Learning from one's own mistakes ...

[BlackPeter]

They say people learn from mistakes, but I am not sure, whether this is the whole truth. It is not enough to make them (to learn from them), you need as well to recognise them as mistakes to be able to learn from them.

I did some analysis based on my trades ... and thought that the outcome might be as well a worthwhile reminder (or surprise) for others. If you like we could turn this into a thread - feel free to add some more lessons for new investors ...

OK - So I used the seasonal bad weather to go through this a bit more tedious exercise. I took my spreadsheet with all my buys and sales over the last 4 years and added some more columns: "losses incl lost gains" and a number of typical mistakes (buy in downtrend, hold below MA200, sell in uptrend).

I than looked at each of my buys to check whether I bought in an uptrend (and if not, what losses I took) ... and I looked at any sell and checked with the benefit of hindsight whether the sell decision was a good one ... and if not - whether l had at sell time the information to make a better decision. I noted as well how much gains I missed for selling too early (i.e. before the SP fall through the MA200)

Very worthwhile exercise for me ... and probably a good idea to do this for yourself (since you might make different mistakes to me).

Looking at my results in a nutshell:

I learned that I lost over the last 4 years roughly 25% of my annual investment income by buying into downtrends (i.e. SP at buy time below MA200). Ouch.

I was however much more surprised to find out, that the impact of selling investments in my good book too early (i.e. still in an uptrend) had a much larger impact than my wrong buy decisions above. I normally (well, until now) sell if I think an investment is from a fundamental perspective overvalued. Found out that if I would have waited with every sell until the uptrend stopped (i.e. fall back through MA200), I would have augmented my current investment income by more than 50%. Double Ouch.

Obviously - I got it from time to time as well absolutely "right" - selling at the peak or buying at rock bottom is better than the standard investment rules can give you. However - while I am obviously fond off these deals - they didn't made much more money than selling according to the rules would have made.

And just to clarify - if I take my current investment income as 100, than I would have earned instead 175 if I would have avoided the two mistakes above.

Lessons learned:

1) It is a great idea to track all your buys and sells in a spreadsheet, to note for each action the reason (why do you think it is a great idea to sell or buy) and review these decisions with the benefit of hindsight. What can you learn from this review?

2) Never buy into a downtrend (old rule - Thanks KW, but often ignored)

3) Allow gains to run until the uptrend is over (another old rule, more often ignored and, as I found, at least for me much more expensive to ignore than rule 2.

Happy investing - and would be interested to learn what your findings are just in case you do the same exercise ...

And myself - if my plan works I am looking forward to celebrate New Year 2018 with Champagne (instead of Lindauer this year), or at least - to make exciting new mistakes in 2017 ...

[gmatt]

Great post .......... just what novices such as myself need to take note of and learn from ..... thks

[winner69]

They say people learn from mistakes, but I am not sure, whether this is the whole truth. It is not enough to make them (to learn from them), you need as well to recognise them as mistakes to be able to learn from them.

I did some analysis based on my trades ... and thought that the outcome might be as well a worthwhile reminder (or surprise) for others. If you like we could turn this into a thread - feel free to add some more lessons for new investors ...

OK - So I used the seasonal bad weather to go through this a bit more tedious exercise. I took my spreadsheet with all my buys and sales over the last 4 years and added some more columns: "losses incl lost gains" and a number of typical mistakes (buy in downtrend, hold below MA200, sell in uptrend).

I than looked at each of my buys to check whether I bought in an uptrend (and if not, what losses I took) ... and I looked at any sell and checked with the benefit of hindsight whether the sell decision was a good one ... and if not - whether l had at sell time the information to make a better decision. I noted as well how much gains I missed for selling too early (i.e. before the SP fall through the MA200)

Very worthwhile exercise for me ... and probably a good idea to do this for yourself (since you might make different mistakes to me).

Looking at my results in a nutshell:

I learned that I lost over the last 4 years roughly 25% of my annual investment income by buying into downtrends (i.e. SP at buy time below MA200). Ouch.

I was however much more surprised to find out, that the impact of selling investments in my good book too early (i.e. still in an uptrend) had a much larger impact than my wrong buy decisions above. I normally (well, until now) sell if I think an investment is from a fundamental perspective overvalued. Found out that if I would have waited with every sell until the uptrend stopped (i.e. fall back through MA200), I would have augmented my current investment income by more than 50%. Double Ouch.

