Brutal Market Roils Recommended List

Brutal. Just brutal. We were stopped out of 13 of our 25 recommended long positions last week as this market just kept rolling over.

Off our Recommended List went several of our newer recs like Arthrocare(ARTC Quote), Genta(GNTA Quote) and Pharmaceutical Product & Development(PPDI Quote). If there are company-specific reasons for why these stocks weakened so much, we haven't found them. It's just this cruddy market. We'll probably be back recommending these stocks after the market firms again.

The same goes for some of the longer-term picks we were stopped out of, like Respironics(RESP Quote), Steris(STE Quote), Brown & Brown(BRO Quote), Energizer(ENR Quote) and Microtek Medical(MTMD Quote).

Microtek, formerly Isolyser, did have company-specific news that knocked it for a loop. The company took down its guidance for the year by a penny, and now expects to earn 12 cents to 14 cents per share. For that, Microtek traded down by as much as 26%, to $1.38. Ridiculous. This is one of the first stocks we will recommend buying again when we feel it stabilizes.

Two stocks that are unfortunately still on our recommended list are Network Equipment(NWK Quote) and Corio(CRIO Quote). Our belief that the cash positions of both these firms would limit their stocks' decline during the market downturn was obviously wrong! (apologies to Jim Cramer). Being wrong is acceptable, but our removal of the stop losses on Corio and Network Equipment was not.

Having made exceptions to our strategy of maintaining tight stop losses with these stocks, we now find ourselves in a special purgatory of our own making. All of our analysis says these stocks shouldn't be this low, but they are, so we were wrong. But now that they've fallen so low, these stocks look even more interesting to us. Oh, brother. What an amateur mistake to let our discipline slide.

Stay Disciplined

We hope readers took our months of harping about stop losses to heart and have protected themselves against the worst of this horrific market fall. This market does not care about cash-on-hand or any "value" criteria, and is even treating some solid earnings plays badly. The only thing to do is to get out of stocks that the market tells you to, and take the hit before it gets worse. We are taking our own advice and putting stops back on Corio and Network Equipment.

We have been asked why we kept adding long positions after writing so often that the market was headed for a fall. The short answer is, because we had been able to make money. Acquisitive insiders kept pointing us to stocks to investigate, and in many cases, we had to agree with them that their stocks looked like good buys. Even now, InsiderInsights' Recommended List is up 5.2% for the year.

Our bragging rights were much better two weeks ago, though, when the list was up 13.7%. Our active moves to profit from a market decline by buying (USPIX Quote)ProFunds UltraShort and shorting Standard & Poor's Depositary Receipts(SPY Quote) were just not enough to protect the portfolio properly.

So we must admit again to being caught off-guard by the severity of the markets' recent move. Obviously, executives' overall correct call about a market decline was a more important insider signal than bullish insider calls on individual stocks.

And having been pummeled by a tidal wave while beachcombing for bargains, we're still shy about committing new capital and recommending buying into this dip. Our cash is obviously building as we continue to be stopped out, and we don't mind. We expect to be able to allocate the funds profitably in the coming weeks and months.