I am not pleased to report that one of my five holdings, Rock-Tenn (RKT) has hit a sale point on a drop in price. But exactly that happened Wednesday morning and I sold my 93 shares of Rock-Tenn at $27.75. These 93 shares were acquired earlier this month on 11/4/08 at a cost basis of $33.15. Thus, these shares had incurred a loss of $5.40 or 16.3% since purchase.
Reflecting my current portfolio management strategy which requires me to have at least five positions and a maximum of 20 positions, and yet recognizes the special purchases that are involved at the bottom end of my equity exposure spectrum, I now tolerate a 16% loss before selling one of my minimum of five positions. Thus with this sale, I now have a 'buy signal' to be looking for a new holding that fits into my own requirements for stocks. I am unlikely to find anything Wednesday, at least with the Dow currently down 211 points at 8213.
In addition, my strategy requires me to replace this position with an even smaller holding amounting to 1/2 of the average size of the remaining four positions. Thus, even while I maintain exposure to equities with these minimum of five holdings, I continue to shift my funds, albeit slowly, into cash in the face of the continued evidence of the continued bearish market environment.
My own sale is not based on any fundamental problem that I have observed with Rock-Tenn. Indeed, with the decline in price it may well represent an increasing good value for that investor so inclined to evaluate stocks on that basis. As you may recall from my previous write-up on RKT, the company reported outstanding earnings on November 3, 2008, which led me to my own purchase of shares. In addition, the Five-Yr Restated financials on Morningstar.com are also attractive.
But my own purchases, which are based on these fundamental findings, are separate from my sales which are price-dependent both on the upside as well as the downside. I respond to price movement with sales and adjust my own investment posture towards my entire portfolio as well.
Thank you for bearing with me as we all suffer from the ongoing market correction that is dragging down values of portfolios, retirement accounts, and is making this amateur investor feel much less than brilliant, totally humbled, and aware of limitations facing each of us as we try to respond to challenges not previously imagined.
Disclosure: The author sold his shares of RKT.