The Best Play Can Be on the Sidelines

 | Aug 19, 2011 | 1:00 PM EDT  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

rbs

,

aeg

,

frpt

,

mu

,

hcbk

,

crrc

,

gva

Looking at the futures this morning, it was clear that the market was expecting another down day. Listening to the talking heads on the TV, you'd think the world was about to end for the fourth or fifth time in the last two weeks. After carefully checking my positions and reviewing the morning news, I did the only thing that made any sense to me at all. At about 8:45, I went to breakfast and read the sports pages.

It was it was going to be an ugly open, and I had no need to watch it. It is like an Orioles-Yankees game. You know it is probably going to be ugly, and unless you have a strong masochistic streak, there's really no need to watch. You can just check the score a few times during the game. If the Orioles are somehow leading, you can take a measure of enjoyment from a temporary ray of light in the darkness.

Coming back to see we had rallied a bit was enjoyable, but I was not going to read much into it. There was still a lot of trading and potential news ahead of us. I spent a little time talking to some associates about the rest of the day. When asked for my plan, I said I needed to run to the wine store to select a red that goes with preseason football, and I wanted to finish the Clive Cussler novel I am reading and work on updating my bank stock files. Somewhere in there, I have to get a gift for a little kid's birthday party tonight, and I would like to get a nap in.

That's my trade plan for the day. I am not going to try and bottom-fish Hewlett-Packard (HPQ), a company that I think is broken and not anywhere near bargain levels. I am not going to spend a lot of time worrying about the widening of junk-bond spreads. I will not waste a minute today trying to buy the dips or sell the rips. The past two weeks have been a period of incredible volatility, and if you didn't take advantage of the market moves over that time, it is probably not a good idea to try and do so today. We have the weekend ahead of us with lots of possibilities in front of us for the markets, and most of them are unpleasant.

Amid the madness of the past two weeks, I have scaled into Royal Bank of Scotland (RBS) and Aegon (AEG) as European financials got bombed. I added to my Force Protection (FRPT) position as that stock declined on an earnings miss and market weakness. I adjusted my orders on several microcap stocks. I added to Micron (MU) on a scale and sold a few October $5 puts to take advantage of the weakness.

I bought more Hudson City Bancorp (HCBK). I also doubled down on Courier Group (CRRC), now that the stock has tumbled and is yielding more than 10%. I have stuck with the discipline and used weakness to initiate and add to stock positions in companies that are trading below asset value and offer what I believe to be an adequate margin of safety. I finally got a chance to buy Granite Construction (GVA) below book value, so I opened a starter position in that infrastructure company with the hope that I can scale into more in the weeks and months ahead.,

For now, I am done, at least for this week. If we drop another 10% over the next week or two, I'll come back in and add some more. If that happens, the inventory of net-nets and cheap, safe small-bank stocks will balloon, and I will be a busy buyer. Right now, it is time to step back and let the market scenario play out as it will. This is a good time to rebuild the database of ideas and compare current stock prices with valuation and see what investments may be setting up favorably. I plan to run the options calculator to see if there are any opportunities to create long positions or establish combination trades on additional weakness next week. As a long-term investor, I think that it makes no sense to try and force trades or chase stocks all over the board today.

Let the traders chase stuff around today. For long-term, asset-based investors, the market has given us some chances to add to inventory in the past two weeks, and I hope you took advantage of them. For the rest of today, it's time to do some homework, run some screens and models and, yes, do a little light reading and try to work in that nap. Next week could be even more interesting.

Columnist Conversations

I am still watching MON for a possible reversal against the time/price parameters. So far we are not seeing a...
Market stages nice comeback from early losses to end basically flat. Gilead Sciences (GILD)has a nice day post...
Is this the biotech revolution or the biotech bust? View Small Cap Biotechs Like Never Before: Transparency is...
DRI
Going to $47 without Otis...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.