price. Likewise, these ratios can also be used to determine a stock's top price based on the stock's historical averages and comparable against other companies.
In mathematics, most continuous functions have a min-max property. Stocks can be likened to smooth continuous functions, and in any stock chart it could be seen that these min max properties do appear in the charts. I think it is this belief that has shaped my investment philosophy.
As stated earlier, barring bankruptcy, I want to make a purchase at a min price and exit the position at a max price. Or alternatively, short a company at a max price and exit the position at the min price. This approach to investing implies the following:
With regard to IPO's, there is no historical price pattern to base a min-max decision on. With respect to research companies, there is no meaningful financial information to compute ratios. And with respect to 52 week highs or lows, the max or min is yet to be formed.
This would imply that my investment candidates would consist of mature companies or new companies that have been trading for at least one year, and I should focus on companies that are range bound and have a well determined min and max.
This analysis would explain my continued persistence in buying companies that are dropping in price and selling near their min point, and my constant shorting of companies making new highs near their previous high point. While this may sound like a great idea, in general practice this is a recipe for disaster!
From a market perspective, it implies buying companies the market is shunning (i.e. RIMM, BBI) and shorting market darlings (i.e. AAPL, NFLX). From an economics perspective, it implies buying companies with decreasing market share (YHOO), and shorting companies with increasing market share (GOOG). From a financial perspective it implies buying companies with decreasing profit or even loses (AMD), and shorting companies with increasing profits (INTC). Overall it, implies being a contrarian!
Min-max is great for mathematics, but if applied literally to stock investing it leads to losses instead of profits. In reality one wants to ride the bull and short the bear. Literally this would mean buy at the max and short at the min! This is what actually works in real life. Old mins get breached and go lower, and old max get breached and go higher.
In a way, investing requires a lot of optimism. It requires blind faith to believe that something that is going up will continue to go up and something that goes down will continue to go down, which in our gravity bound world does not work all the time!
After all, this blind optimism leads to tulip mania, dot com mania and housing mania. All of these manias have at their heart the greater fool theory in common. As Charles Prince, the ex CEO of Citigroup once said, "as long as the music is playing, one needs to keep on dancing". So keep buying as long as one is not the greater fool making the last purchase at the highest price!
Is it possible to reconcile min-max theory with the market reality? Perhaps it is, and I need to give it some thought. Eventually min-max does work. Stock prices don't continue going up forever, and eventually, aside from bankruptcy, most companies do have a bottoming out price at which they either recover (AAPL, F, YHOO, EBAY) or get bought out by other companies (PALM, SUN). The secret of applying min-max theory to stock investing would be determining how to avoid companies that either go bankrupt (GM, BBI, LEH, WCOM, ENRON) or get take under offers such a Bear Sterns.
Turning points is a theory based on Min-Max analysis. Barring bankruptcy, and any other unforeseen situations such as fraud like in the case of Enron and Worldcom, all stocks have a base price which can be determined by using the financial statements. Total share holder's equity, working capital, market cap multiple to sales, etc, can all be used to determine a stock's base price. Likewise, these ratios can also be used to determine a stock's top price based on the stock's historical averages and comparable against other companies.
In mathematics, most continuous functions have a min-max property. Stocks can be likened to smooth continuous functions, and in any stock chart it could be seen that these min max properties do appear in the charts. I think it is this belief that has shaped my investment philosophy.
As stated earlier, barring bankruptcy, I want to make a purchase at a min price and exit the position at a max price. Or alternatively, short a company at a max price and exit the position at the min price. This approach to investing implies the following:
- IPOs are avoided
- Research companies, such as bio medical companies with no financial statements, would be avoided
- Stocks making new 52 week highs and new 52 week lows would be avoided.
With regard to IPO's, there is no historical price pattern to base a min-max decision on. With respect to research companies, there is no meaningful financial information to compute ratios. And with respect to 52 week highs or lows, the max or min is yet to be formed.
This would imply that my investment candidates would consist of mature companies or new companies that have been trading for at least one year, and I should focus on companies that are range bound and have a well determined min and max.
This analysis would explain my continued persistence in buying companies that are dropping in price and selling near their min point, and my constant shorting of companies making new highs near their previous high point. While this may sound like a great idea, in general practice this is a recipe for disaster!
From a market perspective, it implies buying companies the market is shunning (i.e. RIMM, BBI) and shorting market darlings (i.e. AAPL, NFLX). From an economics perspective, it implies buying companies with decreasing market share (YHOO), and shorting companies with increasing market share (GOOG). From a financial perspective it implies buying companies with decreasing profit or even loses (AMD), and shorting companies with increasing profits (INTC). Overall it, implies being a contrarian!
