Shocking news…leopard change spots

Posted on Jun 04, 2017 by in Letters

Ever since they started selling index ETFs we have abandoned individual stocks like vehicles to hell — or jokeyless horses.  Since then we have avoided individual stocks like a recovering drunk  — none of that gambler stuff for us.  A portfolio of ETFs covering the essentials of the market is nothing but the answer to a dream.  The ultimate in diversity and all those indexers are supporting the ETF.

Then we started thinking about the long run — 10 years, 15 years.  We wanted something that could be salted away in the sons’ portfolios that they could wake up to and squander in 15 years.  Also, incidentally some of these issues have sparkling performance.  We have never been fanatic about not investing in individual issues — just insistent that individual stocks occupy a small percentage.

With that in mind we evaluated some issues, estimating their possibilities for the long long run.  Nothing arcane aout the process — we picked obvious winners and asked ourselves how likely they were to continue to generate ideas.   So we got to the obvious suspects:  IBM,  GOOG, and AMZN.  IBM is an obvous value play.  The other two are in robust trends with high risks.  With the clucking of Chicken Litttle in our ears we look at these highs and know that pundits would say Don’t do it.  But there is a way.  In situations like this you decide how much you are going to invest.  Then you divide that sum into 5 tranches, with the first being small enough to not annoy you if it corrects.  That trade is made now.  If a correction occurs you buy the second tranche.  If a severe downwave occurs you buy several tranches.  If a major trend change occurs you pitch it all and wait for a bottom.  As we will be doing this for our own accounts you can observe the process as we execute it.

 

http://stockcharts.com/h-sc/ui?s=AMZN&p=D&yr=1&mn=0&dy=0&id=p52504274893&a=527743935

Amazon just keeps rolling along.  And we are betting it will keep rolling on indefinitly.  There are a number of ways you can stop this.  A money management stop of 5 to 7 %.   You can use the bottom of the present wave with a 3 – to 5% filter, which would give you 915 more or less.  The arrow  would mark a change of trend.

 

http://stockcharts.com/h-sc/ui?s=GOOG&p=D&yr=1&mn=0&dy=0&id=p49007859611&a=527744611

The appetite of the world for advertising is infinite, and the need to find things is even more urgent.  The immediate stop is obvious — the power bar down is notable and the analysis is the same as that for Amazon, giving an immediate stop of 872.  Price would have to take out the Novembeer low to represent a trend change.

http://stockcharts.com/h-sc/ui?s=IBM&p=D&yr=1&mn=0&dy=0&id=p00561122620&a=527747744

IBM is the sleeping giant.  Here the risk is not from the runup — that has already been taken care of.  In rather dramatic fashion.  There is no immediately obvious technical stop here so we set an immediate stop of 141, derived from the low of the formation with a 6% filter.

The present risks of the market are primarily news risks.  Will Trump do something bizarre or crazy — or will Italy cut and run on the EU?  We saw how sensitive  the market can be 12 days ago when the market spooked and took the Dow down at times 300 points.  At the same time these flash collapses are being bought  by people just sharpening their knives for a bargain.

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