Obviously - I got it from time to time as well absolutely "right" - selling at the peak or buying at rock bottom is better than the standard investment rules can give you. However - while I am obviously fond off these deals - they didn't made much more money than selling according to the rules would have made.

And just to clarify - if I take my current investment income as 100, than I would have earned instead 175 if I would have avoided the two mistakes above.

Lessons learned:

1) It is a great idea to track all your buys and sells in a spreadsheet, to note for each action the reason (why do you think it is a great idea to sell or buy) and review these decisions with the benefit of hindsight. What can you learn from this review?

2) Never buy into a downtrend (old rule - Thanks KW, but often ignored)

3) Allow gains to run until the uptrend is over (another old rule, more often ignored and, as I found, at least for me much more expensive to ignore than rule 2.

Happy investing - and would be interested to learn what your findings are just in case you do the same exercise ...

And myself - if my plan works I am looking forward to celebrate New Year 2018 with Champagne (instead of Lindauer this year), or at least - to make exciting new mistakes in 2017 ...

Good one BP

Not surprising that letting the winners run until the uptrend is over gives a good result

One question - how did you account for 'free shares'

[BlackPeter]

Good one BP

Not surprising that letting the winners run until the uptrend is over gives a good result

One question - how did you account for 'free shares'

There are no free shares in my book. Every share is accounted at its buy in price and the result (gain or loss) is the sell price minus the average buy in price. If I sell some (and make a gain), than this just means I made some gain, not that the remaining shares got magically cheaper or "free".

[Joshuatree]

Excellent sharing BP; thanks. Some sell on the 100DMA or other M/A /data so keep more gains. Regrets i have a few ;but then again too many to mention:t_up:.Lack of Discipline ,right up there but getting better at not averaging down ,for one.

[Snoopy]

I did some analysis based on my trades ...
<snip>
Happy investing -


I have removed most of the content of your post BP, just to show that you have presented your argument in a way that doesn't differentiate 'trading' (based on share price movements) to 'investing' (based on an analysis of company performance). No doubt your rules are very useful for traders. But you seem to have left investment out of the picture entirely.

Your measuring stick assumes that you could have got in and out of the market at some historic level, based on an historic share price chart. But if you had tried to get in or out, that would have changed the market by changing the historic buy and sell balance. So actually you can't say that you would have done better by buying or selling later, because you are imposing your own theoretical trades on an historic real market that did not include your trades. I am using 'you' here, not in a personal sense, but in an all encompassing way of including all of those traders who should have done what the 'actual you' should have done. IOW while the 'actual you' may not have had enough market buying/selling power to move the market, all the trend followers who should have followed your rules, would have had the power to move the market. These are the people that some market investors would claim causes the market to 'behave irrationally', in both and exuberant and depressive sense. If it is indeed all the trend followers that decide where the market goes, then that means you should not have to consider the investment fundamentals of any share at all. Now that is fine if you are a declared 'pure trader'. But I don't consider that makes you an investor.

The other point you don't mention is how you account for dividends. Historically around 50% of NZX returns have come from dividends. If you don't consider dividends, you are typically leaving 50% of actual returns out of your equation. Generally if you are using a predictive dataset of numbers that leaves out 50% of your base information, then the buy/sell decision making will not go well.....

SNOOPY

[BlackPeter]

I have removed most of the content of your post BP, just to show that you have presented your argument in a way that doesn't differentiate 'trading' (based on share price movements) to 'investing' (based on an analysis of company performance). No doubt your rules are very useful for traders. But you seem to have left investment out of the picture entirely.
SNOOPY

Please accept my apologies that I managed to formulate my post in a way that you managed to miss my main point. I take full responsibility for that and will try to improve in future posts. Your satisfaction and full understanding is very important to me :).

I thought that the main message out of my post is that it is a useful habit to record not just BUY's and (for the evil traders under us) SELL's, but as well to record the reasons for doing so. I noted as well that I found it a useful exercise to revisit these records and assess with the benefit of hindsight whether one's reasons for buying or selling did stand the test of time - and learn from any emerging patterns.

