Wednesday, February 25, 2015

Can't Believe It!

CBI expoded upwards 14% today post good earnings and not as sour an outlook as many had expected. I am happy as it had been a real laggard in my August 2015 MFI tranche. Now it is just a slowpoke (still down 18%). I am kicking myself for not buying it in my February tranche. They were on the short list, and have popped 38% since then.

That illustrates that in MFI, you should not totally ignore a stock that has done poorly for you. Buying it in an new tranche is often exactly the best thing to do. We have been having a little debate in the comment section and emails about what to do when a stock is down.

I am going to try and run a study this weekend, where I see how my tracking portfolios would have done if you had implemented various strategies after buying a stock. I am thinking of the following:

If the stocks drops 20% from initial buy price, how would you do if you sold it at that point?
Then try that for 30% and 40%.

Finally reverse and implement the rule that if a stock drops by those amounts, you buy a new tranche (so more shares).

Before I run that, any opinions out there in the peanut gallery?  Will you be better off to cap your loss on any specific security? Or are you better off to buy more on a material drop?  I will be able to test as I do capture the 52 week low on all my tracking stocks when I close the portfolio.

4 comments:

John Carney said...

Marsh,

For me I don't like to average down.
So If you want to have 10% or 15% in the formula MFI it is easy for me to buy the random sort that come up that is doing well. MFI stocks can trend for over two years.

Erik said...

I just got back into MFI, after I got side tracked for a while. I have been looking at the very "bad" returning stocks for MFI ... Do you think there is pattern ? Rather than buying the top 5 - maybe taking out the really bad ones may boost returns... I looked at the "other blog" that used 5 or so MFI stocks --- it's very easy to filter the worst performing stocks out of 300 or so and I think there is some sort of pattern just by looking at the previous 1-2 year price graph

Marsh_Gerda said...

Erik - I have never looked at filtering out returning stocks that performed poorly. I know that some of those have lead to outsized gains (for example esi dropped 80% from 9/13 to 9/14 but is up about 100% since then.). Might be interesting to aggragate. Readers are full of interesting ideas.

John Carney said...

Marsh,

I would say not to sell until the end of the year as per the book. By selling early you can't be a KING with guns RGR. Some losses will work out without buying a concentrated position.

For me, I don't want two GME and two KING or double positions in retail, firearms, tech, tobacco, and aerospace. A five % position in each is OK but not 10% or 15%.

Thanks for the study. I hope it provides some answers and possible rules on simple formula MFI and what to include in the random sort.