My followers know that I tout the importance of my rules. I talk about having them in bold black print posted on the walls of my office. They are in no particular order but without a doubt, the number one rule is, "If You Get Emotional, Walk Away."
Every rule that follows, is aimed at keeping my emotions from triggering. From position sizing to max loss to adhering to the signals, every rule comes back to the same thing, keeping emotions in check. But sometimes, there are no rules to stave off emotional events. This morning I find myself quite emotional. As such, I will set hard stops on the two positions in my portfolio and will not trade unless I am sure that I am beyond the frustration that I feel as a result of this event.
$ABB (ABB Ltd.) bought $PWER (Power One).
For several years I have been pounding the table about $PWER. I have talked about the fact that this is the only company that makes the inverters that all solar companies need for their batteries. I have talked about it's strong fundamentals; I have talked about the extraordinary low price of the stock compared to the amount of cash the company holds. I have made a lot of money trading this stock. At one point in 2009-2010, I held it from under $2.00 to $12.00, taking huge profits. I have on many occasions made large percentage gains in the stock so perhaps I have had my share and it simply was no longer my time. None the less, I find myself grieving.
A year ago, I made a bold statement. I said that $PWER was not only a candidate for buy-out, but would be acquired by the end of 2012. As such I held a position of common in my long term account as well as out of the money calls. When 2013 rolled around and $PWER had not yet been acquired, I wrote this piece, Ideas for 2013, where I said I would let my calls exercise even though they were still out of the money because I believed it would be bought in 2013. Through many ups and downs early in the year, I held on.
On March 18, I sold out of my $PWER. I did not sell it because I had a sell signal. In fact, I had held on through several sell signals letting it sit at whatever price, because of my strong fundamental conviction. I held it for fundamental reasons and I sold it for fundamental reasons.
I did it in light of the debacle in Cyprus. I knew that $PWER held most of its cash in Italian banks and I was concerned about the domino effect from the Cyprus banking system. This effect never came to fruition but waiting it out, I never got back into my $PWER position.
The event that I was so sure about has now happened. $PWER has been acquired and it happened without me.
Fundamental analysis is inherently more emotional than charting. I have always said this. Fundy guys get married to their conviction and whine when a stock does not do what they think it should, allowing positions to move against them to the tune of 20, 30, 40% or more...all the while adding to a snowball that is rolling down hill trying to lower their cost basis. Dangerous and risky, this style is not something I adhere to because I prefer to be safe. But I held on to $PWER through ups and downs because I believed so strongly. And so I give myself a reprieve for being emotional here. I just need to get over it and get on with my work. But I will take a couple of hours, and maybe even the whole day, to grieve.
RIP Power One. I will miss you!