Wednesday, August 20th, 2008...11:44 pm
Cutting Your Losers
- growth cycle
Nothing keeps me rooted to reality like crop growing. What you are seeing is the median growth cycle for first year for this pumpkin patch. The plot was broken in Fall 2007. Prior to that it was in a multi-season fallow (yeah, that’s a fancy way of saying it was just a bunch of weeds). It was tenderly tilled again in Spring 2008 and planted shortly thereafter. What does this have to do with trading? A lot, actually. The principles of farming crops and farming stocks are nearly identical. Today’s lesson is in cutting your losers.
- looks like a loser
The above is showing serious signs of weakness and is underperforming compared to its peers (shown further down).
- hard hit by externals
Sometimes external factors are a killer. In this case it’s fungus. In the case of a stock, it could be a competitor eating up market share or increased oil costs, either way, it’s time to cut it.
- “mostly dead”
Not even Miracle Max could bring the above asset back to life. Admittedly, this one should have been cut earlier. It’s easy to make this determination when all hope is lost, which is the predicament most retail investors in stocks (and real estate) find themselves in today. The point is to learn to recognize weakness early in order to avoid this rather dismal result.
- the losers that were cut
With these losers no longer hanging on the vine, I can look forward to greater relative performance of my pumpkin growth portfolio.
Here are images of the winners that I will harvest (realized return) on October 28th (just in time for Halloween).
- pumpkin gigantis
- sugar pumpkins (for pie filling)
- a “baby” giant
Oh, and if you grew impatient while waiting for these images to load, there is another crossover lesson to be learned: high quality results often require a little patience.
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August 29, 2008 at 1:30 pm
[...] it’s time to get hedged, cut your losers, and start swinging for the fences with shorts as our economy goes down. ...