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Wednesday, December 14, 2005

The Right Stock but the Wrong Time

…Last night I screened (CRM) a former member of the MSW weekly screens dating back to August. The stock made three consecutive weekly screens and we liked the potential of the stock as it tried to form a base and breakout to new 52-week highs. We knew that the overall market was starting to head lower but we were still confident in the stock. Eventually, the stock fell more than 10% from our entry area so we were forced to cut the stock from the weekly screens. It went as high as $25 but then corrected back to the 40 week moving average near $18.63. The three weekly screens are listed below with their prices at the close of each week while it was covered on MSW:

8/06/05: CRM 23.68
8/13/05: CRM 23.53
8/20/05: CRM 20.48

The stock has not make another weekly screen since it was cut back in late August. It has made several daily screens since it started to make new 52-week highs once again in the mid $20 range in October. Other than a few daily screens, the stock has not made its way back onto the MSW index but that is okay. It made another daily screen last night and this is what was said:

“CRM – 35.63, the stock was a former weekly screen member and was first covered at $23 but then was cut when it gave us a 10% loss at $20. We had the right stock sat the wrong time. The stock is now up over 78% since we took a loss. This happens in life and the market and I am fine with it. Nine consecutive up-weeks from $22 to $35.”

Sometimes you may select the right stock but then find out that your timing was off. Sometimes you may get back in at a higher level like we did with LMS but sometimes you may miss the move altogether due to any number of reasons. In the case of CRM, we did not get back in and the stock has gone onto gain almost 80% since we took a small loss. I am proud of the small loss because at the time, I did not know if the stock would continue down and I wasn’t going to break key sell rules and find out the hard way.

A quote from Martin Zweig should sum up this theory of cutting losses the best:
“A loss never bothers me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does damage to the pocketbook and to the soul. Of all the speculative blunders there are few greater than trying to average a losing game. Always sell what shows you a loss and keep what shows you a profit.”

We sold and it was the right thing to do at the time. We could have gotten back in when it jumped above $25 and moved to new 52-week highs but other stocks had our attention once October rolled around (stocks such as LMS, AAPL, GMXR, SSAG & CTRN). Don’t get frustrated if you sometimes find the right stock but get in at the wrong time, this will happen over and over throughout your trading career because timing is quite possibly the toughest aspect to investing. Currently at $36, CRM is too extended to be on our radar for the MSW Index but it has made a great run, a run that we anticipated in August but jumped in two months too early.


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