I really felt like an "amateur investor" today when I needed to sell my shares of Oshkosh (
) after they hit and passed my 8% loss tolerance. Like the rocket on the way up, the stock turned around and plunged with the market. I am still very impressed by the company, the $2 billion in new contracts for MRAP's and would consider this a very worthwhile stock to be acquiring shares in--as soon as the technicals show a little bit of support.
Like a car, I have my driving rules (and I was 'speeding' with my Oshkosh purchase!), my seatbelts and my airbags---in order that I can survive in the chaos of the investment world. Like airbags in vehicles designed to limit injury to inhabitants of colliding motor vehicles, my trading rules to limit losses are designed to get me out of a bad situation intact--or at least only slightly injured!
These loss limits, which I have described many times elsewhere on the blog, include limiting losses to (8)% after an initial purchase, break-even after a first partial sale, and then to 1/2 of the highest percentage gain after two or more partial sales at appreciation targets. For instance, I like to sell 1/7th of a holding after a 30% appreciation of a stock after an initial purchase. In that case, if I have only sold a portion once, I would sell if it should then decline to my purchase price--my break-even level.
My next 'targeted sale' is at a 60% appreciation from purchase level. After selling another 1/7th of my remaining shares, I would mentally (or actually) be moving up my sale point on the downside to a 30% appreciation point. Thus, I try to limit losses and preserve gains even if a stock, like Oshkosh ( ), should dip in price.
I am aware that many stocks like Oshkosh with underlying great news will likely rebound. And I shall miss many of those rebounds with these rather rigid trading rules. But one of my main goals in this account is preservation of capital and enforcing a trading discipline to insure my own behavior. And thus the sale of my OSK shares.
The details? I sold 80 shares of Oshkosh (OSK) (my entire position) at a price of $28.16 today (8/6/09). These shares had been purchased at $30.73 on 8/3/09 (just 3 days ago!) resulting in a loss of $(2.57)/share or (8.4)% since purchase.
Finally, what to do with the proceeds of this sale. While I have been bending the rules (to little avail!) lately, with my swaps of positions as I have been truly trying to 'chase performance', a sale like this reminds me of my own 'amateur' status, and is a signal not to be reinvesting proceeds but rather to be 'sitting on my hands' with these funds.
I shall be adding a new position when one of my remaining holdings hits an appreciation target on the upside and when once again I can sell 1/7th of that holding on 'good news'!
Thanks again for visiting! I shall try to learn from this sale as well---as much as I like Oshkosh ( ) and am impressed by the contracts obtained, that we are now dealing with volatile markets that have little follow-through momentum....so chasing performance, at least currently, may be a poor game to be playing!
Yours in investing,
Bob
