The Swinger's Lifestyle Explained
by Gil Morales, Managing Director
MoKa Investors, LLC
A lot of investors believe that big money is made by sitting tight and being right, and I would agree that during the secular bull market of the post WW2 era, this was true in many cases. These days, however, the market is driven less by consistent, secular inflows of funds coming from mutual funds, individual investors, and a growing cadre of institutional investors like hedge funds. My work has found that the uncertainty of the current environment can often work against investors taking a strict buy and hold approach. Many followers of CAN SLIM have written to me over the past 2-3 years complaining that they have had good gains in stocks that end up evaporating and in some cases even leading to losses.
During the recent VoSI Mini-Conference and Trader's Dinner I went through the chart of NVDA showing how one can adopt a swing-trading approach as a method of risk-control even with a stock that has a decent intermediate-term price run as NVDA did last week. In this sense, we are looking to "campaign" stocks using the various tools and methods at our disposal (and we have many). This has driven most of my stock research in the past 2-3 years, as most of you are well aware. But I would make the strong point that while the idea of sitting tight and being right is a noble one, it can present practical problems in a QE-driven market. Thus I believe my approach simply takes the sitting tight and being right concept to heart, but with the idea of taking profits into extended moves while looking to re-enter on logical pullbacks, sometimes even of the Ugly Duckling variety, all while continuing to play a particular stock ("campaign") throughout its uptrend, as I demonstrated at the recent mini-conference.
So, in essence, my approach is not diametrically opposed to the idea of sitting tight and being right, but rather serves as my own way of adapting to a market that is at times bizarre and subject to severe news-moves and the like while still looking to capitalize and profit from the sustained, albeit at times highly volatile, intermediate-term uptrends in leading stocks. I only need point to the severe sell-offs in August 2015 and after the Brexit vote to make my point. During the brutal break in August 2015 you saw names like FB crater from a high of 94.77 to a low of 72 in just three days. From a practical, psychological standpoint, how does one deal with that? The answer is simple: by adopting a more active approach and being OUT of stocks before the poop hit the fan in August 2015. This then puts one in the position of being able to buy/add on the pullback using Ugly Duckling techniques while the rest of the investing world is running around screaming their heads off.
I note that some don't seem to get this, and want to get into hashing over the virtues of a buy and hold approach. This truly misses the point, and I hope the discussion above helps to clarify my views on this topic.