2016 Lessons Learned

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SkaSka
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2016 Lessons Learned

Post by SkaSka »

Seeing as the 2015 Lessons Learned was full of some interesting insight and conversation, perhaps those that learned anything in 2016 can chime in for this year.

1) Knowing when to sell is very hard. It is relatively easier to know when to buy. Especially when it's a good business, it is very difficult to know when to sell.

For example, I picked up some Tiffany when it was near it's 52-week low in 2016 and sold in the mid-70s, for a quick turnaround, and then it proceed to march up into the mid-80s. Another example, I sold out a legacy Chevron position as it reached my cost basis at 105: I couldn't fathom why the company should be valued in the 100s when oil still had yet to recover beyond ~50 a barrel... and then it has proceeded to march up into the 118s. I still have a hard time wrapping my mind around how the company can be valued at this price when it was last valued around this range when oil traded for ~100 a barrel.

2) Connected to the Chevron example, I learned I don't understand oil.

3) Connected to not understanding oil, I've learned that I will mostly avoid companies that take in commodities and spit out commodities.

4) The saying "turnarounds seldom turn" was vividly learned with Chipotle. I was lucky to escape it at break-even with only time lost on the opportunity cost of the capital that had been invested. The company is fairly simple to understand, it's just that the turnaround is taking much longer than I had hypothesized at the beginning of 2016.

5) The lesson that price movements in the short term are basically mysterious and highly random and that it is often disconnected from true value really hit home in 2016.

6) While vicariously learning is important and helpful, it constantly hits home that "there are certain things that cannot be adequately explained to a virgin by words or pictures." You need skin in the game and to experience it yourself to really drive home some lessons, insight, and knowledge. Of course, learning vicariously hopefully prepares one to minimize truly epic blunders in real life.
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AltaRed
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Re: 2016 Lessons Learned

Post by AltaRed »

Your item 5) addresses your Chevron and Tiffany cases. You only know in hindsight whether you didn't (or did) wait too long to buy and you didn't (or did) wait too long to sell. Buying lowest and/or selling highest is mostly bragging rights and sheer luck. I never regret taking profits when I've made an adequate return (usually measured by that asset having become outsized in the portfolio).

My main lesson learned from 2016 was not to have taken advantage of a few reasonably priced stocks in Jan-Feb, albeit my attention was more properly focused on the joys of Maui. Same situation in Oct (again away on a month long trip out-of-country). Could have put in a few limit orders before leaving to deploy spare cash.
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Re: 2016 Lessons Learned

Post by Londoncalling »

Funny how that works. while you were selling Chevron at $100 I was hoping for an entry price below $100. We both lost out for similar reasons. Guess I've learned that valuing a stock is not an easy task. The thing I find interesting is that we tend to build a narrative/ history/relationship with our holdings. One thing I have learned this year is not to look at the gains of my holdings. Just because I have a 40 ,50 or 100% gain on a stock I have held for the past 5 years doesn't mean it isn't at a good price today. I am going to go back to the 2015 thread and reread just for fun. Be interesting to see what is different today than in 2015.

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Re: 2016 Lessons Learned

Post by Shakespeare »

Lesson relearned: have the cash and guts to load bargains when available. My yoy returns were made by purchases in Jan-Feb of this year.
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Re: 2016 Lessons Learned

Post by Insomniac »

I didn't do anything with my portfolio this year; just let it ride. No regrets.

IMO, we had 2 significant events this year which could have wreaked havoc with my portfolio; Brexit and the election of Trump as POTUS. The portfolio dipped after Brexit, but recovered fairly quickly. After Trump's election, the portfolio has grown nicely. I guess the lessons are don't panic and don't believe the polls. Actions from the lessons? Nothing. Let it ride...

