Cutting Losses

SELLING AT A LOSS! A lot of people hate, dread that phrase. Some won't even consider the option. And there are those that simply start hurling criticism your way once you try to explain why you do it.

Don't get me wrong I'm not what you call a "tsupitero", swing trader, day trader, whatever. I believe in a company's value but with faith in its value, I use prudence to increase, decrease, or maintain my positions of it. I have on occasion, although rarely, sold at a loss. I have my reasons; either to increase my cash positions to take advantage of an ongoing consolidation/correction, to increase my position in a stock that has gained momentum that is in accordance with my own research, etc.

Imagine a situation when you own 1000 shares of a company, purchased at a price of a 100 pesos; the company along with the market as a whole starts decreasing in value to a point that you've already lost 20 pesos per share, and with the possibility of losing more. To decrease my chances of losing more money I sell half my positions and buy back at a lower price, say 60 pesos. Not only have I stopped the bleeding for one half of my positions, I am also in a position to buy more shares than I initially had to start with. When the market recovers, I am in a better position to take advantage of the value of the company. So why don't I sell everything? Simply put, I don't want to be left behind when something crazy happens. Does all that mean I have no faith in a company's value but only its price? I don't think so. The mere fact that I continue to be persuaded to buy into the company is enough reason for me to be a follower of its value.

Today's market action saw SCC go to a high of 194.50 and settle at a comfortable 189.50, breaking its 187 resistance quite easily; DMC, likewise, moved to a high of 37.2 and ended at 36.5. Both these companies were in the top ten value turnover list for today with SCC having almost 400 Million worth.

I received a report from Citisec on both these companies today. Although a couple of months late, they rated DMC to be worth 33 per share and SCC to be worth 195 pesos per share. First Metro has rated DMC to be worth 41 per share and SCC to be worth 199 per share, close to my estimates, but not quite close enough. In my previous posts, I mentioned that both these companies are worth substantially more than they are currently rated at or are stocks to watch, and I continue to believe so. Each of these companies are worth so much less than their peers in their corresponding sectors and economists continue to project an increase in corporate earnings for SCC and DMC, better than the sectoral averages. I can't say for a fact that these companies will project 200 plus percent growth like they did the previous year, but one thing for sure, upside is still there.