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Pennsylvania Investment Observer

Focus, Focus, Focus

by Daniel J. Nestlerode

January 25, 2005

The stock market has declined so far this year, 2005. The optimism, and related bull market that prevailed after the presidential election through the end of the year, suddenly ended. While the averages are down only a few percentage points, many stocks have fallen by significantly larger percentages, damaging portfolios that only a short time ago were much higher in market value. To summarize, through January 21st, the Dow Jones was down 3.62%, the NASDAQ was down 6.49%, the Standard & Poors 500 Stock Market Index was down 3.12% and the Value Line Geometric Average was off 5.57%. Stocks that rallied to the end of the year seem to be the ones that were the hardest hit by the downturn.

However, I have experienced the decline and I have decided not to participate in a decline for the rest of the balance of 2005. Indeed, I am setting my sights on a 15% gain for my clients' accounts. To this end I will focus my decision making on realizing this gain by December 31st 2005. This goal and related focus of my attention will not guarantee such results by year end. Indeed, with the investment markets there are no guarantees of returns that anyone can make. Nevertheless, my goal is to turn the value of my clients' accounts around and have a very satisfying year, financially.

How do you make money in the stock market? The principals are easily understood. You make money in the stock market by selecting the right stocks, by buying and selling them at the correct times, by using leverage or borrowed money to magnify your gains (or losses if you select badly or your timing is off). Additionally, you must limit your losses by selling stocks that go down before they become large losses. I like to limit my losses per stock to seven percent from my purchase price. Finally, you must take profits by selling winners when their uptrend in price begins to atrophy. I recently sold Cree at about $35 a share, down from a high of $42. Now the stock trades around $23. All the while, Cree reported terrific results with double digit sales and earnings gains in the December quarter. You must watch the stock price, not the corporate news releases.

To be honest, I have not always followed my own rules. I hold a couple of turkeys still, hoping that time will eventually prove that my initial research is correct. Nevertheless, these dogs do depress the performance of my overall portfolio, so I will be more resolute to stop the losses earlier this year.

So here we go. I am aiming for a 15% growth in my client accounts starting from January 3rd, 2005 market value. Stay tuned for periodic updates in this newspaper.

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