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INM Sept '07 - Things Overheard At The Local IBD Meet-Up
Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net
It was a little bit crazy for me to risk a possible fender bender and maybe even physical injury just to go and meet up with a tiny group of local investors, but that is what I did last week. Driving half an hour on I-95 to go to the IBD Meet-Up last week seemed to offer a relatively poor risk/reward, when I can sit safely at my desk and easily share my ideas with tens of thousand of investors all around the world, simply at the click of a button. Yet, attending the meet-up was rewarding enough to give me a whole lot to talk about in this month's INM column.
The local Meet-Up group actually includes hundreds of online members, but turnout at the meetings had slowed to a trickle and stopped. Robert DiAlberto has taken the reins as the group’s new leader and gotten things moving again. I enjoyed meeting him and a few other nice people. As we discussed a handful of topics, several of them concerned matters I have repeatedly encountered when talking with groups of investors before.
There was some discussion about investors' various goals, with at least a couple of the participants expressing an interest in achieving steady income to replace their job or increase their retirement income without depleting their nest egg. That is likely to be a goal for many investors, and there are investment vehicles that are perfect for investors who need a steady income. We cannot count on the CAN SLIM® investment system to produce a steady monthly income for us. My twenty years of investment experience includes fifteen years with a freakishly fixated focus on O’Neil’s successful growth stock picking program. When you are using this method you have to realize and eventually expect that there will be periods, sometimes many months long, where the M criteria will be working against you. The couple out-of-work real estate attorneys at the meet-up can most certainly understand what it means when a market moves against you.
How do you endure the market’s challenging times if you absolutely must have a steady income without fail? Utility stocks, municipal bonds, and mutual funds designed for income-oriented investors will likely have appeal to you (and the retired woman at the meet-up). It could become tempting along the way to try other approaches in an attempt to force profits from an uncooperative market. However, I would not recommend doing anything too dangerous without being prepared to face the potentially painful consequences.
Speaking of danger, what a perfect time for transitioning to our discussion group’s next topic, as we briefly touched on investment tactics using options and/or LEAPs. I again pointed out, as I have for years, that the risk of losses far beyond the usual guideline of 7-8% becomes much greater when you invest in options. Therefore, I have long discouraged any tactics involving them. People are drawn towards options investing, obviously tempted by the power of leverage. Actually, they teach investors in the CAN SLIM® Certification program to use leverage by going on margin to double the buying power they have. They don’t suggest for you to get leverage by going out and trading options. I do not want to be too closed minded on the subject. You may even notice me helping to circulate some well-written articles from Optionetics that are catering to those of you who are interested in good information. However, before I can really start to get sold on the notion, I want to hear from any of you who have great success stories to share with regard to your options trades. Chime in and do some bragging, please, if you’re out there! My mother (who’s birthday was yesterday) used to say, “It isn’t bragging if it is true.” There must be reasons that some of you are not simply satisfied with a high-ranked stock that might double, triple, or more, like we have seen many of them do.
There was also some talk on the implications of stock splits. In this camp, we believe that splits are usually of very little significance. They should not be a primary reason for anyone to affect a trade. If anything, an ordinary split is usually evidence that a stock has been rising for a pretty good while, which is generally a positive. However, it takes skill in determining if that stock really has a lot further to go. And in “How to Make Money in Stocks” there are cautionary remarks concerning stocks that have split on multiple occasions in a relatively short period and/or large splits compared to a more typical 2-for-1 or even smaller 3-for-2 split.
A good example we might study is one of our old favorites, Hansen Natural Corp. (HANS), which split 2-for-1 in August 2005 and then, less than a year later, did a big 4-for-1 split in July 2006. That big split coincides amazingly with the peak at the end of a 45-fold rise in a span of about 28 months. It was halved in the next two months, and still hasn’t reclaimed that ground. Those who can remember remarkable rise of Qualcomm Inc (QCOM) might also recall its big 4-for-1 split in January 2000 that marked the end of a phenomenal run. It shed almost 90% of its value in the bear market that followed.
The participant who asked about splits was curious because of Research In Motion Ltd (RIMM) and its recent 3-for-1 split. That company has a split in its past too! It was a 2-for-1 split more than three years earlier, in June 2004. Therefore, we would not categorize the blackberry device maker in the same way as the others.
Some participants brought up their recent short-term tactics, including the notion of shorting stocks while the market corrected, or trading ETFs or similar investment vehicles that actively trade just like ordinary stocks and track, or inversely track (in some cases times 2 - leveraged!) the various major market indices. Of late, I have personally seen some success with short-term tactical trades in this category; however the approach is hardly appropriate for most disciplined investors.
Those who know me know that I am not an active trader. I am an extremely selective one who typically does less than 10 trades in my IRA accounts per year. Patience is a virtue, they say, and investors who want to achieve above average returns must develop their virtuosity! Some of the guys I met last week just seemed to love being in on the action, even while they admitted that they were not doing particularly well, and they knew they needed to be more patient during the latest market correction.
Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net :
Kenneth J. Gruneisen has successfully completed the CAN SLIM® Certification Program. Mr. Gruneisen became a Registered Representative in 1987 and his career includes experience offering personalized assistance to investors with more than a decade of experience as a Registered Principal managing a branch office.
The recommendations made by CAN SLIM® certified individuals are their own and may not be attributed to the CAN SLIM® Certification Program, William O'Neil & Co., Investor's Business Daily or their affiliates. The CAN SLIM® Certification indicates only that the individual has successfully completed the CAN SLIM® Certification Program. CAN SLIM®, William O'Neil & Co., Investor's Business Daily and any of their affiliates are in no way responsible for any loss or damage caused as a result of the services provided by these individuals.