I sat in my car last night. I was waiting outside of a Seven-Eleven convenience store. The most beautiful woman that I had ever seen was inside the store buying what she likes to call “coffee stuff”. I was thinking about the day’s trade… thinking deeply. Yesterday, we all saw the Dow Jones Industrials move rather robustly to the upside, while the S&P 500 for the most part remained flat and the Nasdaq Composite was simply taken out to the woodshed. Within the Industrials, it was the Transports that really took off. Within the Discretionaries, it was the multi-line retailers, and within the Financials, it was the banks. Shazam.
On the other side of the coin, it got ugly… real ugly. Big-cap tech names. particularly the semi-conductors were rejected… in size… by the masses. Dare I even bring up what happened to the FAANG names? I took some profits earlier in the day in some of my semi-conductor names when I saw support levels failing. I also did some bargain hunting (We’ll see how that works out) when certain stocks that I do like at certain prices were clearly trading in a technically oversold state.
I sat in that car, and marveled. I had the idea in my head that I had suffered a brutal beat-down on the session simply because I had focused on the stocks that had hurt my P/L. I scrolled through my numbers, and suddenly realized that because I was well-diversified, I had not suffered a beating at all. Much like the S&P 500, I was very close to flat for the day. I held enough shares in the retailers, in the banks, in the transports, and let’s not forget the energy shares to counteract the ugly performance turned in by some of my favorite 2017 stocks. Wow.
Another case of time-honored, well-worn disciplines actually saving me from myself on a dangerous day. Thank goodness I shipped out to Parris Island when I was 17. Outstanding. The story continues. The crowd (also in my head) cheered.
My wife returns to the car with her “coffee stuff”, and we head for home. It is now late, perhaps around 9pm. She goes her way. I head for my office. I have long since missed “Mad Money” on CNBC, but fortunately I DVR that show because I consider it essential preparation for the next day’s trading. That’s whether you make a living in this field professionally or not. Where did Jim Cramer go in his opening monologue last night? That’s right. Diversification. Man, was it nice to hear Jim zero in on precisely what I had been thinking about just minutes earlier.
I often stand upon my soapbox, preaching the virtues of discipline in one’s approach to investing. I tell almost everyone who will listen. Usually though, I stress the importance of having an idea of what you are investing in, and what you are trying to accomplish. I often speak on price targets, and panic points. I speak on when you are allowed to change those levels, and how important it it to obey the levels to the exclusion of all emotion.
I do not speak often enough on the value of diversification, though it is clearly just as important a discipline to be strictly followed as any other. Diversification prevents one from having too many eggs, or too much dough in any one basket…. and diversification saved my tail yesterday.