Tuesday, June 10, 2008

Dealing With Bad Stock Market News

I usually enjoy doing a weekly check of my trading account. After last Friday's nearly 400 point drop in the Dow, I wasn't looking forward to summarizing the status over the weekend. I expected the results to look bad. However, since I do a weekly summary, I grudgingly looked at and summarized the results.

While bad news is not something a particularly enjoy, reviewing last week's results reminded me that it is a good idea to evaluate and deal with the news versus avoiding it. Here are some of my reasons:

  1. Bad news usually doesn't go away. I have not found avoiding, ignoring or denying bad news to make the news disappear. Sometimes bad news will get worse if nothing is done. As one of my colleagues once said, "It is what it is," meaning that a good approach was to accept and then deal with it.

  2. It may not be as bad as originally thought. When there is lots of bad news, I sometimes subconsciously expand it. By reviewing the situation, I hopefully can determine what are issues and what are not.

  3. Opportunity to change. Most important, timely review of bad news enables me to take appropriate action, in particular, to keep the situation from getting worse.

Surprisingly, my trading portfolio was up slightly last week, due to the advance of a single stock, Potash (POT). While the overall result turned out well, last week's market action did convince me that the recent rally is probably over. Therefore, I will continue to increase my cash postion by selling some stock. Yesterday, I took the opportunity to sell off two of the three remaining stocks from my buy lists, Potash and Intuitive Surgical (ISRG) for a 211% and 5.8% return respectively, even though my modified Unemotional Investor Growth system has not given a sell signal. The last holding is Google (GOOG). Unfortunately, I have held long past its sell signal, since other shares of Google have been one of my core long term stock holdings. A bad decision, for now, since I could have sold the trading position in for a very small gain last week.

Disclosure: At the time of publication, I own shares of Google do not own any shares of Potash or Intuitive Surgical in my trading accounts.

For more on Ideas You Can Use, check back every Tuesday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC


investmentplayground said...

Bad news is just knee-jerk reactions by idiot traders. Serves a great opportunity to buy more and own some assets and undervalued prices.

Curt said...

The crash is looming. Inflation is running loose. By the end of summer the inflation pressure will force the Fed to begin raising interest rates and the stock market will drop. The politicians will continue to push more money into the economy like a drug dealer trying to get high again, but it wouldn't work because the economy is already flooded with easy money from the low interest rates.

The economy is due for a long, deep and unavoidable recession. Hold on to your hats.