In answer to a great question…
I received a really great question this week and as suggested, I am answering it for everyone, not just the person who sent it to me. It came in two parts – the first being regarding QCOR, and the second being ULTA.
I will answer the easier of the two first – ULTA. The question was, why am I getting out of ULTA if I am only looking to jump right back in?
In the method that I use, which I call Volatility Value Trading System, I use certain indicators to tell me when to buy, where to put my stop and when to exit a trade. In the case of ULTA, one of my indicators – the one that says, “Get out now – you’ve taken what you can from this stock and it is about to start going down.” gave me the signal, so I placed an order to get out. Saying this – the stock market is far from being an exact science. My indicator in this case was wrong, so now that the stock is moving up again I am getting in tomorrow at market. It’s a great stock, so hopefully it will keep going up.
The next question is about QCOR. As we all know QCOR has been beating me up pretty good over the last few weeks since the generally agreed unfounded blog posting about the company sank the stock on January 11. The question is – why do I keep going back in? This answer is about using a system to trade with and the psychology of using that system, as oppose to getting emotional about a stock. It is very easy to get emotional about a stock when it keeps kicking lumps out of you, and it feels as if one is being a bit of a glutton for punishment by going in again and again. I agree with the person who asked the question, as many would, it doesn’t feel good at all. But this is what I have learned, and many have learned before me and many will learn after me, when it comes to trading, the most important thing you can learn is to stop “feeling” about it.
The system is a system as a whole. It is not about one stock. The overall performance of the system – the positive expectancy of the system – is that the system ultimately wins. So while QCOR has been playing some nasty playground games with me for a few weeks, LULU and ULTA and PAY and GMCR and many of my other stocks, even RVBD – have delivered way above average results repeatedly. I also took nearly 30% out of QCOR a couple of months ago, and QCORs overall performance in the portfolio has been exemplary when I look back over time (it made 123% last year without using margin). On reviewing what stocks to stick with and what stocks to let go of, QCOR filled all of my criteria and then some. When we look at the preliminary quarterly results we can see that this company is not going to the dogs by any stretch.
“ANAHEIM, Calif., Feb. 3, 2012 — /PRNewswire/ — Questcor Pharmaceuticals, Inc. (NASDAQ: QCOR) today announced that it expects to report net sales of approximately $75 million and operating income of approximately $41 million to $43 million for the quarter ended December 31, 2011, as compared to $29.3 million in net sales and $10.8 million in operating income for the quarter ended December 31, 2010. The Company’s cash, cash equivalents and short-term investments as of January 31, 2012 was approximately $214 million. For the full year ended December 31, 2011, Questcor expects to report net sales of approximately $218 million and operating income of approximately $111 million to $113 million, as compared to $115.1 million in net sales and $53.8 million in operating income for the year ended December 31, 2010.”
So herein lies the emotional decision that traders have to make, do I keep taking the buy signals only to keep getting kicked out with small losses? How do I know that I am going to get kicked out again? I personally do not have a crystal ball, but what I have is analysis tools and a system. This allows me to remove the emotion and say, “I will keep taking my buy signals because that is what I do. I execute flawlessly at all times. It is the only power I have.”
This is a good stock. Analysts are questioning the motivation of the blog post that put this stock in trouble. This stock has a great rating across the board and yet there is an emotional response to the post. The results look phenomenal. There is no reason that this stock should be in trouble. When reviewing its value pricing (Value price of a business regardless of the price it is selling for on the market.) it shows at a moderate estimate to be $68 +. So, do I back out now? No way. Murphy’s Law says, if I make an emotional decision about this stock I will have taken all the hits, but I will miss the big surge when the volatility calms down.
We must Execute Flawlessly!
May today be a profitable day…for all of us.
John