Getting Out of Wall Street Strategies' Ideas
Wall Street Strategies has always prided itself more on the guidance and exiting of ideas rather than the ideas themselves. Anyone can pick a stock to go long that goes up and a stock short that will consequently go lower.
In fact, during the last three years of the 1990s bull market, most investors thought their long picks were ordained to go up and up and up. Alas, that wasn't the case, and when we see these same folks now pointing a finger squarely at Wall Street for their multi-trillion dollar losses we want to say that there were other factors in addition to corporate malfeasance and a frothy market, that led to the wipeout. Namely, that person every investor sees in the mirror should be culpable for some of the losses, especially those positions that were once substantial winners, and allowed to become substantial losers.
Because we deal with the daily emotions of scores of subscribers we have developed a thick skin when it comes to the hand holding aspect of all our services. That said, it doesn't make our job easy, and it doesn't mean that subscribers will always listen to the guidance. That is why we're taking this moment to share our philosophy on guidance and exiting.
Before any investor can make the determination on the parameters he or she would feel comfortable with, they must first ask themselves the following questions.
What is your true threshold for pain?
If you become physically ill after a 10% loss then the stock market is going to be a tough place for you to toil. However, if one is disciplined and adheres to their pain threshold indigestion and angst won't become a daily affair (plus you can save tons of money from not having to buy Tums everyday). Yet, this is still going to be a complicated situation, because the dilemma doesn't stop there.
Can you take a loss and come back swinging if another idea looks promising?
Many investors take a loss, typically well beyond their acknowledged pain threshold, and then boycott the market. These emotional swings only results in investors buying a stock they boycotted later down the road, often at much higher prices. Taking a loss is part of investing; deciding to be decisive and mature about it will lead to successful investing over the long term and not periods of boom and bust.
Some investors can't handle paper losses and they compound this problem by freezing and not selling.
This is the greatest sin investors' make, they let a bad decision or bad timing become an emotional anchor and then a financial anchor. Everyday, we hear people say they want to do certain things just as soon as XYZ stock comes back to their purchase price (there we go with that ordained stuff again). If a stock is getting hammered for obvious reasons a 12% loss is better than a 17% loss, which is better than a 25% loss, etc, etc.
Taking a loss doesn't mean you're stupid, but not knowing why you're long or short a stock does mean you're not thinking and that is where the exit mistakes begin.
If you're a momentum investor then know that once the momentum has stalled or better yet, stopped, it may be time to move on to the next idea. If you buy stocks because of the fundamentals, then remember it when the same stock is down with a broad market decline. If you buy a value stock and it goes lower, it should be more attractive. One has to know why they bought or shorted the underlying stock, in order to formulate an effective exit strategy.
How much do you have in the market to start with?
Putting all your eggs in one basket leaves you little choice except to hold this stock until it reaches upside objectives. If you sell because its down a little in general market trading then you'll end up stopping out of a series of positions to the point where you small principle will evaporate. If you're making a big single bet on a whim, there is the same danger that a lack of discipline will level your investment.
Trading rules for Wall Street Strategies
The Hotline is designed for building positions that will be held for a period of three months to one year. The ideas are selected by using fundamental, technical and behavioral analysis. First and foremost, the emphasis lies on the fundamentals. We employ our methodology in determining value and potential and it is based on fundamental evaluations. There are metrics that are more important to us than to others on the Street, and some that are less important like the P/E ratio, which is over hyped.
When we become convinced that a stock is undervalued or will make a strong move over an intermediate time frame, we then look to the charts and daily action in a stock to determine when to pull the trigger. At times we can be early or late, but we don't let false breakouts or shaky markets spook us out of positions if our fundamental conviction remains the same. Therefore, there are no official stop losses for the Hotline.
We deal with a wide breadth of clients, and we're very realistic about their needs. Not everyone will share our convictions, nor will they have the nerve or wherewithal to weather down periods. We do not use automatic stop losses on the Hotline. I think it's a mistake for long term investors.That said, we are sharing opinions. For nervous investors, if subscribers want to use stop losses, they can. For the most part, folks that believe in them suggest 10%.
When it is time to exit ideas from the Hotline, we update our website and issue an email alert. Note: most ideas we cover also include an underlying option that we believe will provide upside potential and some downside protection. We are not big fans of buying options, but understand the demand for them. When we exit the underlying equity position it is understood that the options should be sold as well, if we have not already exited the option.
The Swing Strategies service is designed to take advantage of short-term moves of individual stocks and indices, in the time frame of between one to thirty days. In an effort to provide greater gains for investors accustomed to trading for pennies (read: day traders), we try to issue an alert to take profits on half of the position (scalp it) upon a gain of a dollar for ideas above $20.00 or an otherwise significant percentage gain of 4% or 5% for ideas priced below $20.00. We believe that those that prefer to be flat should actually take profits on the entire position. This alert is also for the nervous type that would have negative emotional problems dealing with that same stock pulling back. Because the upside goals are limited (the service is designed to generate income and catch swings and quick movements of stocks), there is a stop loss point given at the same time an idea is delivered to our clients. We think knowing the stop loss ahead of time allows for clients to exit decisively and to limit losses. On a few occasions, we may ask subscribers to adjust the stop loss and alter the parameters. Such messages are communicated before the stock reaches the original stop loss point. Once a stock has reached our stop loss on this service, it is removed from the model portfolio and we assume that all subscribers have closed it out. Note, we DO NOT send out alerts for original stop loss points, in the past it has only delayed exits and resulted in larger losses.
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