Tips On Investing

One Thing We All Know about the Stock Market: It Will Fluctuate. A Look at Selling Stocks  

By Leo Fasciocco

Several years ago, I was at an investment meeting and happened to be seated with the late Louis Rukeyser, who hosted the TV show “Wall Street Week” for some 32 years.

During the lunch, Lou leaned over to me and said with a mischievous look, “Well, Leo, what do you think of the market?”

I looked at him, leaned forward and said, “Well Lou…what do you think of the market?”

I lHe leaned back and smiled. Then, Lou got up and gave his talk. He told the people he was going to tell them what the stock market was going to do. Many in the crowd leaned forward.
 

Then, quoting J.P. Morgan, Rukeyser said: “The stock market will fluctuate.”

The crowd moaned. They felt tricked.

The truth is they were not tricked. Rukeyser told them a profound truth.

Although we, as investors, work hard analyzing companies and stocks, the truth is, we don’t really know what is actually going to happen.

If you think you do, you are trying to impose your will on the market. You will pay dearly for that mistake. The best way to approach the market is to make your investment decision and, then, be ready to act decisively in the face of any possibility.

In late July and also in August of 2007, the stock market went through some volatile sessions that shook the nerves of both bulls and bears.

Nevertheless, if you had your buy and sell strategies in place, you should have done okay and avoided getting burned. The key, of course, is to have a disciplined rule to exit a trade, whether long or short. That may also mean placing a protective stop order.

Take the case of Metro PCS Communications Inc. (PCS), an IPO from April. It set up a very good-looking nine-week base. The base was bracketed roughly between 32 and 37. The key breakpoint for the stock to emerge from the base was 37.

The firm, a provider of wireless communications services, had a good earnings outlook. So, on July 12, 2007 the stock broke out from its base by getting to 37.25 on the close. In the next several sessions, it advanced, getting as high as 40.87 on July 20, 2007. All seemed well.

However, a smart investor knowing that “markets fluctuate” would have already set up a defensive selling plan just in case. For instance, he or she could have set up a stop sell order at 37.25 to exit with a breakeven if the stock backed up.

PCS did! In the next four sessions, PCS declined and the stock hit a low of 34.46. So, the stop sell order would have taken one out of the stock. PCS then rallied back 39.20. One would have thought that the sell was a mistake. It wasn’t.

The stock market went into a dive. So did PCS. It tumbled to as low as 25. If one would have held on, he or she would have suffered as much as a 32 percent decline in the position. The stop strategy saved the day in this instance.

During the same time period, the Dow Jones industrial average dropped from roughly 14,000 to 13,000 (7.1 percent). Often, in stock market pull-backs, many issues will be dragged back double or triple the market averages.

The thing is, you do not know when they will take place. Yes, you can calculate and figure. But, the truth is, you do not know for sure. That is why a clear selling strategy is always wise.

Top investor William O'Neill, who worte the book "How to Make Money in Stocks" (published by Investor’s Business Daily), disclosed that when he started out, he did poorly because he did not have a set sell strategy. He figured one out that fit his buying approach, and from there, he did extremely well trading stocks.

His basic sell strategy was never to suffer a loss of more than 5 percent on a stock position.

Paul Tudor Jones, a top trader whose worth is estimated at 2.5 billion by Forbes, had this precious gem of advice for investors: “Take care of your losses and your profits will take care of themselves.”

Another wise sage said: “The idea is not to be perfect. The idea is to make money.” His word was to console those who tend to be greedy, always wanting to hold a position in order to milk the last penny of profit.

Justin Mamis wrote a very informative book on selling appropriately called When to Sell, published by Simon and Shuster.

One should always have a set plan to sell a position. Take the time to study and research the best selling tactics that fit your own personal investment strategy. Then, implement them.

pear at www.tickertapedigest.com.

Tips on Investing

Keeping Close Tabs on New Products Can Put a “Halo” On Your Investments

By Leo Fasciocco - Ticker Tape Digest

A few years ago, I was at home in the afternoon when, all of a sudden, several cars pulled up to our house.

Then, all these teenagers came streaming into the house carrying television sets, controllers and X-Boxes.

I asked my son, “Hey, what’s going on?” He replied, “Dad, we’re having a Halo party.”

I had no idea what that was.

What it turned out to be was a group of guys and girls getting together and playing the video game Halo.

