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.The economy is cycli-cal, as is the stock market.You re going to have to ride out a few ccc_payne_285-310_ch12.qxd 3/13/07 8:02 AM Page 304304 ACT AND GET RICHof these bumps to maximize your gains.I mention growth in twoof the boxes in Table 12.5.These represent your best cyclical hold-ings, companies that are growing the top line by 20 percent ormore year over year, are expanding their margins, carry little tono debt, and have the ability to keep it going for the next year orlonger.Allocation of FundsMake sure you are using the same dollar amount in each alloca-tion box no exceptions.So many portfolios are harmed with poordistribution of funds.The two biggest mistakes:1.Buying the same number of shares.Investors like to do this, al-though I m not sure why.2.Buying a lot of shares of a cheap stock.This is their version of thehome run swing, plus it feels great to brag at the local pub, Ihave 100,000 shares of XYZ. I don t advocate options, but when the market takes off in astraight line on the upside or falls through a trapdoor on the downside and you are trying to gain leverage, monies set aside for trad-ing ideas could be used for calls or puts.I must say I m very reluc-tant to give the nod to any options at all I believe they reultimately a sucker s game.But if you pick your spots right, theycan generate huge financial windfalls.Nurturing Your PortfolioYour portfolio is in place and now it s time to become a caretaker.Keep in mind that even if all your boxes are filled, you are alwayson the lookout for new ideas and always making sure the posi-tions you own continue to make the grade.Once again you willuse charts but mostly you will rely on fundamentals, how well thecompany is doing.Earnings announcements and other economicupdates from the company will be important tools.Watching forshifts in the economy is a must as well.Remember, if there aresigns that the economic backdrop that was beneficial for yourholdings is changing, then you can take action. ccc_payne_285-310_ch12.qxd 3/13/07 8:02 AM Page 305The Care and Feeding of Your Portfolio 305Scaling Out and Scaling into PositionsExiting is where most people make their stock market mistakes,and for the most part they make the mistake of selling too earlyand for too little money.I ve had ideas that have been the numberone percentage gainer of the day and I ve looked into our databaseto see which clients were long.Lo and behold, there are always anumber of clients who had been in the stock but had already soldit for a minuscule gain or even a loss.Keep this in mind: You are going to be in the stock market forthe rest of your life, so stop treating it otherwise.The stock marketdoesn t go up in a straight line and neither have the great stock in-vestments of all time.You don t have to play the market like ascared rabbit.Of course, I say this in the aftermath of the stockmarket meltdown of 2000, when a lot of novices lost a lot ofmoney.When you think back to the horror stories, ask yourself afew questions:Did you or your friends lose a lot of money in a company thatwas profitable and actually had an operating history older thantwo years?Where is the current share price of the quality stocks that yousold because you lumped them in with the nonquality names inyour portfolio at the time?Take a look at the five-year stock chart of the top 10 places youspend your paycheck each month.I bet 8 or 9 of them are upnicely and going to go even higher.You must think fast, but that doesn t mean you should sell be-cause of a case of the nerves.Instead you want to act smart, too.It is best to build equity positions over time and not to buy theentire position in one trade.The exception to this is when you rebuying high-flying stocks, positions that you think will be short-lived.If you hesitate your cost could be higher than you wanted,and then you will be more reluctant to sell even though the sig-nals and underlying movement suggest exiting is the best courseof action.As the stock increases in value there will be higher hurdles tocross, and that increases the risk of pullbacks.In fact, as the stock ccc_payne_285-310_ch12.qxd 3/13/07 8:02 AM Page 306306 ACT AND GET RICHmoves higher, look out for brokerage downgrades based on valua-tion.These have an immediate impact on the underlying shareprice, but I ve seen stocks rebound from this situation.Nonethe-less this is a shot across the bow and highlights the increased riskgoing forward.Once you re up more than 40 percent in a position and you veheld the stock for less than a year, you want to play it close to thevest.You don t have to exit automatically, but you don t want toallow a big win to evaporate or even become a loss.I think it is bet-ter to exit profitable ideas in two parts when the stock is still mov-ing higher.If there is something alarming, a real fundamentalchallenge and not just theory or rumor, then exiting the entire po-sition is best.Keep in mind that there is a psychological aspect to investingin the stock market that can hamper your efforts in the future.Leaving money on the table is infinitely less damaging to thepsyche than letting a winner become a loser.By the same token,having the nerve to own a great stock for years and handling thebumps that come with the market is the way to big money.Andalways remember, you can take profits on a great company sstock and buy it back.Never sell the stock and totally discard itmentally.More than likely you ll be happier that you bought itback (most likely on weakness) than if you simply ignored it be-cause you already made money in it before and the play is overin your mind.Listening to the Conference CallThe conference call is open to the public, and I think there is nobetter way to learn about the health of note only the companiesyou re invested in but also the industries themselves.The analystsasking questions during the call have intimate relationships withthe companies and will ask about things you never thought of.There will be scuttlebutt and questions that really bring thecompany into focus beyond a numeric story of execution [ Pobierz całość w formacie PDF ]