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Re: 2016 Lessons Learned

Post by scomac »

Shakespeare wrote:Lesson relearned: have the cash and guts to load bargains when available. My yoy returns were made by purchases in Jan-Feb of this year.
Same here. To this I might also add that there is no need to play around with small stuff when the big boys are on sale. The fishing is much easier and the results more reliable!
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Re: 2016 Lessons Learned

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Insomniac wrote:I didn't do anything with my portfolio this year; just let it ride. No regrets.
:thumbsup:
That describes me almost perfectly. The only significant transaction this year was a sale (downsizing) of ENB. Proceeds were used to purchase Telus. As Insomniac said: "No regrets".

For myself, there is nothing like a well balanced portfolio with a decent amount of FI to weather all (or most all) of the uncertainties that the markets can throw at me. It allows myself to be fully invested at all times and ignore (mostly) the markets different moods.

For example, who would have imagined that the DOW* would be so close to 20K!!! Yet, because of my chosen (and quite arbitrary) allocation to the US, I have done well. Choose an allocation and then stick to it.

These are some of the lessons I relearned this past year.

* Only one person (Brad) out of 35 participants in the 2016 prediction contest predicted a number higher than what the DOW currently is. This is a lesson in itself...
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Re: 2016 Lessons Learned

Post by SQRT »

Likewise, I didn't trade at all in 2016. Looks like my best year since 2009 with total returns around 28%. What did I learn, nothing really. I figure if I haven't learned "it" by now another year in the market wouldn't help.
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Re: 2016 Lessons Learned

Post by Descartes »

It is hard to discern a valid lesson when everything is going up with the rising tide.
..but the main thing I put to considerable use this year was the long held conviction that the market is a fool.

When it panicked over Brexit, I bought.
When it thought a company made a bad move by issuing common stock or acquiring another company, I bought.
The market always seems to forget, forgive, or reconsider if you buy safe companies and wait long enough.

I look forward to more idiotic opportunities in 2017.
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Re: 2016 Lessons Learned

Post by found »

How much of a lesson is "let it ride"? For example, there is the opposite more costly outcome for having "let it ride".

To contribute, I had been experimenting with trading in the Marijuana sector. Initially 20-30% gains a small investment. That said, it's too much excitement (volatility) that I feel requires too much attention. Also, I had sold MG at a loss to enter. The allure of large gains over a short period of time is a slippery slope. A learning lesson for sure.

The largest portion of my portfolio Banks are all at 52 weeks high.

In total over 3 years of investing my portfolio has gained 17%. This seems low if SQRT can accomplish 28% in one year.

SQRT care to educate me a little?
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Re: 2016 Lessons Learned

Post by Koogie »

I got lucky with bank and insurance buys made in Feb.
I got lucky with international index buys in June.

Lesson: being lucky is as good as being smart. Maybe better.
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Re: 2016 Lessons Learned

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found wrote:How much of a lesson is "let it ride"? For example, there is the opposite more costly outcome for having "let it ride".

To contribute, I had been experimenting with trading in the Marijuana sector. Initially 20-30% gains a small investment. That said, it's too much excitement (volatility) that I feel requires too much attention. Also, I had sold MG at a loss to enter. The allure of large gains over a short period of time is a slippery slope. A learning lesson for sure.

The largest portion of my portfolio Banks are all at 52 weeks high.

In total over 3 years of investing my portfolio has gained 17%. This seems low if SQRT can accomplish 28% in one year.

SQRT care to educate me a little?
100% equities. I'm overweight Banks. With some pipes, telcos, and few smaller positions. Last year total return was -1%. Last 5 years CAGR total return was almost 17%
Last edited by SQRT on 23 Dec 2016 08:03, edited 1 time in total.
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Re: 2016 Lessons Learned

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Rebalancing when you have an individual stock portfolio is still a pain in the arse, at least for me ggrrrrrrr. :?
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Re: 2016 Lessons Learned

Post by SQRT »

Koogie wrote:
Lesson: being lucky is as good as being smart. Maybe better.
Usually better but you have to be smart to recognize it as merely good luck.
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Re: 2016 Lessons Learned

