Lessons learned and mistakes made

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor. Seeking advice on your portfolio?
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Mordko
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Re: How Did You Do in 2017?

Post by Mordko »

DenisD wrote: 11 Jan 2018 12:52
deaddog wrote: 11 Jan 2018 11:12 If you buy a stock for $11.00 and it went up to $120 then fall to $15 and you sell.

Did you make $4 or did you lose $105?
I wonder if calculating monthly / annual returns periodically would change one's point of view. Reinforces the fact that I'm LOSING MONEY.
Sounds like a good reason NOT to calculate monthly/annual returns.
DenisD
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Re: How Did You Do in 2017?

Post by DenisD »

Maybe if you have a Couch Potato portfolio. But, if you're taking active bets, don't you have to pay attention?
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AltaRed
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Re: How Did You Do in 2017?

Post by AltaRed »

DenisD wrote: 11 Jan 2018 16:13 But, if you're taking active bets, don't you have to pay attention?
Yes, but it is a matter of degree. I try not to own any really speculative stuff that could do a 'hammer blow' to the side of the head and thus don't really have to hover over my holdings.

If I have not much better to do for 5-10 minutes at the end of the business day, I will scan my Watchlist of 'owned and interested in' securities to eyeball anything that might have moved more than 1%. That comes to me in my email 3 or so hours after market close, or I might load my trading software to look at the same list if I want to dig a little deeper. If I miss a number of days due to attention elsewhere, so be it.

I may miss an opportunity here or there to bottom feed on a mispriced security, or to sell something high, but that is what I also have Alerts set up for...that also come to me in email. i suspect I would do more damage wanting to tinker if I watched my stuff like a hawk. Especially buying too early when a stock is slumping...which I sometimes still fall into that trap, just not as often as I might otherwise.
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Re: How Did You Do in 2017?

Post by slim »

As a co-incidence, I invested $15,000 in JDS uniphase at the same time.
I watched it daily as it rapidly climbed and kept splitting its shares.

When the value of my shares approached $400,000 I started selling some shares, as I was afraid of it being too good to be true.
Then I read insider trading reports that showed that the CEO sold off all his shares and left the company.
I sold the rest.

I took that money and bought all the banks,all the pipelines, utilities, american stocks such as Costco and Home depot.
Ive never sold them.

JDS gave me the seed money that as put me in a very comfortable position.
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Wallace
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Re: How Did You Do in 2017?

Post by Wallace »

ghariton wrote: 11 Jan 2018 11:10 My problem was that I was altogether too close to the industry. I had worked at Bell Northern Research and then Bell Canada. I had friends at many of the optical systems manufacturers, including at JDS -- whose main offices were only three kilometers from my house. So I got a steady flow of information of how great fiber to the home was going to be.

The technical analysis turned out to be great. And at first it looked like the market recognized that as well. Unfortunately, we proved to be some fifteen years ahead of our time. The market lost patience very quickly. But I thought that fiber to the home was just around the corner -- I had read the $10,000 a copy market research reports, I had actually worked on some prototypes, etc., etc., and so I figured it was just a question of the market catching up to me. Well, the market did catch up. But by then, there were so many competitive products that the big margins, and the big money, was gone.

An illustration of knowing the nitty gritty details of an industry all too well, without sufficient attention to the big picture.

George
I fell into the same trap. Over 90% of the patients I looked after in Long term care suffered from dementia and I tried to keep up with current research. I became aware of a drug for Alzheimer's disease entering phase III trials that sounded quite promising. The pharmacology and mode of action of the drug fitted in well with the prevailing knowledge of factors thought to be causative and I decided to invest in the company. But in medicine many things sound good in theory, yet don't work in practice. I woke up one morning to find the stock of the company had dropped 65% overnight when the results of the trial were opened and the drug was no better than a placebo.

You can become quite overconfident when you think you have specialized knowledge.
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deaddog
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Re: How Did You Do in 2017?

