Fw: Risk/reward vol. 24

THIS IS NOT INVESTMENT ADVICE.  IT IS A PERSONAL REFLECTION ON INVESTING.  RELY ON NOTHING STATED HEREIN

Recently, I touched on the importance of liquidity in my strategy.  One of the cardinal rules of William O'Neill of IBD and of Jim Cramer of Mad Money is to "cut bait" when the market turns on one or more of your picks; and its corollary--take a profit after a reasonable return is realized.    They remind us that if one loses 25% on an investment, one must make 33% just to break even.   Thus, I have adopted the 8% loss limit.  Selling used to be a moment of surrender to me.  I would wonder..."geez this is such a great stock, why can't the market see it?"  No more.  That attitude cost me a not so small fortune back in the dot com days.  I do not hesitate to sell now, and I really enjoy it when I do so with a tidy profit.  The ability to buy and sell on a dime is, to me, the greatest asset a small investor has.  Institutional investors, even money managers, are hampered sometimes by the shear size of the holdings they oversee.  Here is an example.  If an individual holds 250 shares of a juicy trust preferred paying 7+% that has a daily volume of 100,000 shares, he can enter or exit quickly without notice.  However, if a money manager holds that same 250 shares in the accounts of 100 clients, any move by him/her could represent 25% of the daily volume and thus be disruptive of the market.  Indeed, because of these volume limitations, many of the holdings I like most (e.g trust preferreds, exchange traded debt and CEF's) simply are not suitable for those that manage money if they adopt a loss limit strategy.  This lack of mobility may explain in part why so few money managers liquidated during the 2008-2009 crash and why many disparagingly state that one cannot time the market.  I don't view cutting one's losses or taking a profit as market timing.

Currently, the portfolio is heavily weighted to dividend and interest yielding securities and sees few spikes up or down.  After all, these types of investments are the classic widow and orphan plays.  Should the market reinvigorate, I intend to start a growth portfolio where success will be measured more by price appreciation than by yield.

Cramer reiterated recently that despite some signs of life, he still counsels that 10% of any person's holdings should be in gold.  He is not alone in this advice.  I will look to add once there is a dip---likely after September.

I recently started a position in the exchange traded debt of Ally Bank (f/k/a GMAC) which looks like it is getting healthier by the day.  It is paying above 8%.  I continue to add to my holdings in the high yield exchange traded securities of ING, Aegon and AIG.

I want more exposure to metals, ores and energy and thus bought  BCF and KYN, two closed end funds in those spaces.

I just liquidated my WCRX holdings, which made 28% in less than 40 days.

Of 98 positions held currently, only 12 are under water and none of them are off more than 3.6%

This is hard work, but I am beginning to enjoy it.  Of course, I said the same thing 10 years ago and lost my shirt.  Hopefully, I have learned something since then.