Min-max is great for mathematics, but if applied literally to stock investing it leads to losses instead of profits. In reality one wants to ride the bull and short the bear. Literally this would mean buy at the max and short at the min! This is what actually works in real life. Old mins get breached and go lower, and old max get breached and go higher.
In a way, investing requires a lot of optimism. It requires blind faith to believe that something that is going up will continue to go up and something that goes down will continue to go down, which in our gravity bound world does not work all the time!
After all, this blind optimism leads to tulip mania, dot com mania and housing mania. All of these manias have at their heart the greater fool theory in common. As Charles Prince, the ex CEO of Citigroup once said, "as long as the music is playing, one needs to keep on dancing". So keep buying as long as one is not the greater fool making the last purchase at the highest price!
Is it possible to reconcile min-max theory with the market reality? Perhaps it is, and I need to give it some thought. Eventually min-max does work. Stock prices don't continue going up forever, and eventually, aside from bankruptcy, most companies do have a bottoming out price at which they either recover (AAPL, F, YHOO, EBAY) or get bought out by other companies (PALM, SUN). The secret of applying min-max theory to stock investing would be determining how to avoid companies that either go bankrupt (GM, BBI, LEH, WCOM, ENRON) or get take under offers such a Bear Sterns.
Saturday, September 25, 2010
A Pattern Emerges
On Tuesday after the close, ADBE reported earnings. The earnings met and slightly beat the expectations. However, the company's forecast for the next quarter was lower than expected.
The stock tanked 20% at the open hitting a low of 25.81 on heavy volume, slightly dipping past its resistance price of 26. Shortly after making its new 52 week low, the stock price began to rise slowly, closing the day at 26.67. The next day the stock struggled to remain above 25.5. In the final hour of trading, along with the overall S&P index, the selling pressure increased and the stock dropped, closing at 26.41.
I followed the news and the price action for the those two days. On Wednesday, the day of the 20% drop, I read ADBE's SEC earnings report and focused on the balance sheet. I did a quick analysis and calculated different ratios: asset turnover, market cap to equity, working capital, and profit margin. By Thursday I had almost convinced my self that I wanted to buy the stock.
On Friday, the market opened very strong. Everything was going up. The durable goods report had been released that morning and, ex transportation, increased more than expected. Additionally, an influential fund manager was interviewed on CNBC before the open and he stated that now was the time to buy stocks. All of this pushed the market to close 2% higher.
During this intraday rally I decided that ADBE had to be in my portfolio. I took a 500 share position and liquidated NBG to raise funds for the purchase. Also, on Thursday, I had sold S and AONE to raise funds and ADBE took up most of those funds as well.
Today, my portfolio consists of a few stocks with concentrated positions. Ordered by decreaing percentage, they are SH (hedge), RIMM, ADBE, AA, VLO, BIOD, and EK. This is quite a marked difference from a month ago when I held several small positions on different stocks. In particular, all these stocks have something in common. All of them are previous high fliers that have fallen out of grace. Basically, they are contrarian plays. I buy stocks from the discount bin when the market decides that companies are no longer worthy of high multiples.
Through out this gradual portfolio shift, a pattern has reemerged. Concentrated positions on value plays. Try as I may, it seems that I always revert back to the same investing strategy. I have never owned a stock that is making new 52 week highs just about every week or that has gone up 10 fold in a year's time, like NFLX. I have to think why it is that I can not buy into growth companies WHILE they are growing. I need to go back and examine why this value investing strategy is so ingrained in me. Is it my education? Previous investing mistakes? Is it risk aversion? Could it be a combination of all these elements?
Investing is a very rewarding business when it's done well. But it's a game, and like any game I have yet to learn all the rules. And like other games, it's a game which causes a lot of introspection and a lot of self questioning. There is a pattern in my investing, and I need to figure out what drives it and why.
The stock tanked 20% at the open hitting a low of 25.81 on heavy volume, slightly dipping past its resistance price of 26. Shortly after making its new 52 week low, the stock price began to rise slowly, closing the day at 26.67. The next day the stock struggled to remain above 25.5. In the final hour of trading, along with the overall S&P index, the selling pressure increased and the stock dropped, closing at 26.41.
I followed the news and the price action for the those two days. On Wednesday, the day of the 20% drop, I read ADBE's SEC earnings report and focused on the balance sheet. I did a quick analysis and calculated different ratios: asset turnover, market cap to equity, working capital, and profit margin. By Thursday I had almost convinced my self that I wanted to buy the stock.
