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All in……now what….?

I’m only half-kidding. I knew that I would be receiving a (tax deferred) pension buy-out this spring and prepared in advance by spending a couple of months studying companies looking for investment opportunities. (we’re not talking big money; less than half a year’s current salary.) The funds finally arrived and I started buying, slowly; usually one stock per month; sometimes two.

Anyway, by the middle of the summer, I had developed a list of companies that passed every screen imaginable; if you lived by fundamentals, these companies were all legal money factories. Then the recent pull-back with it’s unexpected buying opportunites, and I finally found myself emptying out the last of the cash account at my broker. I was long; in a big way.

Prior to this investment spree, I was almost exclusively a mutual fund investor. I had a very successful portfolio of funds that included several of the top performers – and they were obtained six years ago, right before the last big “mini-crash.” ( no brilliance on my part; my 401k had very limited choices back then, but whoever selected those choices did a helluva job!)

My question. - Now that I have my long term portfolio of stocks, exactly what should I be doing as part of my regular (weekly? monthly? quarterly? at least once before I die?) due diligence? Many (most?) of these stocks are the type of huge, stable conglomerate that will remain solid “buy and hold” investments unless Martians land and announce that they are Marxists. I just can’t see GE doing anything that will change its 10% long term growth and ever rising dividends. Even so, I know I need to at least follow any GE related headlines.

But more importantly, what do I look for regarding the handful of small, semi-speculative stocks that I purchased? What should I be looking for as warning signs? What can I safely ignore? And how to I determine that bad news is bad enough for me to consider revising my “buy and hold” strategy for that specific stock?

[for what its worth, I am strictly a long term investor; even the 'speculative stocks" I purchased were companies that I believe will be solid money makers long after I'm gone. Its not that I don't believe folks can make money "trading" - I know someone who has done so. But like EVERY successful trader I have met or read about, they had enormous piles of cash (often other people's cash) when they started trading.]

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No. of Recommendations: 3
Some rambling comments which you may or may not find useful.

what do I look for regarding the handful of small, semi-speculative stocks that I purchased?

One possible answer is to decide why you bought each, and sell it
when that reason is no longer true. Decide the rule now while you like it,
not later when you are anguishing about selling.

For any stock which does not have a good economic moat, set a maximum hold period.

You may find yourself wondering what to do with losers on the
speculative side of the portfolio. An easy rule of thumb is that
the stronger the balance sheet, the more certain the bounce.
If it's good quality stuff, dips lead to rallies.
If it's momentum/excitement/growth/hype, dips lead to dips.

Oddly, this isn't just an old saw--I've done statistical tests.
Value Line ranks roughly 1700 of the biggest companies in the US.
They're all ranked by safety, from 1 (safest) to 5 (weakest), which defines
"safe" primarily as balance sheet strength but also includes a history
of only moderate price volatility. If, every month since 1986, you
had bought the 10 safest ones (ranks 1 and 2) which had gone down the
most in price in the prior 3 months, you'd have averaged a return of 21.4%/year.
(this is the average return from doing this on 5298 possible trading days).
If you had bought the 10 least safe ones (ranks 4 and 5) which had gone
down the most in the prior 3 months, you would have averaged -12.7%/year.
This loss rate gets worse with longer hold's not just a longer wait for the bounce.

The moral of a story: Never catch (or hold) a cheaply made falling knife.

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