As 2005 closed I discovered that my shenanigans throughout 2005 resulted in me earning a whopping $150 on my $7000 over the course of the year. What mistakes did I make in 2005?
The biggest involved New York & Co. (NWY). I originally bought in at around $19. When it fell to about $16 I doubled my position. Then it fell to approximately $13, and I lost confidence and sold. Naturally that stock is now trading above $21. Ideally I would have doubled down again at $13 (I didn't have the money in the Roth for this, but I could have liquidated something) but even if I'd just held on to my two chunks I'd be nicely in the black -- up 30%-ish on the chunk I bought at $16, up 10%-ish on the original chunk. Instead I took around a 25% loss. So, lesson learned: don't panic, buy and hold!
At the end of 2005 I did liquidate a couple of positions. These included XLK (the tech ETF) which did not see much of a boost from the "tech rally" called by Jim Cramer. (A number of the specific stocks Cramer picked did very well, so I'm not bitching about him -- it was my decision to buy XLK to try to piggyback on his recommendations, and it just didn't work.) Also, I put my proceeds from the NWY sale into VTI (a S&P Index ETF) for a few months while I got my head together; I sold this at the end of 2005 as well.
For 2006 I have reduced my "chunk" to $800 so I can get into more stocks. The proceeds from my XLK and VTI sales thus amounted to three chunks, and I put in my 2006 contribution of $4000 this week, which makes five more chunks for a total of 8. I kept my Blackboard (BBBB), Emerging Markets ETF (EEM), Haliburton (HAL), and Total SA (TOT). The latter two I bought when oil prices were near their high, another dumb decision (lesson: if you're going to try to chase trends, get in early!) and have been underwater most of the time since I bought. I'm continuing to hold these because they are finally coming back up again (I'm actually above water on HAL now) and I am confident that long-term, oil prices are headed nowhere but up. Total is thus a long-term holding. Haliburton I'll continue to hold until the 2008 campaign season starts, probably -- they will probably be rather less favored by the next administration.
The new stocks I bought for 2006 are as follows:
Cummins (CMI): A play on diesel. In 2007, new emissions standards take effect for diesel engines. That'll make diesel engines significantly more expensive, so many fleets are expected to replace a larger-than-usual number of their trucks early. Which should make 2006 a good year for Cummins.
Paccar (PCAR): This company makes Kenworth and Peterbilt, so it's also a diesel play. Plus I'd like to have stocks of local companies. I can see the Paccar building from my office window.
Corning (GLW): Makes glass for LCD panels, which are becoming more and more popular. Cramer also points out that they have a diesel filtering system which should start to become important as companies like Cummins try to meet the new standards, so they are also partially a diesel play, but that just sweetens the deal.
Franklin Resources (BEN): An intriguing point Cramer made on his show a few months ago is that the stocks of mutual fund companies tend to do much better than their funds, because of the fees they charge. The more deposits these companies get the better they do. Foreign investing is really hot right now and Franklin has 40% international exposure, so their deposits should be on their way up. Plan to hold through 2006.
Legg Mason (LM): Another mutual fund play, following the same logic as BEN, but I may hold it longer because it is not levered as heavily to the foreign investment trend.
Conoco Philips (COP): Another long-term oil holding to go along with my TOT.
iShares S&P Latin America ETF (ILF): Latin America is en fuego, as they say, and I plan to hold this as long as the fire lasts -- probably through 2006. My EEM did very well in 2005 largely due to the strength of Latin America, so I decided a little more concentration there would not be a bad idea.
Cheesecake Factory (CAKE): What can I say, I really like this restaurant. It's well-run, has nice margins, and has plenty of room to expand. I've wanted to own some of this stock for quite a while and I expect to hold it for a while as well. I wish I'd bought it when it was at its 52-week low back in September, actually, instead of parking those NWY proceeds in the S&P 500.
It may seem I'm overweight in some sectors, particularly the diesel "play" since GLW is partially involved in that. I am, slightly, but I wanted to diversify a bit within that "play" so as to avoid putting my entire bet on, say, Cummins or Paccar. This is a "basket" strategy, in other words, and is partially the reason I dropped my chunk size to $800. Ideally I'd like to have two or three "chunks" in each sector or "play."
My Blackboard (BBBB) is up 52% since I bought it last May, and my EEM is up 32% since last July. Those are my two big success stories of 2005 and they did manage to offset my losses so that I eked out a slight gain. However, they're starting to get a bit fat and I should probably think about selling some of one or the other. If I sell half my BBBB I'll have another "chunk." I have a list of stocks I'm considering for that. AIG looks particularly good, so does ATI. Either would further diversify me. But I probably won't really be looking at that for another month or two.
By the way, I don't intend for this blog to return to regular posting. I'll probably post once a month, if that.