Post by deaddog »

FinEcon wrote: 11 Jan 2018 11:40 The fact that most all of us missed out on Amazon or Constellation Software should not bother us.
No it shouldn't but if you had ridden VRX up since 2009 then you might want to give your head a shake if you are still holding it.

The question I ask is if you have a huge windfall stock, why would you continue to hold it while your unrealized profits disappear?
"And the days that I keep my gratitude higher than my expectations, well, I have really good days" RW Hubbard
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ghariton
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Re: How Did You Do in 2017?

Post by ghariton »

deaddog wrote: 11 Jan 2018 19:54 The question I ask is if you have a huge windfall stock, why would you continue to hold it while your unrealized profits disappear?
According to this approach, you never would have huge windfall profits to start with. You would have sold after the first 20 per cent or 50 per cent (or whatever) rise. No Microsoft for you, no Amazon. FWIW that is the strategy I followed in the mid 1990s. I sold my HP after a reasonable run, missing the big run. Worst of all, I sold Qualcom after making 60 per cent in eighteen months. The stock went on to twenty times in the next two years. Even after the bubble burst, it never went below four times what I had sold it for.

ISTM that if you decide to pick stocks, instead of going with broad indexes, you should have the courage of your convictions and stick with the stock. Presumably you had very good fundamental reasons to choose the stock. Have these changed? If not, ride it out. Isn't this the advantage that individual retail investors are supposed to have over institutional investors, the ability to think long term?

George
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Re: How Did You Do in 2017?

Post by ig17 »

ghariton wrote: 11 Jan 2018 21:58
deaddog wrote: 11 Jan 2018 19:54 The question I ask is if you have a huge windfall stock, why would you continue to hold it while your unrealized profits disappear?
According to this approach, you never would have huge windfall profits to start with. You would have sold after the first 20 per cent or 50 per cent (or whatever) rise. No Microsoft for you, no Amazon.
Precisely. Amazon returned 38,000% from the IPO to the present day. The chart below shows maximum annual drawdowns for Amazon (red) and Dow Jones (black).

Image

Source:
Looking For The Next Amazon

"Amazon’s path to a 38,000% return was filled with heartache, despair, and a nausea."
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deaddog
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Re: How Did You Do in 2017?

Post by deaddog »

ghariton wrote: 11 Jan 2018 21:58
According to this approach, you never would have huge windfall profits to start with. You would have sold after the first 20 per cent or 50 per cent (or whatever) rise. No Microsoft for you, no Amazon. FWIW that is the strategy I followed in the mid 1990s. I sold my HP after a reasonable run, missing the big run. Worst of all, I sold Qualcom after making 60 per cent in eighteen months. The stock went on to twenty times in the next two years. Even after the bubble burst, it never went below four times what I had sold it for.

ISTM that if you decide to pick stocks, instead of going with broad indexes, you should have the courage of your convictions and stick with the stock. Presumably you had very good fundamental reasons to choose the stock. Have these changed? If not, ride it out. Isn't this the advantage that individual retail investors are supposed to have over institutional investors, the ability to think long term?

George
There is no law that says you cannot buy a stock back if it resumes its uptrend. Especially if it makes new highs.

A couple canadian stocks that I have held since 2009 Boyd Auto and Premium Brands have given me some nice unrealised gains.

Having the courage of conviction would mean sticking with stocks when I'm wrong. That seems like a good way to lose money.

I pick stocks mainly because they are rising in price. Hell I bought WEED, there are no fundamental reasons to do that. I have no conviction that the stock will continue to rise. There is no courage involved, I'm afraid of losing capital.

Fundaments are metrics made up to convince people to buy stocks. What actual moves the market is traders perception of those fundamentals. If you are a Warren Buffet and have the ability to influence the management of a company then fundamentals are important. If you are a retail investor all you can do is try and go with the flow. If the flow isn't going your way then stand aside.

