Since I was stopped out of Terra Industries (TRA), I replaced the holding with the next investment from the screen Hanger Orthopedic Group (HGR).
Well, I had thought about this very situation. Under my rules, I decided not to buy-and-hold for the 4 week period, come-what-may. Instead I set an 8% stop loss (after the first two days). Any position down 8% from the entry is to be sold. Well, the question arose, what should be done with those funds. Leave them in cash and wait for the next month to rebalance, or reinvest in them.
Well, not having a plan, I decided to reinvest the funds. So, I reran the screen to identify those meeting my revise O’Shaughnessy Growth stocks. This provided a fresh list of investments. Three of my holdings remain in the top 5 and four in the top 10. Interestingly enough Terra Systems (TRA), which just got stopped out, does not meet the screen any longer.
Wll, so the screen returned HGR, CHP, IPHS, MFLX, NWPX. I made it simple. I chose the highest ranking stock of the screen not in my portfolio – HGR.
I didn’t hesitate (though the thought crossed my mind – HGR was up over 2% already today). But I bought. Got in at $16.58. Sure, it immediately declined, but we’ll see how this evolves.
Now, the question I have to answer in the next 3 weeks is how this effects my sell rules. Do I rebalance the entire portfolio, or hold for a full 4-week period?
Also, in the future, do I change my buy rules to replace stopped out holdings? Should I let the money sit for the remaining time? Should I invest it into the best performing holding, thus ‘naturally’ weighting the portfolio? Or do I replace it, like I did? And if so, immediately, the next day, or the next week?
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I am an amateur trader and investor with over 15 years experience in the stock market. I was bred to be a fundamentalist and followed fundamental analysis until 2009. Following the 2007-2008 bear market, I began to shift from a buy-and-hold strategy to trend-following techniques.