Wednesday, July 23, 2014

Yield Shark Misstep?

by Roger on November 9, 2012

Never Buy A 5 Letter Symbol Ending In F

yield-shark-adr-mistake

Yield Shark Portfolio Misstep?

Never confuse brains with a bull market.

The first several stock picks of the Mauldin Economics income oriented investment newsletter Yield Shark left the gate and headed higher. But with the newsletter launched in June 2012, it enjoyed the rising tide of the bull influence on the market.

In addition, a quick, large following and a few of the stocks that had a rather small float made it sometimes hard to grab the stock at the recommended price.

Nonetheless, the stocks Yield Shark recommended, with nice dividends besides, headed into capital gain territory.

Foreign Stock ADR

One of the most recent picks had an exciting story but happened to be a Canadian stock, traded on the Toronto exchange.

Yield Shark offered also the 5 letter symbol for pink sheets here in the U.S. where the symbol ends in “F” (for foreign).

Because historically I don’t like the way these stocks trade, and you cannot use a stop loss order on them (if your broker offers it then maybe it’s an in-house system, but not an exchange stop loss) – and that means you have to watch it DAILY yourself. Not going to happen.

I broke my own rule and bought the 5 letter ending in “F” shares because not all of the accounts have an Interactive Brokers account to easily trade the Toronto exchange.

But never mind, that issue is heading down also. It crossed the 200 day moving average on the down side and kept on going.

Because we missed buying it due to my hesitancy, the “Yield Shark” effect seemed to push it higher and I held off buying for the “frenzy” to subside. We bought on the way down. And it kept going down.

Currently, with a Yield Shark stop at 13.20, the stock is changing hands just above $13 per share as I type.

Probably another mistake but I am not selling. I’m “hoping” (dangerous game in investing) that a bunch of Yield Shark stops are selling and that a “pop” may follow in a couple of days, perhaps if the market gives us a dead-cat-bounce from the recent sell off.

So Why Did I Break My Rule And Buy?

There is probably only one real reason I bought this stock, breaking my own rule.

Have you ever subscribed to an investment newsletter and only bought SOME of the recommendations, only to find out you bought the losers and missed the big winner, including the REALLY BIG winner?

That’s been the problem with Casey’s Extraordinary Technology for me. I just do not have the available capital to buy them all. So I have missed some of the best and I bought a couple of the newsletters early losers.

Since Yield Shark is compiling a “theoretical” $100,000 portfolio I figured that I could own them all and get the good and, yes, the bad; but when John Mauldin and team touted phenomenal results 5 years from now I would be cheering at the party too.

Good theory, cringing a bit today, though.

Humility Is Tough

I know it’s hard to be humble when you recommend a handful of stocks and they all go up, some by 20% and more in just a month or two. But I think John and the Yield Shark team need to work on that. (They were just a tiny bit giddy, I think, when the first few reco’s did really well.)

One other big winner that jumped big, YS said don’t take the capital gain because this is a “keeper” stock has now dropped through the raised stop loss and the portfolio is minus that long term keeper. In fairness, by tightening the stop, anyone who bought shares of that health company locked in a profit and maybe a dividend too. But a significant paper gain evaporated in just a few trading days.

Conclusion

So what to do?

Do you follow Yield Shark’s stock recommendations to the letter? It turns out that, so far, that kind of makes you a very short term trader; not what the demographic of the newsletter really seems to be after. Do you have the time to watch your Yield Shark portfolio that closely? Is that what you really wanted to be doing?

As the guys at The Trend Letter have said for their entire existence: “It’s your money, take control”.

I agree, but, the reason we pay for these newsletters is so that someone else can watch this stuff day to day and we can go about our lives – whether it be work or retirement.

Certainly we here at InvestLetters are not dumb enough to believe in “buy and hold”, but we do think that subscribers to newsletters like Yield Shark want to worry about other things on a day by day basis and not watching the stock market.

(Maybe today would be a good day for an email “alert”. This demographic of investors probably enjoy a little “hand-holding” at times like this.)

So John and team, if you are listening, take a small bite of humble pie and let us know what we can do moving forward. This really isn’t that big of a market correction (and I have Marc Faber on my side with that statement) to where we should see too much portfolio shake out.

And we darn sure don’t want any more stocks where we cannot get an exchange stop loss order entered if stop loss orders are going to be key to success in the future.

I am currently not affiliated with Yield Shark in any way, although I have applied, but those who know me know that I would probably type the exact same thing if I was. My goal is not to eviscerate, but to improve and MAKE MONEY!

Here’s to moving forward (as the stock drops through $13/share – “hope” I’m right about this one)

[Update 3:43pm CT] – The stock closed at $13.29, 9 cents over the “stop loss”. If one poses the argument that they use closing price for “mental stops”, the stop would NOT have triggered today. Yet, using closing prices on a day of market meltdown is anything but a way to protect capital; prices may open the next day MUCH lower – it’s happened.

I still prefer an exchange stop loss if I’m going to use one, and yes, that info is then available to the market makers and they can (and do, IMHO) “run the stops” for their own profit at times. The game is rigged, if you don’t like it then don’t put money in the market.

[Update 11/16/2012] Company reported VERY disappointing earnings and the stock plunged to $5.00. This is why you buy the stock on a REAL EXCHANGE (Toronto in this case and don’t buy the “F” symbol in U.S. and use a REAL STOP LOSS]

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