When the market drops suddenly, like it has with the Corona Virus, I suddenly see lots of stocks where I think - oooh that's cheap, what a bargain, terrific value etc. I am able to recognize the value because I am constantly checking out stocks, often not buying - but gaining a feel for their value.
But when the market drops suddenly - I do not know how long it is going to be down for, if it is going to bounce, or drop further. And like a kid in a candy store, my eyes are too big for my wallet.
So I buy smaller amounts of many more stocks than I would normally hold. This reduces the stock specific risk if I badly misjudge a company and gives me time to research and weigh the pros and cons of each. As I dig in, I gradually weed out the bargains, that while cheap - were not the best opportunities. The market has usually bounced while I am weeding them out, so I usually make money off each as I focus my portfolio on the opportunities I like best.
So in a drop, the number of stocks I hold might blow out to 20 or 30 or 40 or 50 and then as I weed them out, I focus them down to 3 or 4 themes I like with a stock or two in each theme.
As I have cleaned up I have sold the following, banking a little profit on all:
$BAC - Bank of America
$BRK B - Berkshire Hathaway
$BTI - British Tobacco
$C - Citigroup
$F - Ford
$FHN - First Horizons National Bank
$HBI - Haines Brands International
$JPM - JP Morgan Chase
$MA - Mastercard
$PBCT - People United Financial
$PII - Polaris
$UGI - UGI Corp
$WBA - Wallgreens Boots Alliance
$WFC - Wells Fargo
As I typed that list, what hit me is most of these are companies I would never buy in normal times. But I do know that over the years, the opportunistic snapping up of bargains and then thinning them as the market bounces - has consistently generated profits for me. Sometimes the market drops again and I get to do it all over again.
But after lots of research into the 8 or 9 stocks I continue to hold - it leaves me very confident in my short list. Those remaining stocks are spread across 4 themes:
- Service providers with little competition and high return on equity
- Uranium companies as the suply/demand disruption drive long term contracting price for uranium higher
- Advertising dependant companies leverage to an upturn in economic activity
- Undervalued assets - Net Nets, Investment companies trading at discount to underlying assets, etc.
The service providers will probably become long term holdings. The other 3 will run their cycle and I will exit at a more appropriate time.
Not Investment Advice
As always, this is not investment advice. Do your own research. Consult your professional advisors.