Happy Holidays! – Now, Get To Work Preparing for Investment Opportunities!

Friday, December 18, 2009

544732_notepadOne mid-December I was talking to an equity manager(*), telling him about my upcoming holiday trip to the relatives. When I asked about his plans, he said he would be in the office, working. The reason? He had found the last half of December, especially the days between Christmas and New Year’s, often provided special buying and selling opportunities. His reasoning: With so many people away from the markets – physically and mentally – unusual price moves could occur.

Monday starts this period. Here’s how to prepare…

First, decide what kind of a stock market we’re in – in general and for your types of stocks. The trend sets the tone of expectations. Without active participation in December’s final weeks, the tone will likely determine stock price moves following news reports. It’s hard for a trend to change during these periods.

Second, decide the stocks or funds you are interested in buying and selling. Make up a list of potential trades so that if a price falls or rises to a point where you would buy or sell, you can act. Make the list as long as you wish because you will be unlikely to have anywhere near all the stocks and funds move to your desired prices.

Beware of GTC orders! No, not “good ‘til canceled,” but “good ‘til close.” Many investors cancel a GTC limit order when the price moves towards their target price. The move, itself, causes them to think something is afoot, so they should wait.

Third, regarding selling, think about your tax situation. Standard wisdom at this time of year is to wait until January to sell, allowing you to put off paying taxes for 12 months. But with interest rates so low (the one-year Treasury bill is about 0.35%), there is little advantage to waiting until later if you can get a good price now. And, of course, if you have carryover losses, there is no advantage to waiting.

Fourth, think about others’ potential tax situations. This year, there could be many people with losses that could offset any gains taken. In addition, there could be carryover losses from 2008. Psychologically, many could desire to take gains this year in order to reduce or eliminate the losses they incurred earlier – for their own mental well-being, and, perhaps, so that their accountant doesn’t see big negatives.

Fifth, for all the issues on your list, look at this year’s stock charts. There are two things to focus on:

  • Where volume was especially heavy, indicating a turnover of holders – shows where many new positions were taken on
  • How far up the securities have come from March 9 – a common performance number, and, hence, a sensitivity measure for many holders (the more up, the more concern that the top is near)

Last, as best as you can, watch and study the news and market throughout each day. This activity is usually reserved for traders, but this is a special time. You are looking for a brief opportunity to make a well-priced trade, regardless of your investment approach or time horizon.

Here’s hoping we see some opportunistic movements over the next two weeks. Being able to make some well-priced stock or fund buys could be especially rewarding in 2010.

* * *

(*) The investment manager was Frank Husic, when he was at Alliance Capital in San Francisco. He was one of my Bank of America pension fund managers in the early 1980s. Frank was especially savvy in ferreting out ways to gain an advantage, and working during holiday periods was one of them.

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