Tuesday, October 2, 2007

Selling Your Winners Strategy Revisited

On new year's day this year, I recommended selling the best performing stock in 2005 if you ever owned one. My reasoning was that past experience shows that the best performing stocks do not do well during the subsequent years. In fact, in recent years, they all register a loss after producing huge gains. The list goes from Qualcomm (QCOM) in 1999, Taser (TASR) in 2003 and Travelzoo (TZOO) in 2004.

For 2005, the best performing stocks are as follows:

NutriSystem (NTRI), up 1,308%

GeoGlobal Resources (GGR), up 1,032%

Peerless Systems (PRLS), up 535%

ViroPharma (VPHM), up 517%

Fieldpoint Petroleum (FPP), up 512%

How did they do so far? Here is their performance year to date:

NutriSystem (NTRI), up 42.6%

GeoGlobal Resources (GGR), down 58.3%

Peerless Systems (PRLS), down 51.5%

ViroPharma (VPHM), down 39.6%

Fieldpoint Petroleum (FPP), down 42.6%

From the top 5 best performer of 2005, only NutriSystem is up for the year. If you have a portfolio of these 5 stocks for $ 1000 each, year to date, your $ 5000 investment will shrunk to $ 3521 or down 29.5%. If you are a risk taker and short (you profit when the stock price falls) these 5 stocks, you will be performing handsomely versus the market performance.

I personally believe that NutriSystem will fall some more as history is in my side. I have covered these topics briefly on April 2006 and noted that at the time, NutriSystem was up by 75%. I believe that the statistic is not in its favor. Not that I have researched the company. This is just purely technical which has occurred several times in the past. As I have said previously, the reason is not that NutriSystem will perform badly in term of profit. But rather, its stock price has been rising up so far in 2005 and the stock will take a breather in 2006. We'll keep you updated on this issue as the year ends. This might be a good investment strategy to have if statistics is any guide.

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