A perfect example is what I am doing with ANGI: absolutely nothing, at least at the moment. Often times stocks fall fast for a reason. Someone, somewhere, has inside information and is selling the liver out of a stock. Or, every so often, some bozo blew up his business and needs to “force liquidate” his holdings, sending your stock, and his, decidedly lower. On rare occasions, stocks fall for no reason at all, more apathy mixed with indifference if anything at all. If you are holding onto a loser, you want to be sure the former isn’t true. The first order of business is to find out when earnings are being reported and if there’s a chance your loser might offer downside guidance. Instead of guessing, call the company and ask them outright. You’d be surprised by how much you could learn from loose lipped executives who are trying to please.
Usually when a stock drops by more than 10% below my basis, I make a decision to either add to the position or ditch it. This sort of discipline eliminates the risk of blowing up in a single position and offers peace of mind in the form of “clean slates.” Sometimes the best ideas are the one’s you never planned for.
In the case of ANGI, I am down 11% from my basis and haven’t decided what to do with it yet. I am taking into consideration the fact that many momemtum names are being discarded into the spartan fires, so there isn’t anything unique about ANGI’s drop. Also, I like the fact that it’s dropping like a stone, instead of a methodical drop lower. This tells me someone is either being forced to sell or ominous news awaits.
Ultimately, this is all a gamble, short term trading like this. There isn’t anyway to know, for sure, if ANGI will trade up from here or continue its electric slide lower. The good news is that my other positions are fairing well and ANGI isn’t a big one. This gives me time to feel it out, instead of making a hurried decision. It’s the beginning of the year and if I am going to make a mistake, I’d rather it happen now than later.
My gut tells me ANGI is gonna bounce soon. Just last week, she looked great, decked out in fur coats and diamond jewelry. Now she’s a little disheveled, taking on the look of a hooker from the South of Bronx. However, this can change in a heartbeat and I happen to like the company.
If it dips a little bit more from here, I will add to it. If it bottoms here, I might buy into momentum, hoping for a short squeeze.