When to Sell and When to Hold?

SYNOPSIS
For those who were away on vacation last week, the markets demonstrated what a selling panic looks like on Friday… allegedly due to a loss of confidence in the recovery of emerging market countries. Why that would lead to sharp declines in domestic equities markets is beyond me, but you decide. The Dow Industrials declined 3.5%, and the S&P 500 followed suit with a 2.6% loss over the week. Losses among Canadian stocks were more subdued.

Trading Activity… There were seven trades in the ProfiTrend Portfolio last week. The annualized growth rate for the PTP is now 137%, compared to -12% for the S&P 500 and +13% for the S&P/TSX Composite Index companies.

Topic of the Week… When to Sell and When to Hold? There have been a number of inquiries recently about how to decide when to sell a stock once it’s in your portfolio. It’s an important question, but because we’ve generally answered it as a subtopic elsewhere, it’s difficult to find in our archives. We apologize for that. This week we’ll address the issue in detail… hence the perfectly clear title above. We revisit our two general sell tactics and introduce a new one. It’s still in the experimental stages, but promises to be quite useful.
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State Street Investor Confidence… The latest data for the month of December are included. While there have been improvements in the outlook for equities overall, European stocks appear to be the most attractive to institutional investors. The results for January will be released this week and reported in our next issue.

Seasonality… We summarize the most common calendar effects that you might expect in February.

Currency Exchange Rate Considerations

SYNOPSIS
The markets had mixed results over the past week. The small cap indexes continue to lead the set of indexes that we report weekly. The S&P/TSX Composite Index gained 1% on the week, but the S&P 500 actually declined 0.2%.

Trading… There were six trades in the ProfiTrend Portfolio last week. The annualized growth rate for the PTP is now 140%, compared to 18% for the S&P 500 and 27% for the S&P/TSX Composite Index companies.

Topic of the Week… Currency Exchange Rate Considerations
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At least once a year we take some time to discuss how the value of the currency used to buy and sell equities can sometimes have a significant impact on profitability. That’s what we’ll do this week in light of the recent weakening of the Canadian dollar relative to its US counterpart. We’ll also include a brief overview of currency trading for those of you who have never given it a try.

State Street Investor Confidence… The latest data for the month of December are included. While there have been improvements in the outlook for equities overall, European stocks appear to be the most attractive to institutional investors.

Seasonality… We have the latest calendar effects explained via video by our most-often cited source on this topic, Brooke Thackray.

2014: Hot Trends Right out of the Gate!

SYNOPSIS
So, does it seem like 2014 is off to a rather lethargic start? The media seem to think so. There is another one of those calendar effects that says “as goes the first 5 trading days of January, so goes the year”. The first 5 days this year ended on a modestly negative note, so I guess we’re heading into a loser year, right? We’re going to lose our shirts?

Well, if you believe that, as some of the media do, you’ll believe anything! What they (mostly) haven’t told you is that this effect is accurate 52% of the time. But I actually saw one biz talking head get quite excited about reporting this 52% success rate. Presumably, he had to be comparing 52% with zero… something close to his typical math score in elementary school arithmetic!

Yes, 52% is not statistically different from 50:50 given the number of data points they base these things on… essentially a coin toss result. In other words, it’s absolutely meaningless to even talk about it. But hey, this is Biz TV and we’re going to hear a lot more foolishness like this before the year is out! We’ve made a new years’ resolution to expose as much of this as possible, because it runs rampant… to the detriment of investors everywhere who rely on the media for facts, not fiction.

We’ll also see some outstanding investment success stories now and then. How about a stock that has risen 550% already in 2014? Yep, it’s true… Intercept Pharmaceuticals (ICPT on Nasdaq).

That chart below is real as of last Friday’s close!

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Not even a takeover bid or a hated CEO dying would normally ever produce a jump in share price like this one that happened mostly last Thursday and Friday. ICPT has a drug that is so successful in some types of liver disease treatment that they stopped trials on humans. Drug trials normally have a fixed testing period, based on the time required to achieve the result which would make the drug viable for the market. But in remarkably rare instances the results are so positive that they’ll stop trials to get the drug out earlier to those that really need it.

But just as this appears to be a miracle drug, it would have taken a miracle to anticipate both the result and the market’s reaction to the news. Unfortunately, this is not a bonanza that could have been anticipated by relative trend analysis™ (RTA) or any other systematic approach, other than to buy a lot of pharma companies and hope for a lottery-like win like this one. That’s not how anyone should invest, and that approach would fail most of the time.

All the same, we routinely find that at least a few 2, 3, 4 or 5 baggers appear every year in our portfolio.
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(Each “bag” is a multiple of your investment price. A 2 bagger has risen 100% in value, a 3 bagger, 200%, etc. 100% profit is a doubling of your investment… hence the “2 bagger” designation.)

In a more typical case than ICPT the accelerating trend is identified in our trend and consistency numbers, and we simply wait to see how far it takes us. We hold on until the trend ends. Our 2 or 3 baggers tend to unfold over 2-3 months or longer.

But enough on that for now.

The markets were generally positive over the past week with the anticipated surge in small cap stocks appearing right on schedule.

There was no trading activity in the ProfiTrend Portfolio again last week. We just watched the Santa Rally/January Effect profits roll in. Our annualized growth rate is now 140%, compared to 25% for the S&P 500 and 27% for the S&P/TSX Composite Index companies.

Topic of the Week… 2014: Hot Trends Right out of the Gate!
Just as we examined the overall results for 2013 last week, we use a similar outline to look at where we stand going into the first months of 2014… across major indexes, countries and industry sectors.

State Street Investor Confidence… The latest data for the month of December are included. While there are improvements in the outlook for equities overall, European stocks appear to be the most attractive to institutional investors.

2013 Review

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The markets were mixed last week, after two particularly strong weeks Dec 16-27. The Santa Claus Rally kicked in full-force. We hope everyone benefitted from this extra Xmas bonus.

As for last week, all of the major indexes retreated a bit, but small caps started rising right on cue for this time of year. The S&P/TSX Venture Index rose 2.8%, and the S&P/TSX SmallCap index was up 0.6%. All of the other indexes turned in negative results week-over-week.

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Topic of the Week… 2013 Review
While we normally prefer to be forward-looking, it’s that time of year to reflect back on 2013. It was a particularly good year for equities investors, especially if you chose US stocks over Canadian equities… something we’ve been advocating all year. So this week we start walking you through the details.

State Street Investor Confidence… The latest data for the month of December are presented. While there are improvements in the outlook for equities overall, European stocks appear to be the most attractive to institutional investors.

Seasonality… The Santa Clause Rally/January Effect has become more complicated than it once was, with plenty of room for alternative interpretations. We unravel the confusion for you, and highlight the best opportunities for January from a probabilistic perspective.