I didn't intend to write a comprehensive guide to investing in one post (and I wouldn't know how to do that, unless you allow a very long post). So - yes, you are right - this is not a comprehensive list .. and I do apologize that I forgot to mention all the FA rules I typically follow. Reason that they didn't feature in my post is that none of them did stand out in my review as major contributors to any losses (or missed gains). Obviously - if you have the discipline to follow them, it is hard to find in a review any problems of not following them?

Maybe I would need to run a second portfolio ignoring my FA rules and than publish any learnings from this portfolio for your benefit?

You might find it interesting, that my reasons for buying are normally of a fundamental nature (like a combination of low / high P/E, growth, leverage, (market-) environmental reasons, management quality (or lack thereof) and many more resulting in my assessment of the stock being over or undervalued). However - I couldn't find a pattern in my trades which would point (in my particular case) to a systematic issue in fundamental analysis. What I did found (but this might be true just for my particular investment pattern) is that more discipline in the observance of some TA rules (I suppose in combination with appropriate fundamental analysis) would have helped me to faster grow my portfolio.

I am a bit disappointed that you try to make a point out of the distinction between trading and investing. Has nothing to do with my post - and is in my view pure semantics without adding value. However - if you insist: Any investment activity requires trading (you can't invest without at least one buy) and any trading activity is an investment (though maybe sometimes a short term investment). The boundaries are flowing ... and yes, there are people with a short time investment horizon (and some like to call them traders) and others with a long term investment horizon (and some like to call them investors), but at the end - nobody can make money if their investment (capital loss plus dividends) is at the end of their preferred investment period below the initial costs. If you desire to engage in the never-ending strive between "traders" and "investors" I propose you use an appropriate thread.



Your measuring stick assumes that you could have got in and out of the market at some historic level, based on an historic share price chart. But if you had tried to get in or out, that would have changed the market by changing the historic buy and sell balance. So actually you can't say that you would have done better by buying or selling later, because you are imposing your own theoretical trades on an historic real market that did not include your trades. I am using 'you' here, not in a personal sense, but in an all encompassing way of including all of those traders who should have done what the 'actual you' should have done. IOW while the 'actual you' may not have had enough market buying/selling power to move the market, all the trend followers who should have followed your rules, would have had the power to move the market. These are the people that some market investors would claim causes the market to 'behave irrationally', in both and exuberant and depressive sense. If it is indeed all the trend followers that decide where the market goes, then that means you should not have to consider the investment fundamentals of any share at all. Now that is fine if you are a declared 'pure trader'. But I don't consider that makes you an investor.
SNOOPY

As indicated - I don't think that the discrimination between trader and investor adds any value (not even from a NZ tax perspective ;)). If you like to call me a trader (according to Snoopy's secret definition) without knowing me, than so be it.

Just to clarify - I never said that you should not consider any fundamentals at all (and I do consider fundamentals, maybe in the past too much). Brings us back to this comprehensive investment guide in one post which I didn't intended to write, but you looked for. So sorry to disappoint you.

You do raise however in this paragraph two interesting (though not material to my message) points:

1) Most reviews (including mine) do not consider the reaction of the market on any changed behaviour. This is correct, and if I would command millions of dollars in the NZ stock market, than this is something I would need to consider (maybe a learning for the 2025 review ;). I give you as well, that even for me this makes a difference for some stocks with low liquidity (i.e.with them it might be impossible to react to short term trend changes without amplifying them). However - for most stocks is this effect for a small retail investor as material as it is for a cyclist to apply Einstein's relativity theory to compute the time to move with her bicycle from A to B.

2) You say that any (TA-based) investment strategy would create market havoc if it is used by everybody (or a large enough number of investors). This is an interesting point, and (perhaps on a different thread, since this thread is about learning from one's own mistakes) worth to discuss. Maybe the answer is that there is no absolute truth in assessing the value and potential of any stock, no matter whether you use TA or FA. If we all (no matter what method we use) would come to the same conclusions, than there would not be a market, given that there would be only 100% buyers or 100% sellers at any point in time. Note - this problem is not specific to investors considering as well TA when making their investment decisions.



The other point you don't mention is how you account for dividends. Historically around 50% of NZX returns have come from dividends. If you don't consider dividends, you are typically leaving 50% of actual returns out of your equation. Generally if you are using a predictive dataset of numbers that leaves out 50% of your base information, then the buy/sell decision making will not go well.....