The advantage retail investors have over institutional investors is the ability to get in and out of the market quickly. It is easy to dump 1000 shares at market, not so easy to move a million shares or more. No one is paying close attention to my trades.

Long term what matters is the value of my portfolio, not what stocks I hold in it.

PS I don't own any of the high flyers.
"And the days that I keep my gratitude higher than my expectations, well, I have really good days" RW Hubbard
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ghariton
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Re: How Did You Do in 2017?

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deaddog wrote: 11 Jan 2018 23:49 Having the courage of conviction would mean sticking with stocks when I'm wrong. That seems like a good way to lose money.
I guess that we differ on fundamental versus technical approaches.

As has been posted elsewhere on this forum a few times, over the medium and long run, only a handful of stocks are successful, and these contribute to the vast majority in the gains in the indexes. These are typically big gainers, and more than make up for the many (smaller) losses or stagnation on other stocks. In my view, individual stock picking is an attempt to increase one's chances of investing in one of these.

But once you have picked a stock, on the fundamentals, remember that you are trying to beat the market on it by a wide margin -- wide enough to outweigh your returns on your so-so stocks. To achieve such success, it seems to me, you have to have convincing reasons for holding that stock, and those reasons should be strong enough to ride out turbulence. Above, ig17 gives a good example with Amazon. There are others. This is not sticking with a stock when one is wrong. This is sticking with a stock until one comes to believe that the fundamental factors have changed -- or that the original analysis was wrong.

I gather you follow a form of technical analysis, rather than fundamental analysis. If that works for you, that's great. It doesn't work for me.

George
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deaddog
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Re: How Did You Do in 2017?

Post by deaddog »

ghariton wrote: 12 Jan 2018 00:20
deaddog wrote: 11 Jan 2018 23:49 Having the courage of conviction would mean sticking with stocks when I'm wrong. That seems like a good way to lose money.
I guess that we differ on fundamental versus technical approaches.

As has been posted elsewhere on this forum a few times, over the medium and long run, only a handful of stocks are successful, and these contribute to the vast majority in the gains in the indexes. These are typically big gainers, and more than make up for the many (smaller) losses or stagnation on other stocks. In my view, individual stock picking is an attempt to increase one's chances of investing in one of these.

But once you have picked a stock, on the fundamentals, remember that you are trying to beat the market on it by a wide margin -- wide enough to outweigh your returns on your so-so stocks. To achieve such success, it seems to me, you have to have convincing reasons for holding that stock, and those reasons should be strong enough to ride out turbulence. Above, ig17 gives a good example with Amazon. There are others. This is not sticking with a stock when one is wrong. This is sticking with a stock until one comes to believe that the fundamental factors have changed -- or that the original analysis was wrong.

I gather you follow a form of technical analysis, rather than fundamental analysis. If that works for you, that's great. It doesn't work for me.

George
What I believe a stock might do has no bearing on what a stock will do.

I look at fundamentals when I’m making a trading decision and will choose the stock with the better fundamentals to break a tie. There’s the story of the CEO asking the accountant what were the earnings this quarter and the accountant answering what do you want them to be. GAAP allows too much manipulation of the numbers to put any real faith in them.

The problem with fundamentals is that it is the trader’s perception of those fundamentals that moves the market. And as Keynes stated, “The market can remain irrational longer than you can remain solvent.”

It doesn’t matter how you pick your stocks. What matters is how you manage your portfolio after you have taken a position. If you are trying to beat the market by a wide margin, it seems to me, the only reason for holding a stock is because that is what it is doing.

There is a difference between a good company and a good stock. Amazon is a good example, buying the stock on fundamentals is a stretch. P/E of 330; ROE 9%; Book value 51.16 (yahoo finance) If it wasn’t AMZN it would probably be a short candidate.


I’m in the Will Rogers camp. “Buy a good stock and when it goes up sell it, if it doesn’t go up don’t buy it.” I just added “if it doesn’t go up after you buy it sell it and buy something else.”

