Picking and Choosing

Peace and Love, Peace and Love. Ringo might not write you back anymore, but he'll sell you some shoes. 

Last week, a few of us met and talked about a potential investment strategy. One of us chose the consumer cyclical sector, specifically sports footwear. The rationale was that it is consumer cyclical, and it will do well if the economy was doing well. Also, it is historically strong, and it won't collapse, because, hey, people wear shoes.

So now he looked at which companies are there, and which ones have a lot of potential for growth
because they've been suffering or are potentially undervalued. He chose Sketchers, which was sitting around 19 and this week it is at 21--a bit of a bump. That is pretty good growth, but of course this is just one stock in one week. Originally, it was at 23 and had a 20% drop, which has nearly been recovered. It is important to note that, as an investment, it is good that it didn't go up all in one day, because you wouldn't be able to purchase it quickly enough to reap the gains.

This strategy would have worked well  in the short term. We tend to be a bit lazy, or let's long term. So what we might do is to look at something that we think will have some more long term growth potential.

Taking the same strategy, we took a look at the biggest losers based on price on google finance (google sorts this by percentage loss). Here's what we found:

*McKesson (drug retailers)
Synaptics (computer hardware)
World Fuel Services (petrol)
AmerisouceBergen (drug retailers)
Novo Nordisc (pharma)

Looking at this, you can tell the medical sector took a big hit. So if you look at related companies (in that sector), you see this is the case.

Look at this, the three we should look at are McKesson, AmerisourceBergen, and Cardinal Health.

Another company we pulled up is Synaptics.

You can see that it wasn't the sector that took a hit, just Synaptics.

The proposal is, that we're working through a strategy for making a purchase immediately following one of our meetings. This would not necessarily work for stocks to discuss next week. Therefore, once we have the strategy established we can do a quick run-through and identify potential stocks. This would let us dedicate more time in a meeting to choose one of those individual stocks. If for some reason we can't agree with something that week, we can take the same approach next week, based on the previous Friday's performance. This is sort of a day-trader strategy applied to a longer term investment. Of course, we don't know that and we're just guessing. We're essentially looking at what happened yesterday, so that we can make a purchase the next time the market is open.

As an aside, you can look at the weekend as a sort of long evening, in terms of buying and selling stocks.

Since this is a short-term strategy, we can set an automatic sell limit at some threshold, say 10% or some dollar amount. Also, if we're dealing with risky stocks, we can set a sell limit if it falls below some threshold as well. This helps us avoid another EWZ.

Really, we're trying to figure out what we're doing. Once we know that a little better, we can start implementing this with some degree of confidence.

Profit!