Are You Patient Enough?
The Dynamic Wealth Report
September 24, 2010
by Robert Morris, Editor
“How poor are they that have not patience!”
You Shakespeare fans probably recognize this line from the Bard’s epic
tragedy, Othello. I must admit I’m not much of a Shakespeare scholar
myself. But I do recognize words of wisdom when I read them.
And this quote is dripping with keen insight.
Now, I doubt Shakespeare had stocks in mind when he penned this famous
phrase. But the words offer excellent advice for investors nonetheless.
Just flip the quote around and you’ll see what I mean… They that don’t
have patience are poor!
You see, a common downfall of many investors (and quite a few
Shakespeare characters) is an utter lack of patience. Over the years,
I’ve seen many smart, level-headed people lose money in the market this
way. And it wasn’t a lack of intelligence or effort that did them in.
Nope… They just couldn’t wait for the trade to play out.
Maybe you’ve experienced this yourself?
Does this sound familiar?
You thoroughly research a company and their stock. You buy the shares in
your account. And the minute the trade goes south… you sell out for a
loss.
If you’ve done this before, don’t beat yourself up. You’re definitely
not alone. The key is to learn from the mistake and not make the same
one in the future.
What I’m leading up to is this…
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To consistently make money in the stock market, you have to practice
patience. It’s not always going to be easy. But if you’ve done your
research and the fundamentals haven’t changed, you can confidently stick
to your guns.
Stocks go down for lots of reasons.
Many have nothing to do with the company itself. The market may be
declining and dragging good stocks down with the bad. Investors may sell
out of your stock because another one in the same industry is having a
problem. And the list goes on and on…
The point is you can’t cut and run every time a trade goes against you. If you sell out every time a stock goes down, you’ll lock in a lot of
losses. And all those losses will make it very difficult to eke out a
profit over the long run.
Here’s a perfect example of where patience paid off for a number of DWR
readers…
Back in November 2009, I wrote an article about the solar power industry.
Entitled
Solar Stocks Are Heating Up, the article recommended buying a
few solar stocks poised for big gains.
One of those stocks was Solarfun Power (SOLF).
SOLF is a leading manufacturer of solar photovoltaic (PV) cells and
modules in China. They do business mainly in Europe and China. The
company’s customers are international solar power system integrators and
distributors.
I liked three things about SOLF.
After a horrible 2008 and difficult first half in 2009, business was
starting to ramp up. The company’s earnings estimates were moving
higher. And the shares were trading at a hefty discount.
At the time, the shares were trading for just $6.48 a share. A whopping
84% below the all time high of $40.19. But I figured they would move up
significantly as the company’s earnings surged higher.
It turns out I was right… but you had to have patience to capture the
big profits. Take a look at the chart below.
As you can see, SOLF shot up to a high of $10.78 in January 2010. That’s
an impressive 66% gain in just two months’ time. You certainly could
have cashed out there for a nice return on your money.
However, the outlook for the company was still improving.
Based on the earnings estimates and industry demand, SOLF appeared to
have a lot more upside. Unfortunately, the stock dropped after hitting
the January high. And it didn’t get back up to that level until late
July.
But if you stuck to your guns and waited patiently for the inevitable
recovery, you were rewarded handsomely. The shares have since shot up to
a high of $12.55.
Those who held on had a chance to lock in an
eye-popping gain of 94%!
Nearly doubling your money in less than 10 months ain’t too shabby…
Clearly, patience is a virtue when it comes to investing.
Next time you’re faced with a stock moving lower despite good
fundamentals, remember this little tale. And think twice before you pull
the trigger. Maybe all that’s needed is a little patience.
***Editor's Note*** News on the energy front-
Petrobras raised $70 billion today through a share offering- the largest
on record. We've been telling everyone for awhile that the
energy sector is poised for huge jump upward. If you haven't
already, take a look at our
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on this developing situation.
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• Catalyst Health Solutions
(CHSI) was upgraded from Hold to Buy at BB&T Capital Markets. The
analyst sees the recent drop in share price as a good buying
opportunity. He’s got a price target of $42 on the stock.
• Stifel Nicolaus downgraded Altria (MO) and
Lorillard (LO) from Buy to Hold. The tobacco stocks have posted
strong gains over the past two years. But they’re now nearing the
analysts’ price targets.
• RBC Capital Markets initiated coverage on Alliant Techsystems
(ATK) with an Outperform rating. The company recently won a contract
with NASA to provide space launch services over the next 10 years.
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