Why I Sold Oshkosh

I really felt like an "amateur investor" Thursday when I needed to sell my shares of Oshkosh (OSK) after they hit and passed my 8% loss tolerance. Like the rocket on the way up, the stock turned around and plunged with the market. I am still very impressed by the company, the $2 billion in new contracts for MRAPs and would consider this a very worthwhile stock to be acquiring shares in--as soon as the technicals show a little bit of support.

Like a car, I have my driving rules (and I was 'speeding' with my Oshkosh purchase), my seat belts and my airbags---in order that I can survive in the chaos of the investment world. Like airbags in vehicles designed to limit injury to inhabitants of colliding motor vehicles, my trading rules to limit losses are designed to get me out of a bad situation intact--or at least only slightly injured.

These loss limits, which I have described many times elsewhere on my blog, include limiting losses to 8% after an initial purchase, break-even after a first partial sale, and then to 1/2 of the highest percentage gain after two or more partial sales at appreciation targets. For instance, I like to sell 1/7th of a holding after a 30% appreciation of a stock after an initial purchase. In that case, if I have only sold a portion once, I would sell if it should then decline to my purchase price--my break-even level.

My next 'targeted sale' is at a 60% appreciation from purchase level. After selling another 1/7th of my remaining shares, I would mentally (or actually) be moving up my sale point on the downside to a 30% appreciation point. Thus, I try to limit losses and preserve gains even if a stock, like Oshkosh, should dip in price.

I am aware that many stocks like Oshkosh with underlying great news will likely rebound. And I shall miss many of those rebounds with these rather rigid trading rules. But one of my main goals in this account is preservation of capital and enforcing a trading discipline to insure my own behavior. And thus, the sale of my OSK shares.

The details? I sold 80 shares of Oshkosh (my entire position) at a price of $28.16 on Thursday (8/6/09). These shares had been purchased at $30.73 on 8/3/09, resulting in a loss of $2.57/share or 8.4% since purchase.

Finally, what to do with the proceeds of this sale. While I have been bending the rules (to little avail) lately, with my swaps of positions as I have been truly trying to 'chase performance', a sale like this reminds me of my own 'amateur' status, and is a signal not to be reinvesting proceeds but rather to be 'sitting on my hands' with these funds.

I shall be adding a new position when one of my remaining holdings hits an appreciation target on the upside and when once again I can sell 1/7th of that holding on 'good news'.

I shall try to learn from this sale as well---as much as I like Oshkosh and am impressed by the contracts obtained, that we are now dealing with volatile markets that have little follow-through momentum....so chasing performance, at least currently, may be a poor game to be playing.

Disclosure: The author sold his positions in OSK.

Comments

[Patrick Bell:]

Ur an idiot. S&P just upgraded shares of Oshkosh To a strong buy. New tarket price is $35 a share. The last time S&P issued a tarket price for OSK it was $30. This $30 was broken all the way up too $33 a share at one point. Even though the stock experienced a pullback, the stock will rise to $35 no problem. This company gets continual government contracts and is in line to make huge prfits off of them. Take it from an experienced investor. Your trading rules and ideas are quite simple minded and crude. Learn to have some patience with your investments. I guarantee you if you would have held you would would have had the oppurtunity to sell at around $35 when this stock goes to tat level. Who in their right mind would sell a stock that just recieved $2 billion worth of government contracts. Think about for a little while and please re-analize your trading strategies.

Patrick Bell
West Bend, WI
[e-mail]

Aug 10 11:29 PM

[Patrick Bell:]

Hey Freedland, Why dont you email me or something so we can talk. I understand you are a amatuer and I think I can help you. Sorry for being being so abrasive in my first post. Anyway I have some pretty damn good trading strategies that have been working wonders. They are so simple yet no one uses them. Let me know if you want to talk.

