Changing Your Mind

Brutal day in the markets. Also, terrible tragedy in Boston. Just seems to be our brave new world, these events are happening more and more often.  My portfolio was down sharply, 3.35% as I clearly have too much commodity exposure in there. While no one likes to "lose" money, it is important to distinguish between stocks and securities that have dropped just because of panic and stocks that have dropped because they were overvalued or some facts have changed. Obviously, it is not easy to always make that distinction.

In Margin of Safety, SK has a good quote about changing your mind: "when the underlying value changes, when management reveals itself to be incompetent or corrupt, or when the price appreciates to more fully reflect underlying business value, a disciplined investor can reevaluate the situation and, if appropriate, sell the investment. Huge sums have been lost by investors who have held on to securities when the reason for owning them is no longer valid. In investing, it is never wrong to change your mind. It is only wrong to change your mind and then do nothing about it. "

I did sell three positions this morning before the big downturn. I sold KMF, BHK and JQC. I sold them primarily for the reasons SK stated above. BHK and JQC are primarily fixed income investments. And if/when interest rates start to move back to "normal", it stands to reason that fixed income investments will get hit. Then KMF is kind of the same story. They are fully valued in that they are trading higher than the NAV underlying them. Time to take my nice profit and have some additional cash.

I did add a little bit mid day to SD, GNW and AAPL. Very marginal. So I am over thirty percent in cash now. So a correction would actually give me some opportunities, so long as it is a correction based on fear and perception, not a material worldwide recession or increase in terrorism.

I am planning on staying pretty focused and also plan to wait until capitulation (if I know it when I see it). I am not going to look at many new stocks, I have decided I can be most successful going with my very best ideas and having conviction in them. Just like my kids college funds I mentioned over the weekend. So GNW, SD, INTC, CSCO, TC-PT, PRE, AOD, FCX, RIG, SAI and AAPL are the stocks I am talking about. I may also re buy GTAT if it comes back under three dollars.