What Goes Up…

I noticed today that the market took another pounding today, with the Dow, S&P, and NASDAQ all giving up at least 2%. Those who are better acquainted with me will know that, for some time now, I have been convinced of the eventual collapse of the skyrocketing housing market. I do not have any real economics education background — I’ve read a few of the Motley Fool‘s books and articles, but I’ve never taken a class on the subject. I became a follower of blogs like Calculated Risk and the Housing Bubble Blog, among others, and tried to digest the steady stream of news and warning signs posted there on almost a continual basis. Even from my uneducated worm’s-eye-view, behind the Orange Curtain, I smelled funny money, as median income statistics and home prices for the area just didn’t make sense.

I thought that the demise of New Century Financial (a local high-flyer in the mortgage business) in early 2007 would be the catalyst that brought the whole mess down. Accordingly, I decided to liquidate most of my portfolio, take my dollar-cost-averaged gains, and wait patiently for a good opportunity to once again jump in. It turned out to be a temporary hiccup, though — from the beginning of March until the start of the credit crunch, the S&P went up about another 8-10%. After the first wave of panic hit and receded, the S&P closed even slightly higher in October. While I silently cursed my poor timing, the market then proceeded to get hammered in late November and late December, and the start of the new year provided no relief.

We’ve now gone below the price at which I sold my S&P index — the difference now is that the prevailing sentiment appears to be “recession,” and I agree that the markets are going to sink further before any relief sets in. I checked over my portfolio, and, on a percentage-of-portfolio basis, my timing no longer looks so terrible in hindsight, partly due to its weighting towards the index fund.

Some positive results from my March sale:

  • I unloaded AMD at $14.80 (versus the $6.12 it closed at today). After the successful dual-core Athlons, my reading indicated that their products in the pipeline were going to lag behind Intel’s Core 2 series, so I didn’t feel bad about dumping it. I’m glad that I did.
  • I sold EDS at $27.81 (closing at $17.86 today). I originally invested in them on advice from the Fool, but didn’t feel bad about dumping them because I didn’t feel that I personally had a good grasp of their business. Again, I’m glad that I did.
  • I dumped my DELL at $23 (versus the $19.75 that it’s trading after-hours today).

Some not-fully-exploited opportunities:

  • I missed potentially larger gains on AMZN (sold at $38.83, currently at $78.41 after hours), but I didn’t own enough shares to make a huge difference. (I should note that I have had past regrets with AMZN — when I first started investing in 2001, I bought a solid chunk of it at something like $7, and sold when it was a 3- or 4-bagger. Should’ve held onto it…)
  • I also missed gains on NVDA (sold at a split-adjusted $20, currently at $24.80 after hours).
  • Finally, I should have stuck around with PANL (sold at $12.76, currently at $16.82), as well.

Amusingly, I was going to include INTC in this list, but it is taking a convenient 15% dive after hours (following their earnings call), thereby saving me from embarrassment.

I should note that I never turned off my automatic investment withdrawals, so some of these “paper losses” have actually been partially recaptured, just with a smaller position. Overall, I feel okay about how things turned out — and I believe that the coming months will continue to hammer stocks and pave way for an eventual return in force for my investments. There will be money to be made amidst the carnage — in hindsight, I wish that I had picked up airline stocks when I started investing (post-9/11), because the returns would have been awesome.

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