At the heart of my investment approach is the idea that it is better to react to price action rather than try to anticipate it. Rather than predicting when a top or bottom might occur, I react to the way the stocks I am watching are moving. For two days now I have been reacting by selling.
I do not like the action I see in many of the stocks I'm holding and I don't see many new ones that I want to buy, so I end up being a net seller.
It is very possible that the market may suddenly turn around and that stocks that I've sold will come roaring back. If that happens I will be underinvested and will have to look for ways to put capital in productive names, but for now I am more concerned about not giving back gains.
Yesterday I discussed the importance of keeping your account as close to highs as possible. If you avoid big drawdowns in poor markets you are almost assured of producing superior performance.
The problem with this approach is that there will be many 'false negatives' There will be an inclination to be too defensive at times if you make an effort to keep losses small. That can be undone by having a plan to rebuy a stock that you have sold but there is a cost to aggressive defensive.
I find it helpful to think of the cost of early selling as an insurance premium. It is what we have to pay to stay safe. Insurance premiums are always annoying when you don't need to make a claim, but when a big, ugly, event does occur then that insurance can seem like quite a bargain.
I'm taking out some insurance right now and selling down positions. It may be a dumb move and maybe I won't need this insurance in a few days but it is the move that makes the most sense to me right now.
There are very few new names on my radar right now but I do like the way Coherus BioSciences (CHRS) is developing.
