After the best January in 32 years, the S&a;amp;P 500 rally continues. Since the world&s;s economic problems clearly have not been solved,&a;nbsp;I&s;ve&a;nbsp;asked my managers to name a stock that won&s;t lose money if the&a;nbsp;market fades. Last month, Wayne Himelsein told us why he thought Fortinet can move up even in a down market. Now, it looks like Fortinet is taking off, just as&a;nbsp;my top quant manager predicted.&l;span class=&q;tweet_icon&q;&g;&l;/span&g;
&l;strong&g;Ken Kam&l;/strong&g;: Wayne, the market has been incredible since the turn of the year, and Fortinet has performed even better.
&l;strong&g;Wayne Himelsein&l;/strong&g;: I actually recommended Fortinet twice in January, once &l;a href=&q;https://www.forbes.com/sites/kenkam/2019/01/13/buy-fortinet-to-make-money-in-topsy-turvy-market/&q;&g;on the 13th&l;/a&g; and again &l;a href=&q;https://www.forbes.com/sites/kenkam/2019/01/27/fortinet-top-fund-manager-picks-it-again/&q;&g;on the 27th&l;/a&g;. At both times,&a;nbsp;it was trading around $72.
&l;strong&g;Kam&l;/strong&g;: It closed above $83 on Friday, up over 15% from two weeks ago, and about 20% on the year, just about double the S&a;amp;P500, which has gained just under 11% on the year. A lot of investors would be thinking of taking some profits on such a fast gain. Are you?
&l;strong&g;Himelsein&l;/strong&g;: One of the most powerful tools I have in achieving outperformance is one of the simplest and most profound rules of money management; cut your losers and ride your winners. Fortinet is a winner. I am not at all close to selling it.&l;/p&g;
&l;strong&g;Kam&l;/strong&g;: Having watched your portfolio&a;nbsp;for over&a;nbsp;18 years, I very much see you apply these rules in your process, and your outperformance shows they&a;rsquo;re clearly working. Would you buy Fortinet at $83?
&l;strong&g;Himelsein&l;/strong&g;: Fortinet happens to be a great stock to own, right here and right now! It also highlights another one of&a;nbsp;my rules -- patience.
When I think of investing, I think of surfing, which as fun as the sport sounds, has the majority of its time in waiting for the perfect wave, as compared to the quick ride once that perfect wave arrives. A surfer exerts tremendous energy watching for the right conditions at the right location, and then paddling out to get past the break. This is analogous to all our hours spent in research and analysis.
But once out, knowing that they&a;rsquo;re in the right spot, they just wait. I knew I was in the right spot with Fortinet on the 13th, and while waiting, I got concerned that others might start paddling back in, so I re-iterated the name on the 27th when I literally professed my love for it. Soon after, it exploded to the upside.
&l;strong&g;Kam&l;/strong&g;: I now understand why you brought up the name again two weeks later. You were confident, and you didn&a;rsquo;t want others to move on. But that&a;rsquo;s not always the case, sometimes patience doesn&a;rsquo;t pay, right?
&l;strong&g;Himelsein&l;/strong&g;: Of course. Patience is essential when confidence is high. But being patient can often look like doing nothing. I am here to say, doing nothing is often very much doing something. Waiting is part of the game, and oftentimes the most important part.
That said, only for a reasonable amount of time! Personally, I have soft coded a rule of roughly a month&a;rsquo;s wait. There&a;rsquo;s no magic to a month, other than from my experience, it&a;rsquo;s long enough to assess thoroughly, and not short enough to be shaken out by volatility. If my expectations don&a;rsquo;t pan out within a month, I accept that something is amiss, and move on.
And on the other side of the coin, there is just too much &a;ldquo;noise&a;rdquo; within the short term movement of the market and stocks to surrender after a few days, or even a few weeks. I, therefore, feel like a solid month is a good balance for a bird&a;rsquo;s eye view of meeting expectations. Albeit, this is all in the case that it stays within an acceptable range, as the rules of time windows change if the stock changes character or starts dropping profusely!
&l;strong&g;Kam&l;/strong&g;: I like the one month window, makes great sense. Getting back to Fortinet, now that it&a;rsquo;s jumped as much as it has, why not sell and take some profits?
&l;strong&g;Himelsein&l;/strong&g;: The temptation to sell is certainly high. The little voice mumbles to us on our pillow &a;ldquo;I&a;rsquo;m up so much, I have to take my profits.&a;rdquo; And do what with them? Put them in something inferior? Ironically, if you chose a stock and it did not only what you hoped it would, but even better, it means you were spot on. You chose well! So why start to doubt yourself after being right and in a profit zone?
Usually, this doubt comes from the fear that it will fall back down, that&a;rsquo;ll you lose those gains. Perhaps. But the more likely scenario is that the stock that has demonstrated its strength continues to behave as strongly, or at the very least, behaves better than a weaker one you might replace it with. Of course, if there is an equally good selection waiting around the corner, that&a;rsquo;s a different story, but another equal caliber or superior pick is usually not the driver for taking profits, it&a;rsquo;s the taking of profit that is the generally the motivating force, and following that, the need to put that freed up cash to work. Hence, a general downgrade.
&l;strong&g;Kam&l;/strong&g;: That makes a lot of sense. When we sell to take profits, we are forced to find another great pick even if we&a;rsquo;re not ready; so why not stay with the quality you&a;rsquo;re already in! So is Fortinet as good for those who followed your prior article vs. newcomers who buy in today?
&l;strong&g;Himelsein&l;/strong&g;: For those already in, I&a;rsquo;ve said my piece, stay where you are, and continue to enjoy the ride.
For those considering Fortinet for the first time, I am equally excited about its place at this very moment. Both because it did as I anticipated, and because my anticipation was for it to move far more than it&a;rsquo;s already done; and for far longer.
I shared all my reasons when I talked about it on the 13th and 27th, and nothing much has changed, except for one simple thing -- it has just begun!
&l;strong&g;My Take&l;/strong&g;: 2019 has opened with an impressive rally. But without supportive monetary or fiscal policy, I think we need to pay more attention to the downside. However, even in a bad market, some companies will do well. We have to be more selective now.
If you worry about the macro risks to the market -- interest rates, Brexit, trade war to name just a few -- use this rally to get out of stocks that can only move up if the whole market rises and invest in stocks that can move up even in a down market.
I like the thought process Wayne has been using to reorient his portfolio. A lot of investors ask the same questions as Wayne. But Wayne has answered these questions better than anyone for years and has the track record to prove it.
Wayne Himelsein&s;s Logica Focus Fund (LFF) has an 18+ year track record that extends through two market crashes, numerous corrections, and sector rotations. Over that period, Wayne&s;s model averaged 11.65% a year which compares well to the S&a;amp;P 500&s;s 5.71% return for the same period.
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