SNOOPY
Correct - I didn't mention how I account for dividends (and lets just leave it that way for the purpose of this discussion - shall we?). The remaining numbers are however large enough to would have made a very material impact on my portfolio. When I started this exercise I was not after an exact prediction of what I could have made if I would have behaved differently, but I looked, based on my previous behaviour patterns, for some opportunities to work on and improve my investment behaviour.

I think that this is what I got. If you are after more, than - why don't you run this exercise for your portfolio and tell us about your learnings? You are absolutely allowed to include dividends and share your learnings with us :p.

[Vaygor1]

.... if I take my current investment income as 100, than I would have earned instead 175 if I would have avoided the two mistakes above.
....


Nice post BP.

I have 3 initial thoughts.

1) In reality you would not achieve 175, but maybe something like 140 to 150. Warren Buffet once quoted something along the lines of "You can't skin all the meat off the bone, and if you try to, it will hurt you".

2) What you have described reinforces my view that the extra 75 you refer to comes from the pockets of the uneducated. On a fundamentally level you have bought and sold correctly, but by not taking into account the trend you have missed out on cheap shares from the unwitting that sell far too low and missed out on getting the money from (probably the same) individuals/instos the buy far too high.

3) Regarding my earlier history of ignoring downtrends when buying, and with the benefit of hindsight I too could have bought the vast majority of my shares at prices well below what I got them for. But ironically I made truckloads more money by buying in 'too early' as it were. This is because, shortly after what eventually proved to be a very sound purchase, the SP would invariably keep dropping compelling me to buy more... a lot more (and leveraging to do so) than would otherwise have been the case. So in %age terms, yeah less, but in real dollars, for me a lot more.

I guess the above forms one potential philosophy that says:
Make your initial buy (i.e. secure your position) usually with your own money at a price you know on a fundamental level to be awesome, ignore all TA. This means you don't miss out (like I did quite recently with MFT), and occasionally (seldom) you will buy at the very very bottom. Then, in the event the share price keeps dropping as it most often does, and with the strength of your convictions and research on the initial purchase, buy more... up to 10 or 20 times more.. and use TA to do so... the price being such a bargain that it warrants borrowing (leveraging) to do so if your cashflow is short.

Food for thought anyway.

[percy]

I think it is very important to remember the reasons why you brought into a company.If you can't understand the company,don't buy into it.
I try to take a small holding to start with.
If the company's results are as good, or better than I expected, I buy more shares.
If they are not what I expected I sell. Always sell on first bit of bad news.I am gone.!
Let profits run,cut losses.
Always compare results with what a company says they will do.
Be prepared to sell when the PE ratio is over twice the growth rate.

[kiora]

There is a saying
Time in the market
Not timing the market

[BlackPeter]

There is a saying
Time in the market
Not timing the market

Yes, I heard that as well. As any saying - it does contain some truth, but it is wrong if generalized. I am sure, we both can find examples where the saying is applicable (that's what index fonds live of, but don't buy them at the end of a bull ...) as well as examples where it is absolutely wrong. How much time do you need to give if you purchased XRO shares at $40 - or OHE shares at $5.75 (sorry, couldn't resist ...) or WYN shares at any price, unless you carefully timed their exit?

The (quite expensive, may I say) investment manager of my ex-companies superfund tended to love this saying ... but than they managed to grow the growth fund over 18 years at an average interest rate of less than 4% p.a. "Time in the market" does count, but combining it with sensible timing can add in my experience a lot of value.

Personally I prefer sayings which I tested as making sense ... the above is as well one of these mistakes I try to avoid repeating, but great if it works for you.

[BlackPeter]

Nice post BP.

I have 3 initial thoughts.

1) In reality you would not achieve 175, but maybe something like 140 to 150. Warren Buffet once quoted something along the lines of "You can't skin all the meat off the bone, and if you try to, it will hurt you".



cheers for the feedback - and yes, probably correct. I didn't try to exactly predict my income, but just tried to find a way to measure whether the gain would be big enough to justify changing my behaviour ...



2) What you have described reinforces my view that the extra 75 you refer to comes from the pockets of the uneducated. On a fundamentally level you have bought and sold correctly, but by not taking into account the trend you have missed out on cheap shares from the unwitting that sell far too low and missed out on getting the money from (probably the same) individuals/instos the buy far too high.


