BE PREPARED FOR FOURTH QUARTER WINDOW DRESSING

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As we approach the fourth quarter of 2015, institutional money managers (mutual funds, large trusts & foundations, etc.) will be looking to add stocks to their portfolios that have performed well this year, so that when they publish their year-end portfolios, investors can be pleased that their investment professionals were wise enough to own big-winning stocks from 2015 like Adobe Systems (ADBE), Vulcan Materials (VMC), and D. R. Horton (DHI).

This tom-foolery is referred to as window dressing, and is meant to encourage investors to feel good about their portfolio managers’ talents; when in reality many of these portfolio managers were not wise enough to buy these stocks until the last couple of weeks of 2015.

In the fourth quarter, money managers will also be paring back commodity stocks, which are having an horrendous year; and those of multi-national companies, which are harmed by Chinese economic & currency problems.

This buying and selling activity will likely bring additional capital gains to the 2015 winners in your portfolios, and more losses to the 2015 losers. As we head into January, money managers will then sell any stocks that they bought in the fourth quarter for window dressing, which don’t fit their immediate investment goals.

If you own stocks that have a banner year in 2015, you need to be prepared for the possibility that your share price might (a) continue rising in the fourth quarter of 2015; (b) stop rising when January 2016 rolls around; and (b) fall during the first quarter of 2016 due to institutional selling.

You can protect your capital gains by using tight stop-loss orders in December, as we approach the New Year. If you don’t use stop-loss orders in the aforementioned scenario, you risk watching your stock price ratchet downward for months on end, with no game plan in place to stem the decline.

When my stocks sell via stop-loss orders, I don’t look back; I don’t watch to see what the share price does next. I simply reinvest the capital into undervalued growth stocks with bullish charts. And frankly, I enjoy the prospect of “going shopping” for a new stock.

I’m glad that you had some big winners in 2015, during a very difficult year in the U.S. stock markets.

 

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Please send questions and comments to research@goodfellowllc.com.

 

 

Crista Huff

President

Goodfellow LLC

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