The saying “patience is a virture” applies to stocks as well as everyday life. Unfortunately, sometimes patience is a virtue, until…. it leads to ignorance and ignorance with stocks is not bliss. It is painful and as the pain continues you start to question why you are holding on. When I change a signal and the stock moves dramatically in the wrong direction, I evaluate whether I made a serious error or whether I need to be patient. If some fundamental news makes it clear that I was wrong, I’ll admit my mistake and change the signal accordingly. Often, however, I don’t find anything to alter my incorrect view, so I decide to tough it out. As weeks go by and the signal becomes increasingly wrong, it appears that ignorance is setting in.

If you sort MANAGE for the worst performing signals in HedgeFolios, you’ll see a lot of patience that apparently has led to ignorance. I have more signals that are wrong in excess of 10% than I have ever had since I started doing HedgeFolios over 3 years ago and I apologize for that. Each week I take a long look at signals that are so wrong and for one reason or another, I stay patient on most of them. Last week, POZN exemplified vindication for this strategy. If you pull up POZN on a chart and compare it to HedgeFolios, you’ll see that I gave a DOWN signal on 12/19/05 at $9.48. It promptly spiked up to a high of $18.62 ( March 2nd ) and by then, this signal had a loss of 96%. So much for patience! Fortunately, since March the stock has declined, and last week, it fell off a cliff to close the week at $5.52. In one week, this signal went from a 45% loss to a 42% gain. So much for patience!!

I know it’s tough to sit with a loser and be patient. You have to watch these stocks very closely and objectively evaluate anything that might tell you to admit your mistake. However, if after all this analysis you still believe in your current position, you might be better off sticking with the loser. Your patience may be rewarded just like mine was with POZN.