Daily Archives: November 5, 2012

Manage Your Risk or It Will Manage You

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Arguably, the most important part of a successful trading plan is sound risk management.  I've recently had to take another look at this as I am only human and fell back into some bad habits.  After a fantastic 2nd quarter and some decent gains, I feel I may have become overconfident and adjusted my position sizing too high. 

I pretty much broke even over the summer, but then took some large hits over Sept/Oct.  I have to admit, my rules for sizing in different market conditions were not very clear even to me and needed more definition.  Because of their loosely defined status, I had trouble really trusting my system and didn't have a plan for what to do when I had conflicting signals and which ones to prioritize.  This was a major mistake.  Thankfully, I know at this point to cut losers even when it hurts and overall I'm not really damaged just a bit disappointed.  There's no room for impatience in trading.

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Semi-Elect

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As much as I enjoy discussing politics, I have stayed far away from any political discussions on Slope. I once was a rather strident Libertarian, but I finally came to realize – – – and I'm quite serious about this – – – that I was projecting my own good sense and decency on the rest of the world and realized that, frankly, some folks actually DO need to be mollycoddled since they just don't have a clue. Libertarians, I'm afraid, have a rather optimistic view of human nature that perhaps might be misguided, as much as I wish that weren't the case.

I haven't been shy, though, about putting my stake in the ground not about my beliefs, but about my predictions: I think the popular vote is going to be one of those 48/52 or 49/51 type deals (with Obama squeaking out a victory) and a very lopsided Electoral College victory for Oh Bummer. In thinking about what's ahead for the markets, I would offer three scenarios.

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Acco Brands Short

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I entered a new short position earlier today, based on the broadening pattern shown below. I have highlighted the area of particular interest.

1105-ACCOfar

As you can see in this close-up, after tumbling hard, we've retraced to a level that I think represents an attractive risk/reward ratio. I've got a stop in at 7.98 on this one. My entry price was 7.63.

1105-ACCOclose

Tech Wreck! (by Goatmug)

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COUPONS EVERYWHERE!

In November of 2011 I posted an update on Groupon and essentially said it was terrible as it made its IPO debut.

A BAD TASTE IN YOUR MOUTH

Ultimately I felt that Groupon (GRPN) was a strong short because its business model was easy to replicate and it really wasn't fairly valued after its IPO which vaulted it into the stratosphere.  I made the argument that GRPN was simply a tech bubble fantasy that would crash back to earth.

A ZERO?

In early November, Groupon reached a price of $30.00 a share and on the 22nd of November it was already trading at $22.  In my New Year kickoff post for 2012, CONFIDENCE LOST, 13 PREDICTIONS FOR 2012, I went further as I wrapped up the article with the following quote;

 

"Groupon will be one firm that is out of business in the next 5 years and therefore it is clearly an equity to focus on (to short) if it can ever gain any traction and get a bounce."

 

Let's check back in on this great technology story and check out where it is trading and where it might be headed.  Please examine the chart below;

 

 

WHERE IS IT HEADED?

I will spare you the sophisticated technical analysis on this $3.90 stock, and summarize this view on GRPN with this final thought on "Groupon still hasn't formed a bottom".

 OTHER TECH NAMES 

As I wrote in a recent article, I have softened on LinkedIn (LNKD), I think that is one of the few "internet firms" that has a real business and could be amazing over the very long term.  The chart looks ok here too, unless it falls through $101.  I love to shop using Priceline (PCLN), but that chart looks really shortable after the monster gap up last week.

 THE FUTURE

The election is tomorrow and I am simply praying that God would give us the candidate that he has for us rather than the leader we are asking for.  I'll give you a hint about the people of Israel, it didn't work out very well when Saul was named their king.  Read 1 Samuel 8: 6-20 for more insight!

 Have a great week 

 GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog – Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments athttp://www.goatmug.blogspot.com/