Monday, February 11, 2008

Not so surprising results from Darden (DRI)

Today, Darden (DRI) is up 8% after management gave some upbeat numbers and guidance. The same stock that was near 20 is now near 30. Yes, I regret selling my Jul 30 options for 2.95 when I could have sold them for 4 today. But what I regret more is not picking up more when they were at 0.60.

Investing (in the long term sense) is all about the numbers and valuation. Trading (in the short term sense) is much more about emotions. It's about having the confidence to buy at the bottom and sell at the top. I have this problem of picking a stock near its 52 week low, holding it while it gets killed some more, and then selling it for a small profit. That's better than some alternatives but still sucks. The problem is that this works most of the time but some times, they don't come back up. You need a couple large gains (10-baggers) to achieve abnormal returns.

Darden is a perfect example of this. It would have been an easy 50% gain had I put more money in at the bottom. I had the conviction (I wouldn't have in the past but I am getting better) but I lacked the margin. The thing I tend to forget is that when the markets are down, the maintenance requirements go up. I tend to run out of buying power and get margin calls near the bottom. So instead of adding delta, I am reducing delta at the worst time.

In an attempt to learn from my mistake, I didn't trade today. There are so many opportunities out there (EMC, SIRF, CDNS, BHI, JNJ, GE, etc.) but I figured the smart thing to do is to build up buying power and wait for a retest of the bottom. Usually volatility is pretty high during expiration week but today was rather tame. I am hoping the rest of the week is as quiet. Quiet days make for easy money from decaying time premium.

1 comment:

Jimmy said...

Enjoying your market commentary very much. Lets have a revisit:

"And DRI is still disgustingly cheap, you may be right about 20... but I see them hitting 30 regardless of an unfriendly restaurant sub-industry"

Seems like I won this round my man! Yes, to answer your question, I did jump into that stock and am now considering taking profit off the table. Your analysis on the situation at DRI is very sound, keep it up!