On Friday, the market opened very strong. Everything was going up. The durable goods report had been released that morning and, ex transportation, increased more than expected. Additionally, an influential fund manager was interviewed on CNBC before the open and he stated that now was the time to buy stocks. All of this pushed the market to close 2% higher.
During this intraday rally I decided that ADBE had to be in my portfolio. I took a 500 share position and liquidated NBG to raise funds for the purchase. Also, on Thursday, I had sold S and AONE to raise funds and ADBE took up most of those funds as well.
Today, my portfolio consists of a few stocks with concentrated positions. Ordered by decreaing percentage, they are SH (hedge), RIMM, ADBE, AA, VLO, BIOD, and EK. This is quite a marked difference from a month ago when I held several small positions on different stocks. In particular, all these stocks have something in common. All of them are previous high fliers that have fallen out of grace. Basically, they are contrarian plays. I buy stocks from the discount bin when the market decides that companies are no longer worthy of high multiples.
Through out this gradual portfolio shift, a pattern has reemerged. Concentrated positions on value plays. Try as I may, it seems that I always revert back to the same investing strategy. I have never owned a stock that is making new 52 week highs just about every week or that has gone up 10 fold in a year's time, like NFLX. I have to think why it is that I can not buy into growth companies WHILE they are growing. I need to go back and examine why this value investing strategy is so ingrained in me. Is it my education? Previous investing mistakes? Is it risk aversion? Could it be a combination of all these elements?
Investing is a very rewarding business when it's done well. But it's a game, and like any game I have yet to learn all the rules. And like other games, it's a game which causes a lot of introspection and a lot of self questioning. There is a pattern in my investing, and I need to figure out what drives it and why.
Friday, September 17, 2010
The Aftermath
RIMM opened near its after market close of 48.61. Immediately after the open, the selling pressure began. The stock finished the 10AM trading hour at 47.15 and meandered between 47.75 and 47.30 for the next few hours. I decided that I should not let this opportunity slip away, even though my current holding was close to 10% of my trading account.
I still had cash left in my main trading account, but to raise more cash, I sold my position on NOK and used all my cash to triple my RIMM position. I bought additional shares at 47.32, at what seemed like a great bargain. I entertained the idea of buying RIMM for my other accounts because I did not want to liquidate more positions. Fortunately, I stopped myself.
At the low of the session, around 3PM, RIMM traded for 46 - briefly going negative for the day. It closed at 46.64, nearly unchanged after reporting strong earnings. MY P&L took a hit because I lost some of my original gains. I now hold a RIMM position with an average price of 46.30, close to today's closing price.
Why did I increase my position to 23% of my account when my rule is not to exceed 10%? Because the fantasy of huge profits took over my will. I still expect RIMM to trade up to 56 in the near future. That is nearly 20% from where I bought my last position. I think that it will be very easy for RIMM to trade up to that level, even though today the price was nearly unchanged.
I rarely like to hold concentrated positions, but I concluded throughout the trading day that if RIMM goes down by 5%, my trading account will decrease by 1.1%, but my portfolio will only decrease by 0.65%, because RIMM is only 13% of my overall portfolio. I won't go broke even if RIMM decreases 10% from my average purchase price. It will hurt, but I won't be out of business. Six months from now, I do not want to see that RIMM increased to 60 and that I could have bought at today's closing price of 46.75. That would be too much of a regret!
I still had cash left in my main trading account, but to raise more cash, I sold my position on NOK and used all my cash to triple my RIMM position. I bought additional shares at 47.32, at what seemed like a great bargain. I entertained the idea of buying RIMM for my other accounts because I did not want to liquidate more positions. Fortunately, I stopped myself.
At the low of the session, around 3PM, RIMM traded for 46 - briefly going negative for the day. It closed at 46.64, nearly unchanged after reporting strong earnings. MY P&L took a hit because I lost some of my original gains. I now hold a RIMM position with an average price of 46.30, close to today's closing price.
Why did I increase my position to 23% of my account when my rule is not to exceed 10%? Because the fantasy of huge profits took over my will. I still expect RIMM to trade up to 56 in the near future. That is nearly 20% from where I bought my last position. I think that it will be very easy for RIMM to trade up to that level, even though today the price was nearly unchanged.
I rarely like to hold concentrated positions, but I concluded throughout the trading day that if RIMM goes down by 5%, my trading account will decrease by 1.1%, but my portfolio will only decrease by 0.65%, because RIMM is only 13% of my overall portfolio. I won't go broke even if RIMM decreases 10% from my average purchase price. It will hurt, but I won't be out of business. Six months from now, I do not want to see that RIMM increased to 60 and that I could have bought at today's closing price of 46.75. That would be too much of a regret!
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