The Iconoclast Investor

Somewhere along the way, being flexible in the stock market–i.e., selling quickly if you develop a loss, or changing your mind just a couple of weeks after buying a stock–has gotten a bad rap.  If you change your mind, you’re derided for being a “trader,” or for not having any conviction.

Nonsense!  While conviction is important, so is being flexible.  You must always be willing to change your outlook–if the market or your stock dictates it.

Corning (GLW) provides a perfect example.  We added GLW to the Cabot Market Letter’s Model Portfolio back on May 7.  At that time, our timing indicators were bullish (the market was trending higher), GLW had recently reacted well to an earnings report, and the company’s growth and outlook were outstanding.

But the stock didn’t make much progress during the following weeks.  That’s always a yellow flag–you bought the stock thinking it would go up, right?

Then our market timing indicators turned negative in mid-June.  And, finally, GLW itself began to break down, dropping below its 50-day moving average on a pickup in volume.  We sold it on June 25–just a few weeks after we bought it–at a price of 25 1/4.

And we’re glad we did!  The stock continued to meltdown, even though the second-quarter earnings report looked good (sales up 19%, earnings up 44%), falling to 19 in mid-July.  It rallied a bit with the market during the past few weeks, but this week, the company dropped the bomb:  Management said it was seeing weak demand for its all-important LCD displays.

You see the result in the chart below–the stock is down 9% this morning to 18, off a full 29% since our sale in June.  The lesson:  Things change in a hurry in the stock market, and thus sometimes you have to change your stance quickly, too.