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Those of you who've been following my Strategy Lab portfolio know that I don't pretend to have any expertise when it comes to trying to time the market. I like to stay fully invested so that as much of my portfolio balance as possible is exposed to the overall, long-term upward trend in the stock market.
Given that, I'm covering my short position in Gaiam (GAIA, news, msgs), for roughly a 19% gain.
Make no mistake, I still think this one-star stock harvested with the help of CAPS stock ratings is significantly overvalued. But Strategy Lab rules require that I keep cash on hand to cover my short positions. In effect, this requires me to keep an extra "cushion" of cash, just in case. This cash is just sitting around, not even earning interest -- so I've decided to close my Gaiam short and put the money to work by purchasing the S&P 500 tracking stock, SPDR S&P 500 (SPY, news, msgs).
Of course, this journal wouldn't be complete if I didn't mention my Lufkin Industries (LUFK, news, msgs) call, which is up about 45% in my Strategy Lab portfolio as of this writing.
No, I'm not mentioning this to gloat or toot my own horn (though to be perfectly honest, it's just a little bit tempting) -- but to make a point regarding CAPS.
Those of you who joined us at the World Money Show in Orlando (or clicked on the video links on the left-hand side of this page) know that I identified Lufkin as my "top pick' on Feb. 5. Lufkin stock closed that day at $51.48 and is now trading in the $76 to $77 range -- a nice 50% gain in a little more than two months.
(Not gloating here, really. I'm trying to make a broader point. Honest!)
Need a second opinion?
What you couldn't know from watching the video or reading my journals here in the Strategy Lab is what happened immediately after the panel discussion.I was approached by a few members of the audience, asked about my background, and about CAPS and how I use it. Then one of the gentlemen told me that he'd had his eye on Lufkin for a little while, and hearing me talk about it gave him the confidence to go ahead and purchase some shares. First, if the gentleman in question is following my Strategy Lab portfolio I want to say congratulations regarding a very fine trade (if I do say so myself).
More importantly, though, how many of us, as investors, have found ourselves in a similar position: seeing what we think is a good value in the stock market, but still not sure whether we should pull the trigger and risk hard-earned dollars. I know I've been there many times. How many of us would benefit from an independent second, or third or fourth opinion from someone whose performance and track record in making stock predictions is readily available?
CAPS, the stock-rating system put together by The Motley Fool and MSN Money, offers that and more to all of us, for free. From the simple CAPS stock rating of one to five stars, compiled from hundreds of second opinions, we can drill down to often-detailed pitches and blogs explaining the rationale of bulls and bears alike, and then into how well that participant has done in the sector that the stock we're looking at operates in.
I know that the next time I'm in the position of being enticed by a value proposition I'm seeing in the stock market, but am not sure if I'm quite ready to put real money on the line yet, I'll turn to CAPS. Whether it be helping me decide which stocks have home-run potential (like Lufkin) or which ones to short (like Gaiam), I'll be a better, smarter investor for it. After all, I'll bet that gentleman I met in Orlando would testify to just how important, and profitable, a second opinion can be.
One other note on CAPS: If you join now, you can still compete for some great prizes in the MSN Stock Challenge. Be sure to check out my earlier journal with three tips for winning.
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