Today, most market participants were thinking about the long weekend ahead and balancing out their trades for the month.  We did see a lift in the broad market AND in the DOW (DJ-30) and the NASDAQ.   It is unwise to read anything into today’s market moves – the volume was extremely low.

Importantly, the market is retaining its composure within a lateral consolidation on the intermediate term and has pulled-back in an orderly fashion from its highs on May 2nd – defining our short term downtrend.

This week, the California Pizza Kitchen (Ticker: CPKI) company was purchased – you guessed it – at a premium to the closing price of the company’s stock the day before the announcement.  In this case the premium was +10%.

Whereas new home sales data this week were an encouragement, pending home sales information from April released today was a disappointment. Click here for an article from the LA Times.

– Story-Stock Investing –

Our Stock Market Companion stock holdings performed well today.  Even Cisco Systems Inc. (Ticker: CSCO) was able to put a little water under the keel.  We are particularly encouraged with Hewlett-Packard’s (Ticker: HPQ) follow-through day today.  The stock crossed up through the $37/share line during the day, but settled at $36.96/share.  This gives us a little room on our entry and gives us a bit of an indication that we may be on the right track with this one.    Right now we have approx. +24% holding of our total capital available for investment on this stock – which represents a “full-bullet” on this investment.  If the stock pulls back, or builds a bit of a lateral consolidation in and around this point – there would be an opportunity to add more to a current position if we weren’t already so committed to the stock.  Remember, many mutual funds – by law – cannot invest more than 5% of their capital in any particular investment.  From time to time we are asked if we can share regularly about how much we are putting on any particular stock investment.   We are cautious about this as each individual’s risk tolerance is remarkably different.  Quite frankly here’s what makes us reluctant to share too much in this manner –

1. We don’t want to influence individuals to take more risk than they normally would.

2. We want to sleep well at night – without worrying that a subscriber-friend has re-mortgaged their home and put the money on a stock, or simply put too much money on the investment – resulting from our indiscretion.

We will try to indicate where it is prudent – how much we are putting on a stock.  We did so recently with our CSCO investment – just prior to the earnings call.

Perhaps the best way to handle a stock investment is this –  as opposed to looking to see how much the Stock Market Companion has on an investment – consider taking these steps –

1. Determine where you are putting your stop.

2. Pick an amount of money that you are prepared to lose on the investment.

3. Subtract your stop price from your possible entry price and divide this number into the amount of money that you are prepared to lose.  This will then give you the number of shares that you should consider purchasing, in order to stay within your tolerance for how much you are willing to lose.

For instance – We bought HPQ for $36.43/share and our stop is at $35.48.  $36.43-$35.48 = $0.95.   Let’s say we don’t want to lose more than $500 on this investment.  Therefore, $500/0.95 = 526 shares.

Maybe you want to give certain stocks more “room to breathe”.  In which case, you need to ratchet down your share counts.

There are some stocks that come along where we have very strong confidence, although in the back of our mind we have to always be mindful that something could happen that the stock exchanges may shut down due to some unforeseen calamity, or that the company that we are investing in could announce a significant negative situation.   We have put a lot of money on some individual stocks over the years, but we have learned our own true risk tolerance in the process – and sometimes experienced the folly of our greed.

As active individual stock investors, we should all consider what the legendary financier J.P. Morgan or someone before him once said to an anxious investor – “Sell down to the sleeping point.”

Today, the financial stocks performed better.  We have our eye on Bank of America down here at its lows.

For our subscriber-friends who are military veterans or those serving our country today, we want to take this opportunity to thank you with all our hearts for your sacrifice for us to have this great country.  Thank you.

The markets are closed on Monday, in observance of Memorial Day.