For the next few hours, pizza and pop were flowing, and the yelling of battlefield noise echoed through the house.

Now, Halo 3 has arrived. It was released September 25 by Electronic Arts.

Interestingly, the same kids who played the original Halo game are now looking to play Halo 3. Not only that, most are in college now.

One, who is a business major at Arizona State University, bought stock in one company he believes could benefit from strong sales of Halo 3.

His purchase: Gamestop Corp. (GME).

An extensive study by one West Coast investment firm found that 95 percent of all big-winning stocks in the market had something new in the works, such as a new product or service, or, in some cases, just plain new management.

This year, we’ve seen big moves in stocks such as Apple Inc. (AAPL), aided by its iPhone, and Research in Motion Ltd. (RIMM), sparked by its BlackBerry smart phones. This year, Apple has soared from 86 to 140 and Research in Motion from 40 to 91.

How does one find stocks with potentially hot products? Two basic ways:

1.Read the business news

2. Check stocks making new highs

Companies are coming out with new products and services all the time. It is exciting and a mark of the dynamics working in the economy.

The key is investors who have a keen insight into the potential of those products. It is they who will “point the finger” to possible winning stocks because their buying will push them to a new high with good volume.

New high stocks are always worth investigating. You do not need to get in on the ground floor. You just need to get on board a good stock associated with a company that has a hot product potentially on the way up.

Often, if the hot product takes off, the stock will make substantial gains. Keep in mind important factors, such as the impact of the product on total sales and profits and the response by competition.

A hot new product by a big cap firm may not have much impact on the bottom line. Also, if competition can move quickly, the advantage of the new product may disappear.

So, you have to be on your toes. One way to do that is always to keep an eye on the technical pattern of the stocks.

You can make a list of stocks with new products and study the trading everyday.

By using technical tools, you should quickly be able to pick up on any unusual buying that could be a bullish tip-off or selling that might be a signal of possible problems. Remember: “The tape talks to those who listen.”

Getting back to Gamestop: The company has annual sales of 5.3 billion dollars.

It sells video hardware, such as Xbox 360 and PlayStation 3 and video games. It has 4,800 stores here and overseas.

It also publishes Game Informer, a video game magazine for some 2.7 million subscribers.

Halo 3 is a science fiction shoot-‘em-up video game. Halo 2 shattered sales records for a media release.

Halo 3 is expected to surpass Halo 2. That should be good news for Gamestop.

The stock is already moving higher, sparked by an announcement of strong fiscal second quarter (July 30) earnings and a boost in fiscal third quarter (October) earnings estimates.

Gamestop’s net for the third quarter is projected by analysts to surge 94 percent to 21 cents a share from 11 cents a share a year ago.

For the fiscal year ending January 30, Gamestop’s net should be up 45 percent to 1.50 a share from 1.03 a year ago.

Going out to fiscal 2009, analysts project a 28 percent gain in net to 1.93 a share.

The stock is making new highs, too. Since early this year, GME has climbed from 25 to 53 (as of mid-September), a new high.

The stock broke out from a flat base at 44 in August and moved strongly to the low 50s. So, Gamestop is working so far.

Mr. Fasciocco’s articles appear at www.tickertapedigest.com. He is a contributing writer for several national publications.

He is publisher of Ticker Tape Digest and president of Corona Investment Management. Mr. Fasciocco can be reached at leo@tickertapedigest.com

Ticker Tape Digest Inc. publisher Leo Fascioccois a well-known investment columnist and author.
He appeared frequently at the Money Show conferences that are held in Orlando, Las Vegas and San Francisco.
His articles were used in the books - "High Performance Investing," - "Focus On Equities" - and "The Encyclopedia of Stock Investing."
These books can be purchased through Investor's Business Daily.
He is also president of Corona Investment Management Inc., a money management firm specializing in equity investing. The accounts managed have done well.
Mr. Fasciocco's investment articles also appear at esignal.com under the Exchange Report which goes out monthly to some 20,000 readers. The articles cover a variety ofinvestment strategies, a recent one being about jeans stocks.  

He also gives private investment workshops. Mr. Fasciocco has appeared on TV and on radio shows around the country. He is available for consultation after the market in New York is closed during trading days.
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TTD is available to help investors and service our subscribers. If you have any questions email Beverly Owen at owen@tickertapedigest.com. We will be happy to answer your questions. TTD supports the Money Show conferences. We see them as a very good learning experience.