Follow Up: Nine Stocks for Playing the Long Side Safely
Back in June, I did a column for theStreet.com, titled: Nine Stocks for Playing the Long Side Safely. An emailer yesterday asked for an update on the stock choices, so we whipped out the trusty XL spreadsheet (nine_stocks_safely.xls), and away we go:
The conceit of the article was based on several factors, but the most important were finding stocks with good risk/reward characteristics. These were names near good entry points, and that offered tight stop-loss protection so that losses were a reasonable percentage away.
The list we picked included:
AON Corp. (AOC)
Input/Output (IO)
Service Corp. (SCI)
Xerox (XRX)
Mosaic Company (MOS)
Charles Schwab (SCHW)
Schering-Plough (SGP)
Abbott Labs (ABT)
Warner Chilcott (WCRX)
Someone asked me yesterday how those stocks have performed, and as of last night's close, the answer was pretty good:
click for full table
With the Dow Jones down 5.29% since then, and the S&P500 sliding 6.74%, a gain of 5.10% looks pretty good. Those numbers assume you bought in at the closing price the day of the recommendation (or the next morning's open), and honored all of the suggested stop losses. Nothing gapped below the stops, so you should have been able to get out at or near the stop prices.
Most of the losses were small, single digit losers -- Xerox was a big 15% loss. Mosaic (MOS) was a jumbo winner, AON was a 13.5% gainer, and *Schwab -- a stop out loss that we bought back -- was also a winner.
* The asterisk: We have a rule about stop losses -- if a stock gets stopped out for a reason we find acceptable -- we will allow ourselves to buy it back ONLY IF AND WHEN it trades back over the stop loss point.
That's exactly what happened with Charles Schwab (SCHW). Because of a secondary offering, the stock price traded down through our stop loss of $18.50 to ~$18, and then popped quickly back over it. After getting stopped out, we bought it back for our managed accounts between $18.50 - ~19.50.
The 5.1% gain assumes Schwab was stopped out. If we were to include Schwab, the returns over the same period are even better: ~7.20% (not too shabby). Either way, a 1000 basis point out-performance versus the SPX, WITH VERY LOW LEVELS OF RISK is something to shoot for again in the future.
If I can develop another theme -- more safe ways to play the long side? -- I'll try to put together another list like the June version . . .
~~~
This was prepared for a six month update, to be published next week at TheStreet.com.
This assumes you bought equal shares of each. I haven't done the math on what happens if you bought equal dollar amounts . . . but here's the XL doc if anyone wants to bother (nine_stocks_safely.xls).
>
Source:
Nine Stocks for Playing the Long Side Safely
Barry Ritholtz
RealMoney.com, 6/8/2007 4:44 PM EDT
http://www.thestreet.com/_tscrss/markets/activetraderupdate/10361606.html
Tuesday, November 27, 2007 | 11:00 AM | Permalink
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Comments
6 were loses, and 1 made 75%, if this was a fund I would be scared, obviously the 75% stock was an aberation.
~~~
BR: Not so obvious: Markets -- and portfolios -- are driven by a handful of big winners. When a portfolio or indice is up big (i.e., 30 or 40%), it is rarely evenly distributed.
Indeed, the entire concept behind the "Cut your losers short, and let your winners run." is this portfolio EXACTLY: Small losers, big winners.
Posted by: mal | Nov 27, 2007 11:14:31 AM
I asked you for that over one month ago in an email. The results at that time were not positive. They are now??? Just a little timing methinks.
Ciao
MS
~~~
BR: Download the spreadsheet, pick a date (i.e., the date of your email, and substitute the closing prices. (why do so many people think I am their bitch?)
This date wasn't chosen by me -- TSCM asked for a six month update . . .
Posted by: michael schumacher | Nov 27, 2007 11:16:23 AM
I know it would be more work, but the getting stopped out could also be applied pro-rata to the benchmarks...
Looks pretty good, though. Wish I had done so well over that period.
Posted by: David Merkel | Nov 27, 2007 11:27:05 AM
thanks barry..
finally something which can be applied to trade rather than we talking about macro and end of the world whole day long...
i am looking forward to your next list.
it will help if you can create a seperate blog (or a new thread everyday with your long term bullish and bearish hunch about couple of stocks), where you can point out stocks on which we can spend time to research before you recommend, so that we can go into the trade with more confidence or we can debate pros and cons.
Posted by: techy2468 | Nov 27, 2007 11:35:38 AM
About the same as an FDIC insured CD, but with greater transaction costs.
~~~
BR:: True, but that wasn't the challenge; it was find stocks to play the long side safely.
Posted by: wally | Nov 27, 2007 11:53:14 AM
It appears that you are still in MOS????
What's the exit strategy since it's well over the target......?
BTW I'm not dissing you in the above however you take away MOS and it begins to look a little like Cramer...
Ciao
MS
~~~
BR Trailing stop loss in managed accounts.
Posted by: michael schumacher | Nov 27, 2007 12:00:11 PM
What's all this talk about? Abu Dabi just bought a huge stake in Citi - all is now well with the world. Nothing to see here.
Posted by: GRG | Nov 27, 2007 12:05:33 PM
i am very new to investing.
but when i think about putting my money, i want to balance my long position with short position.
it does not make sense to be only long in this bear market.
anyone knows how the big money managers maintain their portfolio?
anyone knows about a source where i can read about big money managers gameplans?
