The Man Who Buys CrashesQ: The moment you see something in the price action that
triggers a concern, you liquidate?
A: That is correct, yeah. And when you mentioned about feel, I
can develop a feel for five to seven stocks. But I can’t develop a
feel for 150 stocks. So that’s where you have to have an automated
system doing it for you.
Q: When you’re doing swing trading, is it also really from pure
observation of price flow or do you look at charts? Do you have
certain technical setups that are relatively orthodox?
A: Yes, I’d say so. It’s double bottoms primarily. I am a little
bit of a bottom feeder—but I will get out, I won’t stay in if they
stay weak. My preference is to have a basket of stocks where the
fundamentals are good. There is much less danger for them to
continue to crash. One of the things I’ve found after trading from
the long side for any length of time is to avoid stocks that have debt.
The worst moves tend to be in stocks that have a lot of debt, with
drops of 50 to 75 percent. Another thing I’ve found is management
is absolutely key.
Q: So it sounds like, on your longer term trades, you’re much
more fundamentally oriented. You really want to know the story
behind the stock and you will hold through the day-to-day noise if
you believe in the story.
A: That is correct. In fact, I never hold a position for a long time
in a company where I don’t like the fundamentals. Now on swing or
intraday basis trading, that is pure technical. On the crash system
that I told you about, I actually don’t even know the companies,
Sometimes I have to look up to see what the stock is, never seeing
the symbol before [laughter]. And I do try to read the press release,
see how bad the news is, and so forth, and then manage a trade
from there on out.