The Holy Grail of Trading
11/26/2013 6:00 am EST
Risk management is the most crucial element of retail trading, especially important as we head into the holiday season, says trading expert John Person.
SPEAKER: Well my guest today is John Person and we’re talking about retail stock maybe as we head into the Christmas or holiday shopping time and what may be good opportunities. You might be surprised by some of this so John, there are some retail opportunities out there that you think might be interesting; talk about that.
JOHN PERSON: Well, there are and it’s funny how time kind of heals all wounds and time, a lot of people go by and they forget things and it wasn’t that long ago, let’s go less than nine months ago, people wrote off Best Buy. People wrote off Sears Holding, Best Buy BBY and Sears Holding SHLD and right now under fire is JC Penney and it is getting kicked around like a oh an old tin can that’s for sure and so I think it’s just now trading under $8. It’s almost from a peak at less than a year ago at around $40, it’s almost at the expense of what an option, a long-term equity option would be so what I’m looking at as we head out of October and into early November, there still might be some selling pressure in the stock. It might not rally but I think at the turn of the year as we get into the new beginning of the year, people that have this in their portfolio will be selling it and if it approached near $5, a lot of fund managers who own it, they’re going to sell this because they’ve got to get it off their books so that might get a really good longer term investment as a turnaround. At least the risk is low and I don’t think that they’re looking to filing bankruptcy. That would be the ultimate risk but I think that as we get into the beginning of the new year, once you get through that tax loss credit selling pressure that JC Penney might be under, I think it’ll be a great buying opportunity headed into the first and second quarter of 2014.
SPEAKER: This is a good example I think of a stock that gets beaten up in the media constantly and has probably gotten so low that people may be looking for a bottom and maybe if it takes awhile to turn around, they may buy it for that purpose, but how do you kind of balance trying to buy something near bottom hoping it is near bottom and at $7, how much further could it go versus it could go to $3 and I’ve lost half of it right there too so how do you balance that?
JOHN PERSON: Yeah, well first off, it’s not like an all-in trade number one, and I think that’s one of the secrets and the Holy Grail to trading is not a system. It’s not stock picking. It is risk management and proper position sizing. You don’t throw your whole portfolio into a single trade so that’s why you do a little bit of research and research could be instead of picking up research papers or searching on the internet, it’s just as easy as walking into your local department store and start having a conversation with a clerk. How are things? Is there inventory? Are there sales? Are you picking things up? Are people shopping? Do they have bags? Is the cash register ringing? How’s your inventory? If I wanted something and order it, how long would it take to get? Do you have any specialized backlog and these are real simple questions. You’d be amazed at what a bored department store worker would want to do and to talk about and has information to give you and you just do your own research in that way and just don’t go to one store, go to a couple different stores in maybe a metropolitan area if you live in Chicago, New York, California, wherever you’re at and you can kind of get a flavor to see how that area is and that store is and so behind the scenes, we’ve seen it through history. Look at Best Buy. Last year no one wanted to own Best Buy. It was going out. Remember everyone was buying everything from Amazon and all of a sudden, here’s Best Buy traded over $38. Another one was Sears Holding, SHLD. They gave that one up for a lost cause and I’m not saying that JC Penney’s going to have the same type of success headed into 2014 but it certainly does warrant a look into it and it’s one of the stocks that I’m looking at headed into 2014.
SPEAKER: John, thanks for your time.
JOHN PERSON: Thanks, Tim.
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