The reason I am in the market is to increase my capital. To do that my capital has to be employed in such a way as to make that return in the near future, not some time in the distant future. That doesn’t mean I don’t have long term holdings, I’ll hold a stock forever if it continues to perform. Stocks that don’t perform are culled. I’ll buy them back if they start to perform.

The strategy is really quite simple. It defies common wisdom so it probably won’t work but my returns have been satisfactory since 2002.

And George have you figured out why technical analysis doesn’t work for you?
"And the days that I keep my gratitude higher than my expectations, well, I have really good days" RW Hubbard
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ghariton
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Re: How Did You Do in 2017?

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deaddog wrote: 12 Jan 2018 12:44 And George have you figured out why technical analysis doesn’t work for you?
I think it's because there are so many professional, full-time technical analysts out there that I feel I don't have a chance. They will see the patterns before I do, and act on them before I can. Heck, there are many HFTs out there, algorithmic-driven computer programs waiting to pounce at the least price signal. Add to that that I still haven't seen an explanation of why technical analysis works that I find convincing -- except maybe for momentum, because people do like to get on band-wagons. I did try momentum investing for a while, but just didn't feel comfortable, given the people I was trading against.

ISTM that if an individual investor wants to go the stock-picking route, he has to do something that few of the professionals can do, or that is not worth their while. Specialized knowledge is one route, but as Wallace and I have illustrated, far from riskless. A long investment horizon, unconstrained by quarterly reporting requirements. might be another advantage. But that means being willing to ride the roller-coaster, in the beleif that the final desination will be higher than where you get on. But again that can be very risky.

So I ndex the broad market. I'll get lots of losers, but I'll get the big winners as well -- or a small piece of each. That's about all that I feel confident in doing.

I understand your approach. If you feel comfortable with it, and it works for you, very good. There are many ways to investment success. Each of us must choose a road that he feels comfortable with. That's what we have both done.

George
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deaddog
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Re: How Did You Do in 2017?

Post by deaddog »

ghariton wrote: 12 Jan 2018 13:38
I understand your approach. If you feel comfortable with it, and it works for you, very good. There are many ways to investment success. Each of us must choose a road that he feels comfortable with. That's what we have both done.

George
I don't know that I'm all that comfortable with the system yet. Maybe I'm getting comfortable with being uncomfortable as the system seems to be performing well.

Being comfortable wasn't working for me. I must say that I sleep better now that the focus is on protecting my capital.
"And the days that I keep my gratitude higher than my expectations, well, I have really good days" RW Hubbard
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Re: Lessons learned and mistakes made

Post by deaddog »

In summary here is what I think I learned:


Don't focus on making money, focus on protecting what you have.

It's better to be out of the market wishing you were in, than in the market wishing you were out.

It's OK to be wrong. It's not OK to stay wrong.

Don't hold on to a stock that is not doing what you expected it to do.

There is a difference between a good stock and a good company.

A list of stocks making new highs is a good place to look for stocks that might go higher.

When a man has put a limit on what he can do, he has put a limit on what he will do.

If you want to have a better performance than the crowd, you must do things differently than the crowd.
"And the days that I keep my gratitude higher than my expectations, well, I have really good days" RW Hubbard
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Re: How Did You Do in 2017?

Post by Norbert Schlenker »

FinEcon wrote: 11 Jan 2018 11:40 As Buffet mentions in almost every talk, errors of omission where one ought to have known better are to be counted as mistakes. The fact you have a large and/or concentrated position implies that you 'know better' or you have no business owning said asset. The fact that most all of us missed out on Amazon or Constellation Software should not bother us.
Whoa, Nelly!

Since I "know better" that my proper investment portfolio is the total market, then a big winner outside the portfolio is surely just as big an error as a big loser inside.
Nothing can protect people who want to buy the Brooklyn Bridge.
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