A few days ago I disclosed buying one of the publicly traded exchanges. In about 20 minutes (exaggeration) it dropped 20% (not an exaggeration) but now the position is up a little.

In the few days since I bought the stock the story has not changed. As the story has not changed it is still, in my opinion, the right stock. Relative to a couple of days the timing was very bad. So to the title of this post, right stock wrong time. Obviously time may prove me wrong about right stock but after a week I am neither right nor wrong hence my belief it is the right stock.

If you pick stocks this sort of thing will happen occasionally (hopefully not more often than occasionally). Some folks believe in setting stop orders 8% below anything they buy. We can’t arbitrarily say that is wrong but using this trade as an example I would have been stopped out the next day (the timing really was unlucky) but in very little time the position is now up, slightly.

I think the point here has to be not panicking out of a stock if it goes down with no meaningful news. The stock, as best as I can tell, dropped on an opinion that clearing derivatives would be a risky business. If you buy a stock for a long term catalyst it cannot be the wrong stock within a week unless they pack it in on that catalyst right away.

Another aspect of this is the extent to which a stock is a proxy. Let’s say you buy a stock or fund that is meant to zig when the stock market zags. This means that if stocks are doing well it is likely that the zigger will be doing poorly, maybe very poorly. In that scenario of doing badly it is doing what it is supposed to (going the other way from the stock market) so I don’t think that would necessarily be a sell.

I bring that point up because in the past people have left comment asking about selling something meant to be a zigger that was down when the market was up. It would be ideal for a diversifier, in this sense, to be going the other way from stocks.

Obviously the context of this post is managing a diversified portfolio. Not everyone has or wants a diversified portfolio.

Last 5 posts by Roger Nusbaum

• The Big Picture for the Week of November 15, 2009 - November 14th, 2009
• Process Drilldown - October 23rd, 2009
• Sunday Morning Coffee 10-18-09 - October 18th, 2009
• A Little Followup From This Morning - October 8th, 2009
• Wednesday Roundup - October 7th, 2009