PeakTrader.com

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PeakTrader said...

Portfolio management is very important, along with economics, fundamental analysis, and technical analysis, although almost every technical indicator fails at some point.

A portfolio stop loss, for example, will avoid large losses and preserve capital in "irrational" market periods, or taking advantage of volatility to lower average costs can minimize losses, along with managing the cash position.

So, for example, although a stock e.g. KBH fell from 16 to about 11 1/2 over the past three months (from the continued poor housing market), your average cost, e.g. from sound portfolio management, could be under 12.

Of course, managing (which includes some trading) a stock you know is a big advantage. I tend to focus on few stocks (in recent years: C KBH AMGN IMGN DNDN CTIC XOMA RMBS).

Also, some hedging can work out more often than not (e.g. if you wait for an excellent opportunity, it eventually shows up).

It's not that difficult to "hit it big," although it may happen a year or two later than you think. Nonetheless, the stock market is a "steep learning curve," and I wouldn't risk what you can afford to lose.

Of course, it may be easier to buy something like gold and hold it (with a stop loss) for a couple of years and make a 50% return. However, that may be too small of a return to some.

To give a simple example of portfolio management or optimization, when KBH opened low recently at 11.30, I bought a heavy position and when it fell to 11.00, I used the remaining cash to buy more.

It was more complicated than that, since I sold all the AMGN, at a higher price, and later bought SPY Jun puts at about 134, for a potential market double top, because some indications suggested a market pullback, although the market often rises a little higher to fool people before topping.

Using portfolio management and economics (the housing market was still weak), I had a small to moderate position in KBH before it opened low that day, e.g. 30% of the portfolio at most.

I sold the two KBH positions I bought that day at 11.50 and 11.80, which lowered my average cost and built-up my cash position again.

If KBH continued the other way, e.g. between 10 and 11, I would've set a stop loss at 10, although KBH will likely double or triple within a year or two [and kept a 20% "core" position for a selling price target, e.g. 18].

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Buddy R Pacifico said...

Peak seems to take trading positions in impressive tech and stocks, but I wonder about KBH (KB Homes). KBH had a cancellation rate of 39% for the last quarter and is losing money . Further, Debt to Captilization is 77%, yet the CEO is taking in $ 3.5 million in salary and bonus. This would seem to be a tricky equity to manage successfully.

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PeakTrader said...

Buddy, yes, the housing market may be heading into a double-dip:

Case-Shiller Data Suggest Possible Housing Double-Dip
March 29, 2011

Housing data for January, released today (March 29) by Standard & Poor's/Case-Shiller, show home prices off to a dismal start in 2011.

The housing market recession is not yet over, and none of the statistics are indicating any form of sustained recovery. At most, we have seen all statistics bounce along their troughs; at worst, the feared double-dip recession may be materializing.

Meanwhile, the Conference Board reported more discouraging news: consumer confidence in March fell more than anticipated to 63.4 from 72 in February..."The decline reverses five straight months of improvement."..."A reading of 90 indicates a healthy economy. The index hasn't approached that level since the recession began in December 2007."

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VangelV said...

"Of course, managing (which includes some trading) a stock you know is a big advantage. I tend to focus on few stocks (in recent years: C KBH AMGN IMGN DNDN CTIC XOMA RMBS)."

I would say that you are playing with fire.

C would have been bankrupt without government intervention and is still in trouble. While the Fed has bought a lot of its toxic paper, it is hard to figure out the quality of C's portfolios, particularly given the risks going forward.

KBH is in an industry that has massive overcapacity and terrible demographic headwinds. Nobody in his right mind would pay almost twice book value for a similar company when there are other much better candidates.

The biotech stocks could do very well due to sentiment or actual drug approvals that pan out as expected. But for every person that I know who has made a lot of cash in the sector I know more than one who has lost a pile. Sadly, the sector has far more gamblers looking for quick gains than prudent analysts who are able to understand what is going on at the companies and figure out when or if the regulatory hurdles will be cleared.

The way I see it, there are much safer ways to make a decent return than to buy questionable companies without sustainable earnings at a time when the stock market could still go the wrong way.

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PeakTrader said...

I try to take big risks for big returns in a safe portfolio.

Sometimes a gamble pays off big, e.g. the RMBS Mar 80 2000 calls I had before RMBS rose from 70 to 470 in three weeks (before the stock split), while the Mar 140 calls rose from $6 each (1/16th) to $33,000 each (if you sold at the top). Of course, there've been other big winners, almost of a similar scale.

Nonetheless, it's easy to lose more money than you make, over time, which I and people I know have proven often before.

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Buddy R Pacifico said...

Two of the stocks, that Peak uses for his speculation strategies, are headquarted in a comeback city, Seattle. The two stocks are DNDN (Dandreon) and CTIC (Cell Therapeutics). Bio-Tech will help Seattle comeback.

Cell Therapeutics is the worst performing in the Bio category, with one opinion writer calling for the resignation of the CEO. Dandreon is probably the best Bio with a possible market for itsprostate cancer fighting drug Provenge of $10 billion. CTIC is wildly speculative and DNDN could be a handsome investment. Individual results may vary.

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PeakTrader said...

Buddy, when I research small biotechs, I focus on their drug pipelines, or the potential quality of their drugs (also, it may be silly, but I also take into account if I like their names).

However, you may have to research about a hundred small biotechs to find one or two worth taking the risk.

I recall when I did an extensive search, I picked DNDN and CTIC at the same time, which was quite a while ago, and I was more confident with DNDN.

Also, before that, I recall picking two biotechs at the same time, SQNM (which I forgot to list) and XOMA. I was more confident with SQNM.

All four of those stocks went way up after I picked them, although some fell further before they went up or took longer than I expected to go up. Obviously, they're volatile too.

Yet, if I followed them more closely, I'm sure I would've made a big net gain, or hit it big on one of them.

Moreover, I may add, in the early 2000s, I picked two biotechs at the same time, i.e. IMCL and DNA. IMCL was a big winner for me, and DNA was a smaller winner. I missed the big move on DNA, because I was way too early (DNA became the largest biotech in the world and was eventually bought by a European firm).

Anyway, in the early and mid 2000s, I was focusing mostly on mid and large cap cyclical stocks; the type of stocks VangelV implied, e.g. steel, paper, diversified machinery, etc..