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BRIAN5000 wrote:Rebalancing when you have an individual stock portfolio is still a pain in the arse, at least for me ggrrrrrrr. :?
But if you have a stable long-term portfolio its easy isn't it? Just add new cash or dividends to the lowest allocated position and voila! You're rebalancing!
That's what I do....haven't rebalanced like a mutual fund or couch potato in a long time!
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Re: 2016 Lessons Learned

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brad911 wrote:
BRIAN5000 wrote:Rebalancing when you have an individual stock portfolio is still a pain in the arse, at least for me ggrrrrrrr. :?
But if you have a stable long-term portfolio its easy isn't it? Just add new cash or dividends to the lowest allocated position and voila! You're rebalancing!
That's what I do....haven't rebalanced like a mutual fund or couch potato in a long time!
Other way around I have too much equity and need more fixed income, working on a couple of ideas.
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Re: 2016 Lessons Learned

Post by JaydoubleU »

I echo the thoughts of brad. A portfolio of stocks in very solid businesses pretty much runs itself. I add to the ones that are weak, if I think the fundamentals are sound and only market sentiment has shifted. I am learning to take market sentiment with a grain of salt--I watch it with interest but do not let it dictate my investment choices.

The annual year-end market predictions are typical. On the one hand, you get a pile of analysts who say "this time is different," (eg Trump will bring about a huge change in the global economy; inflation is coming; interest rates will soar; time to sell dividend stocks and rush into growth and cyclicals), and on the other hand you get the perennially pessimistic Bill Gross or David Rosenburg; the latter in particular is always calling for a correction and warning the sky is falling. It's not that these guys aren't smart; they are; it's just that, after watching for 20 years, you start to realize that even they can't accurately predict what is going to happen next. If they can't, who can? Certainly not me.

It was a good year. We should exit with around a 25% gain, not including dividends. Big winners in Ag Growth, Calian Group. Big loser in Grenville Strategic Royalty......which makes me remember that another lesson still in the learning stage is to cut the losers a little more quickly, before they do serious damage, especially if it is a risky small cap.
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Re: 2016 Lessons Learned

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I'm not sure it's 2016 or the last few years but I've decided I'm going to quit stock picking and ride the indices. Since 2008, I'm up a lot but it was total luck. I had big gains on big banks, CN and a couple of others that I spent the bulk of my money on. I've had big losses on 'speculative stuff', small cap brewers (who's products I love) and cyclical resourse stuff.

My plans for the future involve tax loss harversting to reduce the CG on winners and putting the resulting funds into indices according to my AA. Stock picking is for someone else.
I don't intend to offend anyone, that part is just a bonus.

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Re: 2016 Lessons Learned

Post by scomac »

BRIAN5000 wrote:
brad911 wrote:
BRIAN5000 wrote:Rebalancing when you have an individual stock portfolio is still a pain in the arse, at least for me ggrrrrrrr. :?
But if you have a stable long-term portfolio its easy isn't it? Just add new cash or dividends to the lowest allocated position and voila! You're rebalancing!
That's what I do....haven't rebalanced like a mutual fund or couch potato in a long time!
Other way around I have too much equity and need more fixed income, working on a couple of ideas.
That's not difficult either. You just sell off bits of several positions, usually the larger ones and/or get rid of redundant or insignificant positions.
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Re: 2016 Lessons Learned

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BRIAN5000 wrote:
Other way around I have too much equity and need more fixed income, working on a couple of ideas.
+1 I can't remember if I wrote it here or a different forum but one of my resolutions for 2017 is to diversify my fixed income.

I have read a tonne about preferreds and individual bonds. Time to spread my wings beyond GICs and TDs. Still a victim of paralysis by analysis.
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Re: 2016 Lessons Learned

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scomac wrote:
BRIAN5000 wrote:That's not difficult either. You just sell off bits of several positions, usually the larger ones and/or get rid of redundant or insignificant positions.
:thumbsup: Indeed. I have a good 10-15% of my portfolio that could be liquidated on a moment's notice. Mostly partial positions or ones I am not in love with.
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Re: 2016 Lessons Learned

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What I learned was that what I'm doing continues to work.

