Coping With a Moody Market

As a buy-and-hold investor, I would be much more relaxed if the stock market behaved like a rational adult — not always perfect or understanding, but mostly calm and reasonable. Instead, it’s acting like a kid in middle school: moody, volatile, likely to implode at the first cross tweet (as it did for a couple of minutes one day this spring).

Is it any wonder that investors are scared of stocks? Much as when my kids went through such irrational stages, with this market I wonder three things: Where did I go wrong? How can I fix it? Will it ever stop? But then, as now, I really just wanted a peaceful place to hide and wait out this ugly phase.

Of course, when my kids went through difficult stretches, I didn’t sit idly by. I spied on them openly. At one point, I told my son that I’d hired a private detective to watch him and his friends. I was actually monitoring their electronic messages, but telling the whole truth would have made the spying less effective. Besides, it was great comedy to watch them speculate about where my private eye was hiding. I figured that knowing I was watching would help keep them out of trouble. Maybe they’d even open up to me and help me figure out what was going on and how to fix it.

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Thankfully, unlike prepubescents, public companies are required to disclose plenty of information. So keeping tabs on my portfolio is as simple as reading through annual and quarterly reports, proxy statements, and other corporate documents. But when you own more than a dozen stocks, keeping track of them is time-consuming. So a reasonable person has to prioritize. I took a cursory look at all 18 of my stocks and decided to focus on the outliers.

That meant concentrating on my biggest winner, Spirit Airlines (symbol SAVE, $28), up 99% since I bought it in October 2011, and my biggest loser, Schnitzer Steel (SCHN, $26), down 42% since January 2012 (prices are as of May 3).

Reading through Spirit’s reports lifted my spirits. The proxy showed that the company’s directors are an impressive group, with a lot of experience in aviation, cargo and finance. They’re modestly compensated, and most own Spirit shares. (The one director who doesn’t own stock is an executive at Oaktree Capital, a money-management firm that holds 18% of the airline’s shares.) Top executives are paid less than industry averages, too, with Spirit CEO Ben Baldanza earning just over $1 million — about one-fourth the pay of Southwest’s CEO. Nice. Another good sign: Spirit’s monthly traffic reports show that while the numbers of flights and routes have been increasing rapidly, the company has not sacrificed “loads” (the number of passengers on each plane) as it expands.

Unpredictable business. What makes me uneasy is Spirit’s share price. The stock now sells for 13 times projected 2013 profits. That’s in line with Spirit’s top rivals, Southwest (LUV) and JetBlue (JBLU). Moreover, Spirit is growing faster than the others, so the stock doesn’t scream “overvalued.” Still, the airline business is notor­iously fickle, and Spirit is not the bargain it was when I bought it. So I’ve taken some profits off the table by selling about half my stake. I continue to own 383 shares.

I’m less impressed with Schnitzer’s board. Directors own little stock, and a former Schnitzer CEO earns a whopping $1.1 million a year to serve as chairman of the board. But Schnitzer’s results for the quarter that ended February 28 were encouraging, thanks partly to cost-cutting. I’m holding the stock now but will likely trim my position in the coming months.

Kathy Kristof is a contributing editor to Kiplinger’s Personal Finance and author of the book Investing 101. You can see her portfolio at kiplinger.com/links/practicalportfolio.