Don't Trade on Hope

By Kyle Metivier - February 2, 2012 | Tickers: COP, USG | 0 Comments

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Progress report: I mentioned ConocoPhillips (NYSE: COP) on 12/30 at a share price around $73, it opened 2/2 around $69. The drop in price affords an opportunity to add to an existing position, bringing the long position to a more attractive “average cost per share”. I don’t recommend the practice of dollar cost averaging for those with weak stomachs. With the slight dips in Conoco currently, personally I have no worries because this stock is not a loser.

It’s perfectly normal to miss a few. Nobody is perfect, it happens, sometimes we lose. If you know someone that tells you they win all the time, every pick they make is a sure fire winner, well they are flat-out lying. And it’s probably a good thing for them that they don’t live in Texas because I think they still execute people for that here.

Without question I absolutely detest losing. It’s one of the few things I actually hate more than Sandra Bullock movies or Coldplay. And those annoying commercials that tell you how to pay off your mortgage in 18 months without selling vital organs on the black market. But once you accept the fact that not every stock is a winner, the easier it is to embrace the successes and appreciate them even more. Losing is a part of the equation. It’s the yen (or yang, depending on your political affiliation), so I don’t want you to get all twisted in knots because one of your stocks is a little off.

I recently had a conversation where a quote was mentioned and I could not help but utilize it with regards to our sunny little stock market (thank you, @seldomawake on Twitter). “The triumph of hope over experience” is attributed to Samuel Johnson in reference to the remarriage of a man after his first wife had passed away, with whom he had a rather unhappy union. The quote is a literal view on the subject of remarriage, and I think we can make good use of it with our investing habits.

Personally I think happiness is a relative, flighty emotion, which is all-too-often misinterpreted. There are times I find myself giggling when the market takes a bit of a nosedive on Monday, because I typically buy stocks on Tuesday (shortly after opening, I don’t buy into the opening bell). There are also times when I am so frustrated, all I can do is laugh as I continue to purchase shares of a stock on the way down (trying to catch a falling knife), because I thought it was smart to buy it at $40, so if I liked it at those levels, obviously I had to love it at $7, right? Not recommended.

USG Corporation (NYSE: USG), was a purchase of mine just before the housing bubble burst, exploding with atomic force, shaking the very foundation of the markets. Now this unhappy marriage with USG did not sit well with me at all, since not only did I follow a screaming head on the TV into this relationship, I suggested others get in on it, as well. Sorry, Newt, I thought you were in to open marriages. I had a chance to leave USG shortly after my entry, when the writing was clearly on the wall. The house of cards had been blown away by Hurricane Housing, and I could have left quietly in the mid-$30 range and used my hard-earned dollars much better somewhere else. A little over a year later, when USG hit $4 levels, I rededicated myself and my relationship with USG. Married people know the drill, going to therapy, scheduling a “date night”, spending more time with each other, that sort of thing.

I started adding more of my money to this stock because I did a lot of homework and paid attention to the environment and felt comfortable that I could dollar-cost-average to a more “acceptable” spot. It didn’t take much, $50 here, $100 there; you would be surprised how that adds up over time. Suddenly, without much fanfare, I had amassed a sizeable position in a company over 100 years old that is run much better than Eastman-Kodak or American Airlines, and I felt certain it would not crumble like other companies. Housing is not the only market where USG has dealings; they are prevalent in commercial real estate, as well. Think about that the next time you drive by the 93^rd burger joint under construction in your metro area. They have to get sheetrock and drywall somewhere, right?

So I am not going to let my rocky marriage with USG have a negative effect on my current situation with ConocoPhillips. Based on the amount of homework I have done, despite the experience, I have hope that both relationships will lead to some form of happiness.

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