Great managers often make their best trades when the market hits an air pocket. Two weeks ago, Wayne Himelsein, one of my managers, told us he sold AMD. Last week he invested the proceeds in Take-Two Interactive. Even in the midst of a turbulent market, this trade is starting out brilliantly.
Ken Kam: Wayne, AMD is down almost 17% since you sold it. Take-Two is down about 1% since you bought it. There is no question that selling AMD two weeks ago was a good call. But given the market's downturn, was this a good time to buy an aggressive stock like Take-Two?
Wayne Himelsein: After watching a few days of carnage in the markets, I am thoroughly excited by the impressive behavior of TTWO, generating a mild loss of 1.1% this week vs. a much larger loss of 4.1% for the S&P 500 -- a positive spread of 3%.
Kam: Many readers questioned your decision to sell AMD. It seems counter-intuitive to sell a stock that nearly doubles in three months. Hasn't AMD proven itself to be a keeper.
Himelsein: I always own the 10 stocks that I believe have the best potential upside in the near term. When I evaluate a new stock, I compare its potential with that of every stock in my portfolio.
When I have confidence that the new stock can run further or faster than one that I already own, I make a trade. Every day I hold onto the old stock is another missed opportunity to make money in something better.
Kam: Many investors are taught to separate their stocks into winners and losers. They hang onto winners to let them grow. They sell the losers hopefully while the losses are small. Are they wrong?
Himelsein: As an investor, your interest is not in owning something just because you like it, or it has done well for you. You want to own what will do best for you in the near future.
Even if a stock you’re in has done well, or is currently doing well, moving capital to an even better one is still worthwhile if it further improves your profit potential.
I want to always be in the best stocks, especially in times of turmoil.
My Take: Can a trade on which you lose money be a great trade? Yes, if the trade loses less money than doing nothing.
Few managers do what Wayne does so well and he has an excellent track record to show for it.
Wayne’s Logica Focus Fund (LFF) has a 18+ year track record at Marketocracy. Over that period, Wayne's model averaged 13.46% a year which compares well to the S&P 500's 5.76% return for the same period.
Unlike so many managers who talk about stocks only after they have already come to fruition, Wayne has been explaining his thinking each week while there is still time for those who agree with him to benefit from his insight.
For the full Forbes.com article, please click here.