Very few things in this business are more rewarding for an analyst than taking a stock recommendation off the list after a hefty run.
We've just had one of those runs, and you can hear the downgrades every day. I saw several key downgrades yesterday, namely Citigroup (C) and Wells Fargo (WFC) , two of our holdings for Action Alerts PLUS.
I thought about these and wondered what's the point. Sure, you might have liked them from a few weeks ago, and now you have taken them off the list and caught a 14% gain.
But the problem is: how do you get back in? Do you really think they are finished? Do you think they will fall 10% from here and you can upgrade again?
What made me think of this is that there have been other times when we have had huge, compressed rallies like these and you had to switch disciplines midstream. You had to say, rather than sell the rips, you were going to hold on to the rips.
You were literally going to have to say that these levels we have blown through, and we have blown through a ton of levels. They are going to last. They are not going to be repealed en masse because we have had a fulcrum moment, the election of a president who is pro-growth and will cut deals to have that growth work.
In that environment -- as opposed to the toxic one we were in where every debt limit, every spending bill and every change that needed to be made to legislation was sidetracked -- you did best to anticipate the issues in Washington and sell, and then bought them back. There were very few times when it was worth the pain of watching the disarray in Washington as Obama and Congress locked horns and got nothing done.
I think we have to accept -- hate Trump or like him -- that something is going to get done, which might mean that we actually have some growth that's not bottled up by Congress or the President.
In that scenario, it is not business as usual. It is about being disciplined enough to stick around for a bigger payoff than we have had. It's not about getting the $44 to $57 from Citi, it's about getting Deere (DE) or Caterpillar (CAT) through $120 or Cummins (CMI) to $160 or maybe even an IBM (IBM) to $200.
You need to know that discipline cuts both ways. Sometimes, it's important that you know to trade and take off stock ahead of big bad events and go back in. Sometimes, it's important to be ready for a giant selloff.
And then sometimes, you need to keep stock on your sheets and the hardest discipline will be not to sell.
Right now, until the end of the year, it might be one of those moments when you will have to work hard to keep your positions on and not to downgrade because of price.
That doesn't mean you shouldn't take profits on less deserving merchandise or stocks that have gotten way ahead of themselves that might be pure commodity plays.
I am just saying that the hardest course may be to stay the course, to not hit the register. To stick around.
Yes, it is a different sort of discipline, but it is discipline nonetheless.