A Word on CNX
Employee 8 made a comment earlier and I just want to expound and clarify my position on [[CNX]], and why.
I didn’t sell CNX today. I’m still holding it.
CNX, being part of the group of focus stocks, aka “fuckus stocks”, has a 30% trailing stop loss. All the ten stocks do. As of yesterday’s close, I was breakeven on CNX. I won’t sell it until it closes down to $77.25 at some point—-a 30% drawdown from it’s recent high close on 06/20.
My thinking here is to hold highly “resilient” stocks in leading sectors that show high volatility, and let them run through the ups and downs. I did research awhile back on this strategy, and the results were astounding.
The first group of focus stocks, started last June, is up 94.30% as of yesterday. The current 10 focus stocks in that group are: AKS, ANR, SID, BAP, GTE, LSR, LNN, MTL, MOS, POT. Number of trades: 26.
POT is up 204% since 06/04/07; MOS 117% since 11/5/07; GTE 193% since 1/17/08 and ANR 147% since 3/4/08.
I wouldn’t have these kinds of returns if I was too quick on the trigger in selling everytime a stock got “hammered”. It does take some balls to hold stocks using this strategy. But the payoff can potentially be grande.
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This tells me that a portion of my portfolio needs to be allocated to this kind of strategy. Picking the right stocks in the right sectors and holding is everything.
I’m either out with a target of a 1,000% return, or a 30%Â loss from the highwater mark. Otherwise, I hold.
I wouldn’t do this as a total portfolio strategy because the volatility can keep a person up at night.
The current one I started in May is up 7.62% as of yesterday for the 10 stocks.
I’m doing one of these a year (give or take) and the whole strategy is going to be no more than 20% of my investable assets. I’m only disclosing the activity on the current one from May on this blog.
I find this very interesting. Any other info on how you make the decision of which stocks to include would be appreciated. I have been getting my ass whipsawed big time of late. Maybe sitting tight on some of these bad boys is best ….if my stomach will let me.
July 17th, 2008 at 3:10 pmIt’s similar to Ken Heebner’s strategy. He tries to identify themes that he anticipates will be secular growers over a few years, then he makes very concentrated bets. He did it with homebuilders back in 2001 or so, then got out very near the top in 2006.
He’s been in many of the things you have in the focus stocks (steel, coal, fertilizer) for a while now.
He spits on the concept of diversification. It’s risky, but he’s been “the man” this decade.
July 17th, 2008 at 3:10 pmAD, what’s your thinking on CLR? All the natty plays are getting taken to the “woodshed” but CLR is holding strong … I was gunna buy some puts but she doesn’t seem to want to break … you got a strategy?
July 17th, 2008 at 3:30 pmYes, Heebner is the man, no doubt.
I have a similar philosophy, but not as aggressive and concentrated. I do believe in the “top down” approach to identifying and picking sectors and industries first, then screening for the strongest players in those sectors. As you probably already know, the market and the sector account for 70% - 80% of a stocks price performance at any given time.
The nice thing about guys like Heebner is that we don’t need to reinvent the wheel. We can already see that his approach works. Just take it, incorporate it into a strategy you’re comfortable with and go with it.
However, you have to have conviction and believe in what you’re doing. Make it your own. You wouldn’t want to adopt a strategy just because some “guru” is doing it.
July 17th, 2008 at 3:35 pm8-
Aren’t the puts at an egregious premium now that CLR is in meltdown mode?
I’m not an options trader, but if I had a strategy, I’d wait for a pullback to 73 before buying puts. If it can’t make it past 73, where resistance is, then chances are it’s going back down.
July 17th, 2008 at 3:49 pmIt takes balls of titanium to fade a 30% drawdown. Wish I was that cool.
July 17th, 2008 at 3:52 pmnaked,
It’s only money, on an electronic screen, no less.
I’ll post something on how I pick stocks, when I get some time.
July 17th, 2008 at 4:00 pmYeah .. at this point the Aug puts carry a good premium and the Julys with 1 day left are pretty egregious … best to just short the stock outright. The other play that looks expensive is Fly’s old play GMXR.
July 17th, 2008 at 4:08 pmI like your strategies, great job Alpha.
July 17th, 2008 at 7:31 pmADawg, the more specific you could be with your strategy, the greater the chance we might be able to write some code to backtest it. I mean we know it works…so the point is moot, but I would enjoy quantifying it anyway.
July 17th, 2008 at 11:25 pm