As we finished January it looked like the stock market could do no wrong. Investors were all-in on stocks. Investor sentiment was downright giddy. Cash positions were at generational lows. Everything was awesome.
Then February arrived.
The first few weeks were dramatic. There were days when the Dow Jones Industrials were down 1500 points. 500-800 intraday swings were almost becoming normal after literally a year where there was nary a price change greater or less than 2 percent. There are so many reasons being cited. At the end it was a stressful month for investors.
For me it was shopping time. I was looking to buy back into some broad market ETF’s but the price falls were not deep enough to justify. So I’m happy to wait. As bad as watching the markets go down 1000 points, the reality is it only represented a 2-4 percent drop. Put this into context, on Black Monday in 1987, the Dow Jones Industrials went down over 20 percent. THAT is a crash. What happened in February was a flesh wound…if that. Context. I had my list of stocks and it was just a matter of jumping on the one’s that were taking a big time beating. A few did pop up and I jumped in.
I made quite a few moves and so I decided to break them down into a series of posts. In Part 1, I’ll share the decisions involving buying more shares of stocks and ETF’s I already own as well as selling. In Parts 2, 3, and 4 I will share my thought processes that went into buying some new stocks.
Sold partial position in short of S&P 500
The pullback in prices finally allowed my short position to go up which was quite refreshing given it has been consistently going down. Because of the violent nature of the pullback, I decided it would be a good opportunity to scale down my short position so I sold 25 percent of my short position into the pullback. I thought if the pullback continues onward that I would slowly sell down the position to at the very least get myself back to break-even. Sure enough the free-fall ended and toward the month the market resumed its ascent. I’m happy to slowly and methodically reduce the exposure and I’m OK to wait for the next tremor.
Added to position in CVS Health (Ticker: CVS)
After tracking in the low $80’s the stock pulled back and was down in the low $70’s. Nothing fundamentally changed with the company. The Aetna deal was still on track to going through. It looked like the classic baby getting thrown with the bath water so I decided to buy some more shares to lower my cost base which fell to $76.
Added to position in Nutrien (Ticker: NTR)
Nutrien (formerly Potash Corp and Agrium) was already having a rough go as their shares had been falling after the merger went through. The pull back in February forced it down even lower, all the way to the $57 level from the opening day price of $68. Again nothing fundamentally has changed in the business other than the new structure and so I decided to buy more shares to lower my cost base down to $66. Update: Since the pullback the stock recovered and is back to the $66 level) so I’m even on the position.
Added to position in Imperial Oil (Ticker: IMO)
Oil prices fell in February as the prospects of higher interest rates in the US would put upward pressure on the US dollar which conversely push oil and other commodities downward. The stock reacted accordingly. Even at the current high $60’s oil price, Imperial was in a position to generate meaningful profit so I used the pull back to buy more shares to take my cost base to $42. When I initially bought into Imperial my cost base was $50, so I’ve been slowly working it down. At some point I think it will catch a tailwind and move up meaningfully. I just don’t know when, but I’m happy to wait.
In the next several posts (here, here and here), I will walk through my evaluations of 3 new stocks that I added to my portfolios in February.