Posted by: techy2468 | Nov 27, 2007 12:12:36 PM
Wally, better recheck your figures. the 5% gain is since June, obviously not a full year or an annualized return.
Posted by: JohnnyB | Nov 27, 2007 12:14:01 PM
JohnnyB,
You are right: bad comparison.
Posted by: wally | Nov 27, 2007 12:23:14 PM
Jeffrey Saut, Chief Investment Strategist at Raymond James on the Nightly Business Report.
GHARIB: So is the economy headed for a recession?SAUT: It really depends on what your definition of a recession is. I can make a fairly cogent argument that the employment population growth is about 1 percent a year and therefore if GDP growth falls below that 1 percent employment population growth, that you're not up-taking all the people that are available for employment and therefore you're in a recession. That is not most people's definition of a recession. If that is your definition of a recession, then, yeah, I think we're going into a recession.
In other words....
.
Posted by: VJ | Nov 27, 2007 12:24:45 PM
techy2468,
I don't know how the big boys do it. A couple dedicated shore ETF's have been working for me SH, DOG, QQQ, SKF, to name a few.
Posted by: Bonghiteric | Nov 27, 2007 12:53:30 PM
I find it ironic that all the headlines say that the markets popped because Citi found a sugar sheik, but Citi is only up like 30 cents.
Posted by: Charlie Barker | Nov 27, 2007 1:07:05 PM
Hey Charlie Barker:
As noted this morning, Citi is only the spark: The Markets are deeply oversold, with several indicators suggesting a bounce was overdue anyway.
In a piece titled "The Lonely Bull's Case," my friend Guy Ortmann wrote yesterday that AAII poll, Equity Put/Call ratio, SPX Trailing P/E, IBES Valuation Model and the 21 day Overbought/Oversold Oscillator are all at levels that suggest a buying opportunity.
I only disagree about the duration -- Guy thinks it will have legs, and I think the pop will be a selling opportunity . . .
Posted by: Barry Ritholtz | Nov 27, 2007 1:33:07 PM
Barry,
Decent job but, with all due respect, too complicated for my taste if one was looking for "safety". If you just put all the money in Swiss Francs in June you'd be up around 11-13% (depending on day of purchase).
Long Swiss Francs
Posted by: Al Czervik | Nov 27, 2007 1:53:05 PM
I would agree with the comments above regarding how the gains were achieved in the 9 stocks, and would suggest that the one winner was as much to do with luck than anything else; not sure I would put much faith in a strategy that relies upon the outlier event to make my hay.
This GUY also thinks that a rally is at hand and likely to last 4 to 5 weeks and maybe produce marginal highs in the NAS but not in the S&P500 or Dow; with the transports and financials in their own bear markets it is hard to see how any lift can be anything but a selling opportunity.
Posted by: Guy M. Lerner | Nov 27, 2007 1:56:42 PM
How much of this up, down and all around was the bog boys cleaning out their closets for the end of the year? Or does that start next month?
Posted by: DavidB | Nov 27, 2007 1:57:03 PM
Barry, I guess I was overbought with irony. Thanks for the elaboration.
I'm pretty cynical and consider "oversold" a Wall Street term designed to suck in the greater fool.
Does Guy have his own blog, or you get his releases?
If the market is grasping at sparks like this I think I will stay not long.
Posted by: Charlie Barker | Nov 27, 2007 1:59:00 PM
im playing the safe side LONGLY
Posted by: SINGER | Nov 27, 2007 2:16:40 PM
Ok BR this would have helped a bit on the front end...
"This date wasn't chosen by me -- TSCM asked for a six month update . . ."
that's a bit different then "a reader emailed me" don't you think?
So you don't think that you're my bitch and all that.....
Ciao
MS
~~~
BR: Done !
Posted by: michael schumacher | Nov 27, 2007 2:30:55 PM
your welcome.....
Ciao
MS
Posted by: michael schumacher | Nov 27, 2007 2:51:26 PM
I wonder how the rating agency review of the bond insurers is going? Ambac and MBIA are down precipitously today (10% so far) despite the "rally" in financials.
Posted by: Short Man | Nov 27, 2007 3:01:15 PM
Yo Barry, I think you trying to pull a fast one on us...How can you factor in a 75% gain on MOS when the price target on the stock got hit @41.
I am assuming you would be out of that stock and obviously the gain on that trade and the overall performance would be much different. W/out doing the math, I am guessing you would have done worse than the S&P; No?
Posted by: AC | Nov 27, 2007 3:28:34 PM
Wow,
Barry is a big boy and can stick up for himself... but you guys are ruthless... how much does this blog cost? Oh, thats right its free... and anyone else with a list from 6 months ago? I kinda agree with the post about a nice CD instead... thats where I have my deferred comp account... its been there since Oct Dow approx 14,000.... 5.5% and no worries... You guys want up to date info... try the Dennis Gartman letter... good info but $400.00/ mo... thanks for this blog BR, its alot of work!!!
Posted by: Brian B. | Nov 27, 2007 4:26:56 PM
BR: Let us not be disingenuous here. When you came out with that list you said you owned all of those stocks except for MOS!!!!!!
~~~
BR:: Disclosures change daily. Besides, TSCM asked me: How did those 9 picks do?
Posted by: Norman | Nov 27, 2007 4:40:01 PM
