Can I CAN-SLIM? 7 - Learning from Mistakes

"Forget your ego, swallow your pride, stop trying to argue with the market, and don't get emotionally attached to any stock that's losing you money. Remember: there are no good stocks; they're all bad... unless they go up in price." William O'Neil, How to Make Money in Stocks 4th Edition Page 253.

---

It has been a while - so much has been going on with the CAN-SLIM portfolio, every time I'm about to write, something else comes along and what I was going to write suddenly seems irrelevant. So rather than give a blow by blow account of buys and sells, I thought I'd concentrate on two sells - one I consider to be a good example of using CAN-SLIM principals and one I consider not to be...

So let's start with Boohoo.Com (LON:BOO)

I bought this back in May and it was around 20% of my portfolio. At two points over this period it was up 45%. I identified a cup/handle formation and increased my holding to 40%. I bought at the top of the handle (see purple dotted line) and initially it underwent a short rally. There was some discussion underneath my own blog with some excellent analysis regarding how the stock might react to the results being in line with expectations.  The market reacted badly to the interim statement, resulting in a failed base. You can't be right all the time, but.... regular readers won't believe it... I broke the first rule of CAN-SLIM - I held onto it!! I was sure that it would be a temporary drop, so ignored the need to sell. I think it was partly because I had bought it twice. Unfortunately the second purchase`se was almost at the top, so I was quickly in negative territory. Eventually I saw sense, swallowed my pride, but not before I turned a +45% gain to a -22% loss (overall because I purchased a second lot at the top). I never pretended to be a CAN-SLIM guru, but this is embarrassing for someone writing a blog on the subject! Can you imagine?? Ah well. It just shows how powerful the attachment emotion can be.

So from this I have two lessons:-

1) Don't ever accept a greater than 8% loss. I

2) Don't put all your eggs in one basket - 40% was too much to hold of one stock. 

---

Now something more positive! Impax Asset Management (LON:IPX)

This was another early addition to the CAN-SLIM portfolio - until September the performance was OK, but not spectacular. I was considering selling it for sometime, but every now and then it has some movement that bought it a stay of execution. Then whoosh, it announced it was buying PAX world management - this was well received and it went up 46% in a few weeks! That cheered me up after the Boohoo fiasco. Once bitten twice shy, I was determined not to get caught out Like it did with BOO, so I've been studying the selling chapters in O'Neil's book (as well as Minervini's - thanks for the recommendation). Plus I've been studying Stephen Hoad's excellent TA series on this site (well worth read).

Last week I saw a possible exhaustion gap, indicating the top of the price pattern was getting near. There had been some weakness in the price since then. Then yesterday, the red flag, massive volume, but no change in closing price. I sold leaving a 50% profit (there was a high spread) and since then the price had dropped 8%. I don't know if it will recover, but it is important to protect your gains as well as prevent losses.

I'll leave you with the old saying that O'Neil includes on page 254:-

"Bulls make money, bears make money but pigs get slaughtered."