Coping With The Biggest Losers

11/23/2015


Investing can be a humbling experience that wounds pride and damages finances. We must live in the present and can't do anything about yesterday's stock-market moves except try to learn from them.

Earlier this year, we underestimated the impact that the weakening oil and gas industry would have on United Rentals' ($77; URI) business. In October, we were caught off guard when HCA Holdings ($70; HCA) reported a spike in uninsured patients that led to the company missing September-quarter estimates.

In retrospect, some mistakes seem obvious. Yet in real time, the picture is rarely so clear. Suppose a successful stock suddenly slumps despite solid recent operating momentum. How much of the stock's sell-off is attributed to noise — the market's daily gyrations? How much stems from macroeconomic forces that could cause the stock's growth prospects to unravel? Has an industry peer posted disappointing results, and will my stock run into the same trouble?

Avoiding the blowups
Our Focus List has mostly stayed clear of imploding stocks, but we aren't perfect. Fifteen of the 238 stocks that have appeared on our Focus List lost 30% or more while we recommended them — just one since February 2009.
Return On The
Focus List
Number
of Stocks
Avg. No. Of Days
Held
100% or greater
12
1,244
50% to 99%
30
654
40% to 50%
10
473
30% to 40%
8
581
20% to 30%
18
511
10% to 20%
17
414
0% to 10%
35
324
-10% to 0%
32
275
-20% to -10%
41
269
-30% to -20%
20
404
-40% to -30%
4
201
-50% to -40%
5
200
Worse than -50%
6
569
Avg. % gain
15.1
Median % gain
2.2
Avg. holding period (days)
439

We must determine whether the sell-off is overdone, leaving the stock appealingly cheap, or if it truly reflects a weaker future, which might drive us to get out. We're not perfect, but we do tend to get more stocks right than wrong. A total of 238 stocks have appeared on the Focus List since its launch on Dec. 23, 1994. We show how those stocks performed in the table above, and we resurrect the ghosts of our best and worst calls over the past five years in the table below.

THE BEST AND WORST OF THE FOCUS LIST
Below we present our biggest winners and losers from the past five years.
Company (Price; Ticker)
Purchase
Date
Sale
Date
% Gain
Or Loss
Annualized
Return
(%)
Number
Of Days
Held
Biggest winners, past 5 years
DirecTV
10/9/08
5/22/14
318.5
29.0
2,051
Helmerich & Payne ($56; HP)
1/10/13
6/12/14
90.4
57.4
518
Magna Int'l ($45; MGA)
1/31/13
8/27/15
90.0
28.4
938
Lear ($124; LEA)
8/1/13
NA
78.8
28.7
841
Apple ($117; AAPL)
9/9/10
6/20/13
58.5
18.0
1,015
Wells Fargo ($56; WFC)
6/14/12
1/15/15
58.4
19.4
945
Mylan ($52; MYL)
12/6/12
12/19/13
55.7
53.4
378
Biggest losers, past 5 years
Walter Energy
5/5/11
11/10/11
(44.1)
(67.5)
189
HCA Holdings ($70; HCA)
6/25/15
10/22/15
(27.2)
(62.2)
119
Oracle ($39; ORCL)
4/7/11
12/22/11
(23.8)
(31.8)
259
Hess ($61; HES)
4/7/11
8/3/11
(22.9)
(55.4)
118
Cisco Systems ($27; CSCO)
3/29/12
5/17/12
(21.3)
(83.2)
49
Notes: DirecTV has been acquired by AT&T, while Walter Energy filed for bankruptcy; neither trades anymore. Lear is still on our Focus List.

We've had more winners (129) than losers (109). Our winning percentage is even better with big movers. Twice as many of our stocks went up at least 20% as went down at least 20% — and four times as many rallied at least 30%, versus those that shed 30% or more.

Sidestepping big losers is just as important as picking winning stocks. We aim to make money — not stubbornly stand by a conviction that has long since been proved wrong. We constantly evaluate new information, while trying to keep our personal biases at bay in order to give you our very best ideas for 12-month returns.

Since inception, our Focus List has returned 601%, versus 353% for the S&P 500 Index. Today, the Focus List contains 11 stocks. See them here (bolded stocks in the table) or at www.DowTheory.com/Go/Focus.


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