The stock market had a weak performance in August with the S&P 500 Index closing with a loss of 3.1%, and the Dow Jones Industrial Average similarly lost 4.4%. The Covestor Growth and Momentum portfolio did slightly better but still had a negative performance for the month.
Warren Buffett’s ‘First Rule of Investing’ is never lose money. Rule No. 2 is never forget rule No. 1. The priority of managing a portfolio is to minimize losses and try to avoid exposure to equities as much as possible in a correction.
As many of my holdings that I have had for a longer period of time have gains, my desire to limit losses results in parting company with many new acquisitions that quickly become ‘red ink’ in a correction.
In particular Cardtronics (CATM), was purchased August and sold soon after. A week later with the market firming up, I decided the CATM ‘story‘ was too compelling for me to stay away from and I put the stock back into my portfolio.
I particularly find intriguing the relationship between Cardtronics and Costco (COST), a company I would like to eventually include in this portfolio, which runs a successful discount membership warehouse store. Cardtronics is a prior holding of mine in this portfolio which was sold on technical weakness yet has now rebounded nicely, as this chart shows.
Similarly both Cisco (CSCO) and Sysco (SYY) showed weakness during the month and I parted company with both stocks.
Cisco, the networking company, was sold at a small loss in August, and Sysco, the food and supply distributor, was also sold at a small loss the same month. We can look at their charts and see the technical weakness that I observed: First Cisco (CSCO) chart from StockCharts.com.
The Cisco (CSCO) chart isn’t too bearish, but my own developing loss led me to sell the holding to preserve capital and obey the Warren Buffett Rule No. 1.
Quite frankly, the Sysco (SYY) chart also doesn’t look bad, but with the market weak and a loss developing I sold the position.
Other stocks that were sold with small losses included Danaher (DHR), Prestige Brands Holdings (PBH), Tile Shop Holdings (TTS), and Polyone (POL).
Each of these I would consider for inclusion in this portfolio as funds allow. Each were recent purchases and as the market weakened they turned from profitable positions into losing holdings and out they went.
As the market rebounded in the first week of September, I started putting the cash back to work with new positions in Gildan (GIL), CarMax (KMX), Lowe’s (LOW), and LKQ (LKQ) as well as my repurchase of Cardtronics (CATM).
When managing this portfolio, especially being aware that on the Covestor platform there are others who are mirroring my own activity, I have become very risk averse.
I do not like to overweight any particular stocks (except as their own performance may grow the position), I do not use margin and I avoid losses like the plague. In some fashion, I intend to win this baseball game of investing my making a lot of singles and not ‘swinging for a home run’. In weak markets, I will avoid losses and unload stocks that otherwise may have long-term potential if the short-term means incurring losses.
I continue to search for stocks that have strong charts, good earnings reports and financials, and have a business that makes sense.
The investments discussed are held in client accounts as of August 31, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.
