Friday, June 11, 2010

redistribute the portfolio during a stock market correction.

Last month was a good experience. Many of the stocks went below their 30 day averages. Some of the stock I owned also did the same. There was one stock CMG that did not go below the 30 day average but was just gently touch it. It topped at 143 where I sold it. But it came down to 122 onto the 30 day average. That was the time I guess to buy it again when the stock is still holding strong to the 30 day average. One has to sell all the stocks going below it and re distribute the portfolio.

I could have got more of CMG and rest of them should have left it as cash. Now VZ is going up again. My selling decision on VZ was absolutely bad timing. Though the loss was minute there was no need for it. Anyway the problem is when you buy below the 30 day average and when the stock goes down below your buying price its stressful and if drags on for a month it is even so. So going long term with such  stable stocks is not a problem. Even going long term it is important to buy the stock at a lower price. Since if invested at higher prices, there is a danger of getting a loss on the original capital. So even while investing in stable companies, stock price is important. Since the market has fallen or corrected a 20 percent drop is noticed on most stable companies.
This is a good time to invest and forget for sometime and just collect the dividends.

Another strategy is to make another portfolio for racy stocks jumping above the 30 day average like CMG and NEFLIX. These two stocks are text book examples of the stock moving above 30 day average rally. I made some money on CMG. I did not have enough capital at that time. But it was a good learning lesson.

One has to learn which stocks to keep and which ones to toss out during a correction. The ones not going below 30 day MA keep them. Those going down the 30 MA dump it. Thats the rule.

Also according to the book buy more on stocks that are holding well rather than selling. Very interesting behavior of the stocks.

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