It’s days like today in the markets that an uncommon term, the stink bid, surfaces for the first time in likely months as investors scratch their heads in response to the shocking volatility before them. Today investors rushed to enter low bids on various investments as prices fell and glitches in the system attempted to work themselves out. Volatility has the power of creation for value investors as opportunities open up for patient investors.
One strategy I’ve always employed in my portfolios is a set number of stink bids left open in the market for a few weeks or months at a time. Often when bad news comes out on a company (earnings miss, lawsuit or poor analyst report) the price of the stock suffers and value is created as investors react negatively to developments. It’s a strategy that at times has worked out very well for short-term gains on companies I own or has given me the opportunity to add to positions at market low prices.
Today a few of these stink bids were triggered and although I’m not certain if all of them will stay (as TD has advised other investors corrections may be made to trades in the next few days) I’ve picked up a discount of a few dollars on specific stocks in my portfolio that I expect to trade higher in the next few days.
I don’t employ this strategy exclusively for days such as this, but they do, have and will occur from time to time so an investor can benefit, even a little, from using the strategy from time to time. A discount of a few dollars here and there might not seem like a lot to the average investor, but added together over a period of time be beneficial to a portfolio that in recent months hasn’t had a lot of value to choose from in a fairly valued market.