Friday, June 28, 2013

Bear Trap with Caveat, Don't Kill Bears

My last post laid out what I pretentiously refer to as the theory of  how I eat the bear.  Now I shall attempt to explain how I lure the bear into my trap without getting mauled, and then...

I would never kill a bear and you shouldn't, either.

Spreadsheet
I have an Excel spreadsheet.  My favorite stocks--the only stocks I deal with--are listed there in alphabetical -ish order.

Brainstorm
If you're new to all of this, the first thing you would do before setting your spreadsheet up is to come up with a list of stocks.  Don't worry about wedges or up-and-down stocks, we're just brainstorming here.

One of the stocks I like best is MAT--Mattel.  Josh suggested it, (he's like one of those sticks that points to where water is) because Imaginex toys are awesome.  So I click-researched MAT, and lo!, it's a wedge stock.  It quickly became the MVPs of my portfolio.  I was sad when I was forced to sell it at 11%.  Don't worry!  I bought it again when the Feds stopped nursing the economy and everyone freaked out.

I ate that bear.

Point is, good stuff comes from good companies.  Your own interests as a consumer is a reasonable guide.  It's a good idea to pick companies with which you're familiar and whose products or services you use.  That way, you're in touch with what's going on with that company from the perspective of a consumer.

On the other hand, I bought Apple long before I had an i phone that never lets me unload my photos or take  more because I have 3000 of them.  I just thought the company was cool.  I loved the ads.  I did the click-research, I liked what I saw, and they weren't doing anything egregious.  I bought at $245.  Did very well with that pick.

 The other way to add to your list is to click-research mutual funds, as I mentioned in my previous post.  You can click-research how mutual funds perform.  You may discover that they're knee-deep in pork bellies, Enron, and beagle-testers, but they probably list one or two companies that you can stomach.  Then you can click-research those and maybe add them to or cull them from your list.

Click-research
So, when you do click-research, what do you look for?

We've talked about the environmental and accounting ratings.

We've talked a little bit about the charts.  Did you know there's a lot of voodoo surrounding those charts?  I went to a seminar once...

Now, I'm all for astrology.  It's a fine basis for forming relationships and generalizing about personality disorders, but what does a symmetrical triangle augur?  Or a diamond bottom, or a bottom triangle, or a double top, or a muffin top...?

Okay, there is no muffin top, but there is a diamond bottom.

Yeah.  I know!  What do they think we eat for breakfast, hay?

I'll stick to my up and down stocks and wedge stocks, thanks anyway.  I know what they mean.  If it's been going up and down for a year, it will probably continue to go up and down.  If it has been steadily increasing in value for years, that trend will probably continue as well.

Up and down stocks can be profitable, but the approach is completely different.  You must buy when it's down, and sell when it's up.  You have to look at it every day, maybe twice, maybe thrice, so you don't miss your opportunity.  I've done this with several stocks over the years with maybe 60% success and 40% regret.  (Hello, MMJ-Medical Marijuana, I'm talking about you!)

But eventually, I got tired of checking my portfolio two or more times a day, so I avoid those stocks.

A Note about setting up Alerts
You can set up alerts on-line that will text or email you when a stock reaches the price that you set, like an alarm clock.  Wake me when Apple hits 445.  Wake me when Google drops to 799.

The alert works, kinda.  They're always a little bit late.  By the time I get into my portfolio 20 seconds later,  the price has already exceeded or dropped below my wake-up price by a significant margin.

Did I hit snooze?  No, I did not.  Who hit snooze?  Someone did.  It wasn't me.

Adjust your alerts accordingly, allowing for notification to be late.

Sometimes you're better off staying awake, but the alert function is helpful when you really only want to be made aware of your portfolio in the event of a dramatic change that you'll want to act on immediately while snorkeling.

How to use the charts

Look at a three-month chart of the stock you want to buy.  What is the median price-point of the stock?  That would be an acceptable place to start buying.  You may not get that price if the stock is on the ascent, but chances are that it will become available at or below that price fairly soon.

You could set up an alert, or you could just keep an eye on it.

If a three-month chart shows that share prices are going nowhere but up, and you know that this company is solid and about to come out with the first hybrid mini-van that can go from 0 - 60 in less than five minutes, start buying, even if it's high.

Start buying.  Don't finish buying.

If you see yourself spending $10,000 on this stock, buy $3,000 or $5,000, if that wedge is smooth as glass.

Annual Highs and Lows
Consider the stock's highest and lowest price points of the last 52 weeks (that's not on the chart but it's near the chart).

How does today's price compare?   Is it in the middle?  Is it the highest price of the year?  Is it the lowest?  WHY?

