Trust Watch Lists And Price Targets

The market has been wild. Yesterday saw the Dow’s worst one-day percentage loss since the first session following 9/11. Just a week ago, markets rose 3% to 4% on Monday due to the supposedly good news that the Treasury had bailed out Fannie/Freddie. Last week’s Monday went straight up; yesterday went straight down.

Timing these gyrations is extremely hard. Here at The Kelly Letter, we’ve been on a cautious footing since Aug. 21, but I haven’t maximized profits from short positions or minimized losses on longs. Saving cash to buy the next downturn was a good step, and we did that, but it’s frustrating to not have all the ducks in a row.

Here we are again on Tuesday morning facing another quandary. Last week, Monday’s big gain was followed by Tuesday’s big loss. Now, investors expect an emergency rate cut from the Fed later today, which would likely re-energize the market so we get a mirror image of last week: yesterday’s big loss to be followed by today’s big gain.

Unless you’re a professional trader, do you really expect yourself to be able to move nimbly enough to have been short yesterday and long today? What about last week? Is it reasonable to expect yourself to have been long on Monday and short on Tuesday? No, so don’t beat yourself up if your money is riding imperfectly through this tumult. So is everybody else’s, including that belonging to some of the most famous investors.

What I find helpful in these kinds of downturns is turning back to the list of stocks I’m watching and the price targets I set. They were set for a reason, and there was a hope to be able to buy them at those lower prices if and when they appeared. Of course, periodic reassessment is a good idea to be sure nothing has dramatically changed.

For instance, those with AIG on their watch list may want to re-think their modestly lower price target set on the stock a month ago now that it’s down 79% in the past week. Just might be that something’s gone wrong there.

Yet, high-quality names far outside the financial sector are seeing compelling prices that may get even more compelling. Some even pay dividends. Some of those dividend yields become downright tantalizing in bear markets.

News is just news. It’s always bad in a bear market, and then it improves. Knowing what you want to pay and then waiting for that price to become available is a good way to relax through the movement and pack your portfolio with powder that will ignite when the bull one day meanders back.

This is not a market call. Just the opposite. Let the broader market go where it will, and focus on your own watch list. Monitor it carefully, reset targets to take advantage of volatility and/or reassess your interest altogether, and notice how much more organized your thoughts become.

Trying to figure out the whole market during “End Of The World” hysteria is hard for anybody. Focusing on a list of stocks you have studied and know well is not as tough. It’s still hard, but less daunting than facing the whole market.

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