Sometimes those consolidations in a growth stock can drive an investor nuts. It can be frustrating when the constant woodpecker like stream of ticker symbols on CNBC look better than your sideways stock. The Stocktwits traders seemingly busy banking gains on their hot stock of the day or week while your fundamentally strong company sits there ad nauseum. The tendency is to bail out on your well researched and fundamentally strong company and chase the hot girl up the street. Surely your money will grow faster if you can just hitch your wagon to the hip water cooler talk special stock of the day or week right?
Sometimes at the SRP service we are sitting on several stocks that are trailing the market averages while they consolidate, or perhaps even correcting. Not only that, often the fundamentals are seemingly solidly in place yet the market doesn’t seem to care. Welcome to the public stock markets where people chase the latest hot IPO, such as this weeks EYES which has a 900 million market cap and 2 million of annual sales. A company that has been around for 16 years and never made a dime of profit and has 117 million of accumulated losses. A company who had convertible bond debtholders they needed to pay off. Best way to do that is sell a sexy story and hire a sub-par underwriter at a low commission rate to sell your IPO to retail investors. Hey, it worked so we are not knocking them but we also wouldnt call this a fundamentally strong story either. That said, fundamentals don’t matter though when there is a classic Wall Street thin float IPO with a sexy story… no profits, but the story is water cooleresque man! It’s all fun and games until the next quarterly report comes out and that formerly hot trading stock shows its true colors with actual numbers that may be a bit sobering and not so sexy no? With that said, we understand those day trader plays look tempting and often you can make a few bucks on them if you are quick, but you can also lose 15-20% of your trading dollars in 1-2 days when the sexy story wears thin.
What to do? Avoid the temptation to jump off the wagon of your strong company just prior to that upside breakout, which you know is what will happen as soon as you sell right? A lot of the trading on a day-to-day and week to week basis on Wall Street is purely random in nature, and also 80% controlled by computer bots and pre-programmed trading movements. One day your stock is sitting at $13.25 per share and the next morning its opening at $12.30 and there is no news and no explanation. 3 days later its back to $13.50 and you just sold out and lost money… sound familiar? A lot of that is programmed bots ripping retail shareholders off by tripping stop losses and snagging shares before the reversal. That’s why charts by themselves never get it done, they are a tool in the box but at the end of the day the fundamentals will win out. This is why as much as it may be water cooler talk “Cool” to buy that EYES sexy IPO and chase the gains, in the long run that type of hot stock chasing will lose money.
With many quality names going sideways while the SP 500 index and NASDAQ index climb higher, it can be frustrating…
To wit, if we can quote Investors Business Daily from their Saturday paper here is what they said:
“For three weeks, the IBD 50 has been flat even as the major indexes have made new highs…Many have stalled, hanging by a thread to their latest buy points. With the market rising, these leaders should be making progress… Instead, there are just a handful of leaders making sizable gains… While crawl is frustrating investors, the indexes edging higher with little distribution means that market risk remains acceptable”
So if you are feeling like you are missing some of those bullet trains whizzing by on the CNBC and StockTwits trending ticker lists, resist the temptation to alter your game winning longer term trading plans and know that stocks make their biggest percentile moves in very short time frames, and usually right after you give up and sell.