So far looking at +15.7% including dividends which continues to fit nicely into my long-term goals. I enjoyed having cash available for opportunities and doing my due diligence worked out for overweighting some positions where the value was simply too great to not take advantage of.
I stayed out of the highly volatile sectors (materials & energy) for the most part and definitely could have increased my gains by taking some risk.

But with three small men now in the house my time is better served with them (and the Mrs.), gardening and doing some consulting.
Rule of 72 still going strong so no complaints from me about doubling my money every 4-5 years.

As for 2017 (from my upcoming blog post):

".....the focus will continue to be on the US President. What he does, what he doesn’t do and what he forgets to do. What he says, what he denies he said and all the things he thinks he hears people saying. The Poorly Educated will think he’s the greatest and the Greatest will think he’s poorly educated."
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Re: 2016 Lessons Learned

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This is to expand on my first point from earlier, and this is more for the beginner/novice/rookie as I don't believe it's anything new for the older, more experienced members.

I stated it was very hard to know when to sell. The example I should have cited is my huge mental cramp and blunder in selling Hershey on the run-up on the Mondelez buyout rumour. On a cost basis of 92, I ended up liquidating my entire position in Hershey around 96 when rumours first started circulating that Mondelez was mulling a buyout attempt. My intention was to buy it back once the takeover attempt failed and the price came back to earth.

Hershey is a company I have some knowledge on, and I knew that based on their share structure, legislation in Pennsylvania, and the Hershey Trust, a buyout was highly unlikely. Past buyout attempts all failed. Therefore, I had high conviction that this buyout attempt would fail as well.

While that thesis ended up playing out (no buyout), the stock price ran from 92 all the way up to almost 118 at the peak of the buyout attempt - I foolishly thought the speculative price couldn't possibly go higher than the high 90s given the common knowledge of Hershey's structure and difficulty in every past attempt to buyout the firm.

From July to the end of August, the price remained elevated around the 110-117 range. Once Mondelez signaled defeat and withdrew their buyout offer, the shares came back down into the 95 range. I was reluctant to buy it back until it was back down to around the 92 area where my previous cost basis was. It never got back down to the low 90s.

Now it resides at around 103~104.

Hershey was a buy at attractive prices and leave alone position. It wasn't a trade around position. In a series of misteps, I forgot the fact that this was a leave alone position, I tried to be too smart by selling into the rumour (too early), and was reluctant to buyback into the position around 95 because I was anchored to my previous 92 costs basis price.

Hopefully this is a helpful lesson someone can learn vicariously from.

Don't forget why you bought a certain position. Don't try to be too smart. Don't get anchored for no good reason. Don't get caught being penny wise and pound foolish. Buy good assets at attractive prices and leave it alone.

I suppose I'm learning these lessons the hard(er) ways sometimes :lol:
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Re: 2016 Lessons Learned

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AltaRed wrote:
scomac wrote:
BRIAN5000 wrote:That's not difficult either. You just sell off bits of several positions, usually the larger ones and/or get rid of redundant or insignificant positions.
:thumbsup: Indeed. I have a good 10-15% of my portfolio that could be liquidated on a moment's notice. Mostly partial positions or ones I am not in love with.
I really don't understand this, why would I hold a stock I'm not in love with could you name a couple? Any partial positions are just waiting for better pricing to be brought up to target weights. I do have redundant positions just like almost every other Canadian equity mutual fund/ETF. (all 6 big banks all with a min $20g CG each) I guess I could sell half a percent in 5 or 6 stocks and pay the CG. Here's the Canadian side of equity portfolio.
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Re: 2016 Lessons Learned

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Every year I think we all refine our strategy a little bit. But the most significant lessons do not come out of years like 2016 but rather years like 2008.
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