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.