Consider the dates next to those  price points; even if the company product isn't seasonal, the market at large is.  Where are you on that chart?  In June?  Or November?  Look at five years.  See a pattern to each year?  No?  Never mind, then.

Buy a little at a time, have a cap in mind
No matter what, unless you know better, which you might, buy a little at a time.  Buy 30% of what you plan to spend in total on this stock--and DO have a cap in mind.  This sets up a win-win situation.  If it goes up tomorrow, you'll make money.  If it goes down tomorrow, you can buy more shares at a lower price.

Time is a tool, like a light saber, or a potato peeler...
Use time to your advantage.  How much time often depends on the nature of the stock itself.

Get to know your stocks over time, build on your list gradually

It's a good idea to start with a few stocks or, if you have a lot of money to allocate, a dozen.  Get to know them.  Once you buy them, your ears will prick up when you hear them mentioned on the news, in conversations, on the ticker tape...You'll become aware of them without even trying.

If you start out with too many stocks, this new awareness will become a source of chaos and confusion--unless, like me, your mind is a steel trap, a sponge, a black hole of detail absorption to infinity.

What was I saying?  Oh, yeah.  Steel trap.  Not very humane.

Back to the chart.  

First column:  Your stock picks.  Alpha order.

Highlight in whatever color you like, the cell (not the font) of the stocks that you currently own.  When you sell them, remove the highlight.  This way, you can tell in a glance what you have and what you don't have among the stocks you trade in.

Second column: The date you bought or sold shares.  I don't care how many shares.  No box for that.

Third column:  When you buy a share, put the price in parenthesis.  When you sell a share, don't use parenthesis.

Feeble graphic:

stock   date  (price)  date   (price)  date  price  date  (price)  date  (price) date  price
stock   date  (price)    date    (price)    date  (price)   date  price   date   price   date  (price) date   price ...

This gives you most of the information you need at a glance to make a decision to sell or buy shares.

  1. It's a list of the stocks you've researched and like.
  2. It tells you when you last bought or sold shares.
  3. It tells you what you sold shares for and when.  (Ideally, when you buy the stock again, you'll buy it a lower price than what you sold it for.)
  4. Referring to it before you sell can prevent you from a good-faith in trading infraction on a super-short sale, like if you haven't yet paid for the shares that you're selling
  5. You can see the history of the stock's fluctuations.
  6. It mirrors your trading behavior.  (AAAAAAH!)
Your crazy trading behavior
Point six addresses the problem of people's tendency (not mine, but people's) to trade emotionally, instead of cognitively.  The spreadsheet--don't neglect to update it--is like a bathroom scale.  If you're an emotional trader, it shows, on the spreadsheet.


I've made plenty of trades from my cell phone in the dog park, only to go home to my Excel spreadsheet and discover that I'd sold stock on a Monday that I'd bought the previous Friday, which is some kind of good-faith violation that gets reported to the IRS.  Or maybe I bought it on Friday because the price was low, but then on Monday I couldn't handle the anxiety and I sold it.  (Time!  Time.)

Live and learn.

Fear.  Listen to it.  Maybe act on it.
No police officer would tell you to ignore the fear that informs you that all is not well. When you feel that fear, look at your spreadsheet.  Look at the news about the market and that company.  

A good palliative is to sell half of your shares instead of all of them.  That way, guess what!, if the price goes down, you've lost less; if the price goes up, you've lost even less, maybe even made some money.  

Having an all-stock portfolio is considered high-risk.  But my experience has been that my risk-averse, win-win, keep money on hand with which to eat the bear approach to managing my investments has weathered a few storms and served me well.  

I am continuing to learn, but I am confident that I can manage my own investments, and I enjoy doing it most of the time.  I probably now spend about 20 minutes a day on it, not counting this blog.  I used to spend a lot more time on it, and I had lots of hares and I enjoyed the excitement of that up-and-down game.  But, it got to be a drain on my time, so lately my portfolio stables tortoises, mostly, with a few hare-torts (like AAPL, that she-devil of an Easter bunny), just to keep me on my toes.   

I'm very happily not paying someone else to tell me I can't in a language I don't savvy.

FOOTNOTE 1
Here is a list of the stocks that I follow.  Not all of them are presently in good standing; some of them are in the dog house.  Be sure to do your own click-research before buying anything.  

AAPL, ADBE, AMZN, BBY, COST, CSCO, CTL, DHR, DIS, EBAY, ETH, F, FB, FDX, GM, GOOG, HD, HMC, INTC, JNJ, LNKD, MAT, NFLX, ORCL, PAY, PG, SBUX, TM, TGI, SNDK, TGT, TWX, VPL, WHR






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