A trade is only a good trade as long as it respects the assumptions.
Case Study: General Motors
General Motors stock saw a big Gap-up jump in prices on news that Softbank is making a big investment in its autonomous division. There was a genuine fundamental reason which got everyone excited – 1. Softbank investment rerates GM stock; 2. Fresh Cash for autonomous division means GM will not have to burn its own cash in the autonomous division; 3. More Free Cash Flow for buyback and dividend; and 4. Low PE attractive dividend Yield.
Hence the stock genuinely looked attractive when it filled the gap –
GM – Softbank picking up stake in an autonomous division of General Motors created a big Gap on the chart. Now that Gap has filled and the stock looks like a buy pic.twitter.com/JGN9I43cb0
— Deepak Singh (@smarket) July 5, 2018
But then – the tariff impact was too much for the stock and it slipped through the crack oops Gap and the stock from buy on dips became sell on the rally and no wonder it has declined this much
Lots of times we make a trade in good faith. We look at everything and yet it does not work out. The best thing to do – Acknowledge that the trade is not working and exit rather than sit, fight and be angry/frustrated.
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers