This week I’d like to focus on evaluating your holdings, monitoring your watch lists, pulling profits and getting rid of losing stocks. And, as the tile suggests, there’s no particular magic in making money (or keeping it), just good old-fashioned common sense. The trick is exercising it!
If you’ve used our Research Wizard program even for a short amount of time, you’ve either built your own proven, profitable screening strategies or selected a few of the pre-defined strategies that came with the program and got started with those.
But once you’re in (or at least watching potential candidates to get into), it doesn’t mean your work is over. Whatever your stocks are—whether actual holdings or stocks you’re considering buying—don’t stop monitoring the fundamentals of those stocks.
What I mean is this: If one of the criteria for getting into a stock in the first place was that it had a low debt-to-equity ratio, but that ratio then changed to an unacceptable level (a level that would have kept it from your radar screen in the first place), you should consider exiting and looking for a new stock (that meets your criteria) to replace it.
Let’s say for instance that you use the Zacks Rank as a timing indicator, and you look at the No. 1s for immediate movers. If in a few weeks, as Zacks aggregates EPS estimate revisions, it sees that the prospects for the company’s earnings are to deteriorate and degrades its Rank to a 3 or 4, take note—and consider dumping it. Sure it was a 1, but it’s not a 1 (or 2) anymore.
Think about it: If you never would've gotten into a 3 or a 4 in the first place, why would you now want to hold onto one now?
What if you’re a momentum investor and you generally look for stocks trading within 10 percent of its 52-week high (a great item, by the way), and it suddenly falls below that level. Well, if you’re only interested in focusing on stocks within 10 percent of its high and it’s now 15 percent or 20 percent (or more) off its high, move on. The momentum has seemingly shifted—and so should your focus.
And don’t convince yourself to hang on to your losers either. If you got into a stock expecting great things and it’s now -8 percent to -10 percent against you, get out. Don’t let your love of a stock—or denial—ruin your portfolio. Almost every big losing trade anyone has ever had in his or her portfolio (-50 percent, -60 percent, -90 percent or more) could have been "gotten out of" when it was just beginning to crumble.
If you get out and it zips back up, you can always get back in if you want. But if it keeps going down, you’re just losing more and more money—and you can’t get out at the price you only wished you would have gotten out at.
So once you’ve found the items that have proven to work well for you in picking profitable stocks, be sure to monitor those values. And if they no longer meet the winning criteria, get rid of them fast and find new ones that do.
The Research Wizard’s back-testing feature is the best way to do that! Back-test your strategies to see what works and what doesn’t.
Here’s three new stocks that look great and are currently coming up on some of our best screening strategies:
CE Celanase Corp. (from the Upgrades and Revisions2 screen)
CPWR Compuware Corp. (from the Value Method1 screen)
GLT Glatfelter (from the Increasing Cash Flows screen)
Remember, the key to successful screening is in discovering the screens that have
produced profitable results in the past—and that’s exactly what you get with the powerful screening and back-testing ability of the Research Wizard.
Take note: Back-testing isn’t available in all screeners (in fact it’s rarely available in any screener), but it is available in the Research Wizard.
So sign up now for your free trial to the Research Wizard and pick and choose from some of our profitable strategies or put your own ideas to the test and start making better decisions today: http://researchwiz.zacks.com
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.