Slow to Rotate

Tuesday, July 29, 2008

Recently, two of my positions, Mechel (MTL) and Petrobras (PBR) started to sell off very fast.  A few months ago, I had adopted a long term investment strategy.  In a rising market this approach worked well, but the last few weeks commodities stopped working.

My conviction about my approach was being tested.  I thought about the long term thesis for these two companies.  Mechel, a Russian integrated steel maker has a great outlook because of global expansion and they recently purchased a company that produces coal, a major component in making steel.  This acquisition will help to reduce raw material cost because they would not have to purchased coal from another company.  Petrobras, a Brazilian oil company recently made a major oil reserve discovery.  This in addition to the increased global demand for oil and the Brazilian economic growth, I concluded my long term outlook was correct.

Last week, I was on vacation and I checked on Mechel and read an article about the Russian Prime Minister making negative comments about Mechel and the stock was down 18%.  I sold it.  Also, the last few weeks, oil has dropped from a high of $147 per barrel and now was $125.  As a result, Petrobras was down 25% from its high.  I sold this stock as well.  Both of these stocks started decreasing a week or two earlier, but I held them.  I did have a warning.

What investment lesson did I learn from this?  Don't try to fight the market.  If the market is telling you something, listen.  Take it from me, don't be slow to rotate.

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