Thursday, August 25, 2005

Learning From My Mistakes

LB almost dropped 20% today. This was after they beat earnings too!
They said that the next quarter is going to be less than expected because of a few delays with their customers. LB said that after that quarter the rest of the year will be great. This did not help the stock price as it crashed today. It seems many people were expecting a bad quarter or at least bad news, but the news wasn't really that bad. I couldn't stand the volatility and I sold early in the day so I didn't catch all of the downside. I ended up closing the position out with a gain of about 27% gain. I'll take the decent gain over 6 months time when the market has been negative or flat, but I gave up a lot of gains within the last two weeks or so.
The only way I can learn from my mistakes is to examine them. I think too many people make mistakes, but don't take the time to learn from them. Everyone makes mistakes, but the important part is to learn from those mistakes.

1. I didn't sell after it LB hit my target. I think my original target was around 18, but I was going to let it run a bit. It ended up near the 21 level before things turned down.
2. After not selling near 21, LB started to decline on heavy volume. This was a huge sign and I even mentioned it on the blog, yet I did nothing! That was pretty stupid of me.
3. The stock dropped near the 14 level and then over a three day span it rose about 16%. If I thought about the previous two mistakes I made, I should have sold here. The 16% rise in price was nice, but the volume wasn't too great.
4. This could be a future mistake: selling right now. Fundamentally the company is sound and sales are growing. The next quarter will be a slow growing quarter, but the rest of the year should be great. After such a big drop (when I sold it was no where near -20%), there could be a nice rebound within the next few days. Honestly, I didn't want to risk it. I'll take my gains and wait out the volatility.

Other than that, all the rest of my positions had good days. SFL reported the other day (I have a few shares from a spin-off). I liked the results and it made me want to buy FRO again (probably not), but I am most likely going to add SFL to my Roth IRA and possibly my regular account. My regular account is still in a double digit gain and I think bringing in a stock with a nice yield and somewhat lower volatility than my other positions will help stabilize my portfolio for the rest of the year.
FRX went up over $2 and UNTD finally passed the $13 level. Plus EBF finished up almost 4%.
Overall I think I actually made money on the day, and I was surprised about that.

I have decided to transfer my accounts (regular and Roth) over to Think or Swim (fonzie, thanks for the heads up on this brokerage!). I checked out the site while eating lunch and I liked the site a lot. First of all, the commissions on stock and options will be cheaper. Plus, I will be able to do more option strategies. I want to be more involved in options, and this brokerage will allow me to do some of these activities (straddles, strangles, butterfly spreads, etc.). I also like the site and the trading platform. I'm going to download and fill out the forms either over the weekend (but I am going away on a mini-vacation over the weekend) or early next week.
I think this is going to be a great move.


Bill R. said...

Here are some warning signs you might have seen on LB.

For FYE 6/2004, they had a net issuance of debt 30.3 million dollars. Considering that their equity at the time was in the 40's, this was something to be concerned about IMO.

Track cash flows and compare OCF to NI. You should have noticed that for 3 consecutive quarters, the NI exceeded OCF. How does a company (one not in the business of investing money, that is) legitimately make income that exceeds cash flow from operations?????

Had you been tracking their inventories as a percent of revenues, would you have noted the increasing trend?

Rather than sell when it hit your target, would a stop loss order have been more appropriate?

Anonymous said...

Where did you open your IRA? Thanks

The Dividend Guy said...

Good post...proper analysis on one's actions in the market are crucial to getting better at it, IMO. If I could be so bold as to comment on anything in this post is that it sounds like you had a system but didn't follow it and you got burnt.

I am one to talk though as I am still holding Merck...

stockdiva said...

Hey, it's so funny that you decided to write about this topic. I was going to recommend a book to you that I am currently reading that I think you will enjoy. It's called "5 Key Lessons from Top Money Managers - by Scott Kays, CFP". I purchased this book because it features an interview with John Calamos Sr. who is one of my top ten favorite money managers. What I like about the book is that each person shares their techniques on what makes them buy and sell a stock. Lastly, towards the end of the book there are chapters that examine three companies to demonstrate each person's model in it's entirety. If you get around to reading this book, tell me what you think, okay?

The other money managers featured are:

Bill Nygren
Andy Stephens
Christopher Davis and
Bill Fries