best of financial blogs online trading

Trader Mark of Fund my Mutual Fund May 15, 2008 Email this article to a Friend  Printer friendly page

After the earnings report (solid) and guidance (not so much) from LDK Solar (LDK) earlier this week, I cut back my stake. I've decided to sell out completely today for a few reasons. First, the sophistication level in solar seems to not be so high so these stocks all trade in tandem... if company A reports a bad number they all sell off, or if company B reports a good number they all go up. So in some ways a basket approach is a bit useless. Second, I think LDK Solar is more of a late 2008 to mid 2009 story so I'll revisit it then. While it can jump in the meantime (up), I believe it will just be due to the sector and not anything specific to the company, so I can get that same 'sector' exposure through other names (with less headwinds). I want to keep my solar exposure (allocation) consistent - and I've piled a lot into Trina Solar (TSL) due to its valuation and prospects the next few quarters. I'd rather own more Trina, than put that same money into LDK Solar.

Now we do have some risks owning Trina as well, as (1) the market is well overdue for a correction (2) the solar sector has exploded and is due for its own correction and (3) Chinese leader Suntech Power (STP) might have a bad quarter due to some company specific situations and it reports next week (Trina is not out with their date but they report next week as well)- and as I said above, when 1 name has a bad quarter people trash the whole sector, regardless of individual fundamentals.

So while I've moved Trina Solar up to the top stake in the fund, I've cut back elsewhere to keep my allocation flat. At this point Trina Solar could gain 100% from here, and only trade at par with valuations of its peers such as Suntech Power (STP) or Yingli Green Energy (YGE) - this is why I am willing to hold it even though the above 3 conditions could lead to a sell off in the name. It's valuation is just that compelling, and it is being missed by the market. So as a warning ahead of time, we might take some losses in the near term (weeks) from this position but I think by end of year 2008 this will be a huge winner, and when I think of applying new money to the sector I'd rather go there instead of LDK Solar. With earnings from Trina coming in a few weeks I'll know shortly if this thesis is correct; but I'm going to a more narrow focus in the sector (less names). Once again let me stress this sector has come a long way in a short time and all the names are at risk of substantial pullbacks - and when this group pulls back it does not mess around - 25-30%+ pullbacks are the "norm".

I'm selling the last 150 shares of LDK Solar around $36.00; this has been one of the fund's biggest losers [Top Fund Winners and Losers] and I've owned it since Aug 30, 2007. I do believe it will have a nice 2009, but the chart below shows how it has done since September 07, and how difficult it has been to make money in this name.

Long Trina Solar, Yingli Green Energy in fund; long Trina Solar in personal account

by Trader Mark (Fund my Mutual Fund)

Disclaimer:

Please note that charts and commentary provided by the moderator are for educational purposes only. Any trades placed upon reliance on the moderator’s charts or information is taken at your own risk for your own account. Past performance is no guarantee of future results. While there is great potential for reward trading stocks, futures and options, there is also substantial risk of loss and you must decide your own suitability to trade. Future trading results can never be guaranteed. This is not an offer to buy or sell stock, futures, options or commodity interests.

Most trading systems are based on historical formulas which have worked in the past. However, what has happened before may or may not happen again. You can lose all your money trading stocks, futures, and options and you must decide your own suitability as to whether or not to trade. Only trade with true risk capital you can afford to lose. Only trade markets you can properly afford to trade. Properly funded trading accounts typically perform better than those that are not. Never risk more than 2-3% of your account on any one trade. Always define your risk before entering a trade and place a stop to limit your risk.

There are no guarantees or certainties in trading. Trading involves hard work, risk, discipline and the ability to follow rules and trade through any tough periods during a system’s draw downs. If you are looking for a guarantee, trading is probably not for you. Most people lose money trading. One of the reasons is that they lack discipline and are unable to be consistent. A system can help you become consistent. Ironically, worrying about the monetary aspect of trading can contribute to and cause a trader to make trading errors. Therefore, it is important to only trade with true risk capital.