The comments made by the Federal Reserve is tough talk. We will see if they follow through, but we also cannot ignore what they are saying. The current thinking is interest rates could increase by half a percent in each of the next three months. Crash the market and bring the market back before November elections. Political manipulation – It’s not like it hasn’t happened before. Be prepared as the scouts say.
Action by the Fed of raising interest rates fast certainly would crash the market – fast and hard. A Risk-off Market. So, what do you sell to prepare for this this as a “just in case” situation?
Action list –
- Small positions that will not materially benefit the account in a good market.
- Positions that have poor balance sheets – too much debt. High interest rates will crush companies with too much debt.
- Project companies that are a year or more out in expected company performance. Example: In LOTM’s world, Recon Africa (RECAF) might be such a company. Recon has very big prospects but still a couple of years out. One might consider selling or downsizing and reenter in the future – perhaps even at lower prices. If you are better than fifty percent sure you will re-enter, keep a few shares, so the name stays in front of you. It is easy to forget and miss opportunities. There is value in knowing the company story so you can easily return to the names with a quick company refresher update.
- If you are unsure of what might develop in the coming weeks to two months close out trading positions until your visibility becomes clearer. If your concerns come true than you will have bigger opportunities in that timeline. If you raised some cash and the market keeps trucking, well there are new ideas coming around every week. You did not miss much.
On Big Positions:
One thing you will hear from pros when asked “Why you didn’t you sell that big position, when there was a high probability of lower prices coming?”
Answer: “I didn’t want to lose my position.”
Selling out of a big position, presents a risk that I might not be to establish that position again. This might be because of the position size or cost basis. Taxes play a role in the decision. Example: for Soluna in one account, my cost on a good sized position is well below $1.00 per share – some as low at $0.08 per share. I don’t want to sell, pay tax and try to buy back in – which brings up another reason to sell or not sell. It is also my liking of low priced stocks. One can capture the non-borrowed leverage of a low price that rises 10 or 20 fold. Once you have experienced this a few times you do want to do it again.
Another reason to “Sell or Not to Sell?”
As a speculator I am looking for doubles. If I look at a stock I own or I’m thinking of buying, my question to myself is, “Can this stock double in the next year?” If the answer is no to the doubling, then the shares are fully valued in my game book. If the answer is yes, then weaker prices would cause me to be a buyer on weakness, not a seller. Big positions – without borrowed money, is leverage for future performance even though I might find it painful looking at the position’s value for a period of time. This is where “Know your company” comes in.
LOTM Research & Consulting Service
* An account related to LOTM holds a position in this security.
Neither LOTM nor Tom Linzmeier is a Registered Investment Advisor.
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