Model Portfolio Update: Big Tech Is Killing Me

It’s been one of the worst starts to a year ever for the market and it certainly caught me off guard a bit.  If I thought I could coast a bit for a couple weeks after a somewhat grueling 2007, I was sorely mistaken.  Admittedly I haven’t been as prepared as I should have been while dealing with a move and a constant cold and it’s resulted in being out of synch with the market.  It’s been one of the worst starts to a year for me.

I’m getting the feel back though and beginning to trade more in synch with the market but man these big cap techs are killing me!  I managed to dump most of my Google near the top but didn’t do the same with my Cisco or Microsoft.  It’s clear that whenever I attempt to deviate from the strategy that has been successful for me over the years (trading momentum) and move to more of a buy and hold strategy in "good companies" that are good long term holds, my performance suffers.  It happened in 2006 with a purchase of Yahoo and again to begin this year.  It looks like Cisco is going to get crushed yet again after the bell, so I’ll be digging out of larger hole from tomorrow on.

Despite Cisco and Microsoft being significant portions of the portfolio, I’m still ahead of the S&P and well ahead of the down and out Nasdaq with a loss of 9.2% this year (compared to a 14% loss for the Nasdaq – yowza!).  Yes, it’s unacceptable but at the same time I recognize I’ll have bad months and great months and that by the end of the year, continuing with my strategy, sticking to my rules and remaining confident WILL result in great returns once again.  It’s a long year and I’m not concerned. 

I’ve initiated several new shorts in the past few days, all of which (except for one) are profitable, but will cover and lock in gains quickly as we get closer to the lows of this correction.  Today, my short in DR Horton (DHI) was covered for a quick 10% gain ahead of its earnings report tomorrow morning but I’m still holding my Toll Brothers (TOL) short and think I can squeeze a few more percent out of that one over the next few days, particularly if DHI misses expectations by a wide margin in the morning.  Soon, it will be time to start thinking about the long side but it’s still too early.  I put on a very small position in COIN after it broke out of a bullish triangle formation yesterday, but closed it quickly today after yet another reversal off the highs.  There just isn’t much working on the long side right now and until new leadership emerges I’m not willing to get aggressive.

The biggest mistake that traders make is trying to make up for losses by taking on even more risk.  They begin averaging down, taking on excessive risk or trading penny stocks to try and recoup losses quickly and regain their pride.  If you are doing that now, STOP!!  Think about why you have the losses you do.  Did you get into a buy and hold mentality in "good" companies like Apple, Baidu, Google, Garmin, Research in Motion, etc after getting in near the top?  Did you not cut losses quickly?  Were you bottom fishing?  Rather than trying to make it all back in one trade, get more conservative and take this time to learn what you can do better next time.  There will be ample opportunity to recoup the losses and make extraordinary games, so preserve capital and learn, learn, learn.

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