Graco Changing
Using Common Sense
After a fantastic 9 months, I thought now would be a good time to talk about paying attention to your portfolio – keeping an eye on your holdings, monitoring your watchlists, pulling profits and getting rid of losers or underperformers. It's ironic but during great times like these, when it seems like all of your stocks are going up, investors can form bad habits or get lazy. Even bad decisions can sometimes get rewarded in a bull market.
But when the market stops going straight up, that's when you can really get into trouble. So you need to keep paying attention and exercise common sense over your portfolio. And as the title suggests, there's no particular magic in making money (or keeping it), just good old-fashioned common sense. The trick is exercising it! Deciding on what stocks to get into is, of course, important. But once you're in, it doesn't mean your work is over. Whatever your stocks are, whether they be actual holdings or stocks you're considering, don't stop monitoring the fundamentals of those stocks.
What I mean is: If one of the criteria for getting into a stock in the first place was that it had a low Debt-to-Equity ratio, but you then saw that ratio change to an unacceptable level (a level that would not have put it on your radar screen in the first place), then you should consider getting out of that stock and looking for a new stock to replace it. One that currently does meet your criteria.
For instance, let's say that you use the Zacks Rank as a timing indicator and you look at the Zacks #1 Rank List for immediate movers. If in a few weeks, earnings estimates are moving down and Zacks Ranks it a Zacks #4 ('sell') Rank, take note and consider dumping it. Sure it was a Zacks #1 ('strong buy') Rank, but it's not a Zacks #1 Rank (or Zacks #2 ('buy') Rank) anymore. Think about it, if you never would have gotten into a Zacks #4 Rank in the first place, why would you now want to hold onto one? That's using your common sense.
What if you’re a momentum investor and you generally look for stocks trading within 10% of its 52-week high (a great item by the way) and it suddenly falls below that level? Well, if you're only interested in focusing on stocks within 10% of its high and it's now 15% or 20% (or more) off its high ... then move on. The momentum has seemingly shifted and so should your focus.
And don't convince yourself to hang onto your losers either. If a company reported bad earnings and the stock is down –8% to -10% against you, get out. Don't let your love of a stock (or denial) ruin your portfolio. Almost every big losing trade anybody has ever had in their portfolio (-50%, -60% or even –90% or more) could have been exited when they were just beginning to crumble.
If you get out and it zips back up, you can always get back in if you want. But if it keeps going down, you're just losing more and more money. And the price you could have gotten out at earlier is now a price you only wish you could get out at now.
So once you've found the items that have proven to work well for you in picking profitable stocks, be sure to monitor those values. And if they no longer meet the winning criteria, get rid of them fast and find new ones that do.
Here are 5 new stocks that look great and that are currently coming up on some of our best screening strategies that come loaded with the Research Wizard.
ARD - Arena Resources, Inc.
ATNI - Atlantic Tele-Network, Inc.
GGG - Graco Inc.
NEU - NewMarket Corporation
PRA - ProAssurance Corporation
Once you get into a stock, keep monitoring them. Pay attention to what got you into them in the first place. If your stocks no longer have those values, consider replacing them with new ones that do.
Remember, the key to successful screening is in discovering those screens that have produced profitable results in the past. And that's exactly what you get with the powerful Screening and Backtesting ability of Research Wizard.
Take note: Backtesting isn't available in all screeners (in fact it's rarely available in any screener) but it is available in the Research Wizard.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
About the Author
Kevin Matras is the Research Wizard Product Manager and weekly contributing Editor at Zacks Investment Research who creates and writes the Zacks Commentary Screen of the Week and Know Your Options. For more information, visit http://www.zacks.com.
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