I sold the only two holdings in my new Glam 5 Index today, one session after launching it. I sold because I was wrong. However, I'm not worried at all. My index only lost 0.2%, and that's a reasonable amount risked on those two trades.
Research in Motion (RIMM) and Amazon.com (NASDAQ:AMZN) are two of the best stocks in the market right now, but the market is weak, much weaker than I had presumed. They may move higher still, but the shares are fighting a strong headwind.
Controlling draw down is of paramount importance for the success of any portfolio. Many successful money managers stress this because:
- A 10% loss in a portfolio will require a 11.11% profit to break even.
- A 20% loss in a portfolio will require a 25% profit to break even.
- A 50% loss in a portfolio will require a 100% profit to break even.
More important than stock selection is the ability to control draw down. I set stop-losses, but if things look bad, I have no problems with selling my position before they are hit. Wednesday's high volume sell off in the NASDAQ and S&P500 does not agree with my picture of a healthy market.
RIMM and AMZN are excellent stocks but I will keep the portfolio in cash until general conditions improve.