Börsipäev 6. oktoober

06.10.2005 16:03

Rev Shark:

Put Those Poor-Performing Stocks on the Bread Line
10/6/2005 8:43 AM EDT

"Strong managers who make tough decisions to cut jobs provide the only true job security in today's world. Weak managers are the problem. Weak managers destroy jobs."

-- Jack Welch

Investors hire stocks to do a job but unfortunately many folks don't bother to manage them once they have been employed. Investors have been influenced by traditional Wall Street to be benign in their attitude toward their stocks. They are undemanding and tend to forgive poor performance; they don't fire a stock from their portfolios until they have to and that ultimately destroys more capital than necessary.

It is easy to be a good manager of a stock portfolio when the market is strong because you can let the broader market cover up the short-comings of your holdings. A strong market can make even a poor stock look good.

It is in a weak market that your management skills are put to the test. Which stocks do you fire for performing poorly? How best do you protect your precious capital from the ravages of a stock that has great promise but can't seem to get its act together? How ruthless should you be in cutting losing stocks that are making a misstep that may prove to be only temporary?

After the poor action the last couple of days, the breach of key technical levels and the renewed concerns about the Fed and inflation, it is particularly important to be a proactive manager and put heavy demands on the stocks you employ. If you let a poor stock do as it pleases it can cause some major damage that will require substantial time and energy to repair.

Be strong and tough with your stocks when the market is struggling and you'll find that when things improve you will be ideally situated to create new jobs for new stocks that will take you to new highs.

The market was slapped with an ugly stick yesterday. We sold off broadly and breached key technical levels, the most prominent being 1200 on the S&P 500, which also is the 200-day simple moving average.

One positive was that technology stocks held a little better than most sectors and the Nasdaq, Nasdaq 100 and Philly Semi Index (SOX) have not broken down like the S&P 500. That bodes well for technology leadership once the market finds support. Is it time to position yourself for the technology rally that some are calling for? No. There will be plenty of time for that if and when the market starts to act better.

There is a high likelihood of some sort of "dead cat bounce" today after the intense selling yesterday, but it is just reflexive and can not be trusted to last. Don't allow yourself to become excited about a market recovery here. There has been substantial damage done and it is going to take more than an oversold bounce to repair it.

In the early going indications are slightly negative. Overseas markets sold off in sympathy with U.S. markets and oil is down again. Weekly unemployment claims just came in at 390,000, which is well above consensus estimates of 350,000. This cuts both ways because it is not inflationary, but it also indicates a slow economy.

Gary B. Smith: