This week, we saw another "Trump Shakeout" as many of the market's weak hands sold off for almost 6 straight hours. We were patiently waiting for a bottom to form and were able to deploy some cash into stock positions.We continue to stay light on option positions as we wait for better opportunities to arise in our favorite names.
We opened up positions in W, UEC, TWLO, and SOHU.
U.S. and Chinese technology companies continue to outperform the market as banks and consumer staples underperform. Techs are the clear crowd favorite, which creates both an opportunity for hopping on a trend and also a possible bull trap scenario with such a crowded trade. Many investors in these names aren't pros and are easily scared, as we witnessed last week.
We've written before about the benefits of "Buying into Blood" which is hard to do emotionally but even harder to do logistically when you don't have any cash on the sidelines. We'll talk about that in the next section.
Investment Lesson: Cash Management
Managing your individual stock positions while ensuring that you have enough cash in the bank for new opportunities might be one of the toughest aspects of investing. This week, as we saw the market take a meaningful dip, we were very eager to jump into positions that we had been waiting to buy. While we managed to deploy our cash, some of our colleagues weren't able to "buy the dip" because they didn't have any cash (or margin) left to purchase shares.
Over-investing in certain positions can happen to anyone. It's very easy to get excited about an opportunity that looks like sure thing, but it's very tough to manage the size of the position you take. Diversifying investments is important, but leaving room for new, lucrative trades that come across your desk is even more important. You don't want to be the straggler that can't invest because you've used up all of your cash resources.
Create a plan and stick to it. Write down your rules for what you will do to open a new position if you have no cash. Will you go on margin or will you sell other positions to make room? Which positions will you sell?
Constantly audit yourself and determine the value of your current portfolio and when to cut losses in favor of something better.
If you were hoping for a stock to make a move and that move never happened, lighten yourself in that stock; don't just hope that you will eventually be right. This goes back to what we usually say about having an exit plan before you enter a position.
Humans are predisposed to not wanting to book a loss. It hurts our ego, plain and simple. If you are auditing your portfolio and find yourself "hoping" for a stock to rally back, cut your loss. There are always better places to put your capital rather than letting it sit in a losing position.
- The Minotaur Team