Patrick Bell
West Bend, WI
[e-mail]

Aug 10 11:41 PM

[Robert Free...:]

Patrick,

I am sorry you found my action 'idiotic'. I too am embarassed by my timing on Oshkosh. I am not interested in further discussions with you directly but would be happy to respond to your comments here or on my blog.

In general, it is wise to limit losses. This isn't my creation. This is standard trading and investing strategy most clearly explained by William O'Neil in "How to Make Money in Stocks". I very much respect Mr. O'Neil and believe that many of his CANSLIM approaches are worth considering.

I am very bullish on Oshkosh (OSK) over the long haul. My own sale was based on simply the technical drop in price which as you point out may well be a short-term event. I also would not be surprised to see OSK trading at $35 in the near future.

Thank you for taking the time to comment and offering me an opportunity to discuss this further with you. I certainly will consider this in the future, but meanwhile look forward to your comments here in the future and hopefully they will be of a little more positive and less derisive tone which doesn't really benefit anyone.

Aug 11 05:20 PM

[Patrick Bell:]

Bob, if you believe OSK will be trading in the $35 range shortly, it just does not make any sense to me as to why you would sell and take a loss. I respect your discipline, however I believe my trading strategy is much more effective and profitable. Sorry for being so abrasive.

Pat B.
West Bend, WI


On Aug 11 05:20 PM Robert Freedland wrote:

> Patrick,
>
> I am sorry you found my action 'idiotic'. I too am embarassed by
> my timing on Oshkosh. I am not interested in further discussions
> with you directly but would be happy to respond to your comments
> here or on my blog.
>
> In general, it is wise to limit losses. This isn't my creation. This
> is standard trading and investing strategy most clearly explained
> by William O'Neil in "How to Make Money in Stocks". I very much respect
> Mr. O'Neil and believe that many of his CANSLIM approaches are worth
> considering.
>
> I am very bullish on Oshkosh (seekingalpha.com/symbo...)
> over the long haul. My own sale was based on simply the technical
> drop in price which as you point out may well be a short-term event.
> I also would not be surprised to see OSK trading at $35 in the near
> future.
>
> Thank you for taking the time to comment and offering me an opportunity
> to discuss this further with you. I certainly will consider this
> in the future, but meanwhile look forward to your comments here in
> the future and hopefully they will be of a little more positive and
> less derisive tone which doesn't really benefit anyone.

Aug 13 12:08 AM

[User 474955:]

I purchased 185 shares of Osh Kosh at 6.75 a shrare. I more than tripled my money; however I am not going to see because I fell Osh Kosh is a stong company both in the Military and Civilian arenas. if you look at the history of Osh Kosh before the recession they were trading around $60.00 a share!

Aug 21 03:59 PM

[ktchnsnk:]

your o'neill whipsaw is ready, mister freedland...

gave up on that canslim stuff for just that reason.

Aug 27 12:01 PM

[Robert Free...:]

That was a terrific purchase....$6.75/share! OSK has had a wild ride the past couple of years. If they can sort out this $2 billion military contract situation (and they just got another $189 million), this stock should fly right back to its prior heights. Good-luck!


On Aug 21 03:59 PM User 474955 wrote:

> I purchased 185 shares of Osh Kosh at 6.75 a shrare. I more than
> tripled my money; however I am not going to see because I fell Osh
> Kosh is a stong company both in the Military and Civilian arenas.
> if you look at the history of Osh Kosh before the recession they
> were trading around $60.00 a share!

Sep 24 03:16 PM

[Robert Free...:]

Good point on whipsaw with O'Neil. However, I have found it quite effective to arbitrarily limit losses. I don't want a small loss to become a giant hole in my portfolio. And it hasn't been happening. But there may well be stocks that are so volatile that any limited loss like an 8% limit just simply isn't reasonable or effective.


On Aug 27 12:01 PM ktchnsnk wrote:

> your o'neill whipsaw is ready, mister freedland...
>
> gave up on that canslim stuff for just that reason.

Sep 24 03:18 PM