Selling Stocks Short; October 29, 2007

Sell-Stocks-Short; October 29, 2007

We have eight innings in the book and one frame to go. If a baseball manager is going to be successful, this is when he must rise to the occasion. The decisions made in the final innings can make a game and in return make or break a season. The game is in his hands.

Most often, teams get beat when the manager fails to put the best team on the field. Investors also lose when they fail to put their best team (portfolio) in place.

The answer to this problem eluded me for years and once I figured it out, my performance numbers soared.

The “nuts and bolts” of game management makes up the bulk of my 5 step investment process (make this a link). My goal day in and day out is to make sure that I always have the best portfolio in place.

How do I do this?

First, I make sure I know which team is on the field – offense or defense. We’re either in the capital preservation or capital appreciation mode.

Second, I want to own (be long) the strongest sectors and want to be a seller (short seller) of the weakest sectors.

Third, are my holdings fundamentally sound? I need to weed out the underperformers and make sure that my positions are the highest quality. Fundamental analysis tells me “what to buy or sell”.

Fourth, from a technical standpoint, am I long the strongest names in the strongest sectors? On the other side, am I short the weakest names in the weakest sectors? If not, why not? Technical analysis tells me “when to buy and sell”.

Fifth, I need to make sure that my risk management is in place. Is my position sizing right for the current market. I also ask myself this question – is this something that I want in my portfolio today? This is an important question and a major reason that most investor’s performance just sucks.

Each night when I review my portfolio and post my charts, I look at each position and ask myself that question. Doing so forces me to look at each name with a skeptical eye. It forces me to decide every night whether I want that name in my portfolio.

That’s about it. Over the last nine posts, I’ve identified what I feel are biggest ways that investors are sabotaging their portfolios. If you take some time and work on each, you see the results where it counts most – in your profit and loss statement.

RAC
The Stock Trading Advisor