This is probably a significant part of the story, but I think it is more complicated. It can be absolutely rational (from one's individual perspective with limited information) to sell (too) low. Same applies as well (though probably to a lesser degree) to buying "too high". Problem is obviously that "correct" can only be assessed with the benefit of hindsight and greed and fear applies as usual. I think a lot of these over and under shoots are explainable by herd behaviour (though, you find them everywhere in physics - actually - it is quite hard to avoid them in any process). Another reason might be that maybe my fundamental analysis is often too conservative (and so I sell early) or that I didn't had all facts when buying (and the future delivered reasons for the downtrend to start or continue).




3) Regarding my earlier history of ignoring downtrends when buying, and with the benefit of hindsight I too could have bought the vast majority of my shares at prices well below what I got them for. But ironically I made truckloads more money by buying in 'too early' as it were. This is because, shortly after what eventually proved to be a very sound purchase, the SP would invariably keep dropping compelling me to buy more... a lot more (and leveraging to do so) than would otherwise have been the case. So in %age terms, yeah less, but in real dollars, for me a lot more.

I guess the above forms one potential philosophy that says:
Make your initial buy (i.e. secure your position) usually with your own money at a price you know on a fundamental level to be awesome, ignore all TA. This means you don't miss out (like I did quite recently with MFT), and occasionally (seldom) you will buy at the very very bottom. Then, in the event the share price keeps dropping as it most often does, and with the strength of your convictions and research on the initial purchase, buy more... up to 10 or 20 times more.. and use TA to do so... the price being such a bargain that it warrants borrowing (leveraging) to do so if your cashflow is short.


This is an interesting statement .. and I probably would only recommend this method if you are very certain of the quality of your initial analysis. We are all fallible (well, at least I am ;)). There are probably more people who lost money with averaging down than people who made money, but yes, as usual - it depends.

[Snoopy]

I am a bit disappointed that you try to make a point out of the distinction between trading and investing. Has nothing to do with my post - and is in my view pure semantics without adding value. However - if you insist: Any investment activity requires trading (you can't invest without at least one buy) and any trading activity is an investment (though maybe sometimes a short term investment). The boundaries are flowing ... and yes, there are people with a short time investment horizon (and some like to call them traders) and others with a long term investment horizon (and some like to call them investors), but at the end - nobody can make money if their investment (capital loss plus dividends) is at the end of their preferred investment period below the initial costs. If you desire to engage in the never-ending strive between "traders" and "investors" I propose you use an appropriate thread.

As indicated - I don't think that the discrimination between trader and investor adds any value (not even from a NZ tax perspective ;)). If you like to call me a trader (according to Snoopy's secret definition) without knowing me, than so be it.

Just to clarify - I never said that you should not consider any fundamentals at all (and I do consider fundamentals, maybe in the past too much). Brings us back to this comprehensive investment guide in one post which I didn't intended to write, but you looked for. So sorry to disappoint you.


While I don't want to turn this into a trading vs investing thread, what I believe is the distinction is as follows:

1/ Technical Analysis Trading is using buyer and selling behaviours as reflected in the share price charts , and statistics derived from those to make your buying and selling decisions.
2/ Fundamental investing is using published financial accounts from the company and further statistics derived from those to make your buying and selling decisions.
3/ It is possible to use a combination of 1/and 2/ to make your buy and sell decisions.
4/ Trading tends to be shorter term because share price cycles tend to be shorter and more volatile that business cycles. However, this is not always the case. Some trends can persist for years, as trading guru Phaedrus when he was posting here used to point out.

However, your statement above BP 'the boundaries are flowing', is IMlO so utterly and completely wrong that I must pull you up on it. There is no common ground between fundamental statistics prepared by the company and those statistics generated by share price movement. Decision statistics are classified as 'trading metrics' or 'fundamental metrics' , but never both. To suggest otherwise I see as a gross misunderstanding of the topic.

Short and long term time horizoms have nothing to do with any difference either. Yes it is true that trades tend to be shorter. But if you just know the length of a buy sell transaction, that will not help you determine if you are loking at a 'trade' or a 'fundamental investment'. Time plays no part in these respective definitions.



Just to clarify - I never said that you should not consider any fundamentals at all (and I do consider fundamentals, maybe in the past too much). Brings us back to this comprehensive investment guide in one post which I didn't intended to write, but you looked for. So sorry to disappoint you.


Yes I know that and your fundamental insights I think are invaluable. But you didn't mentiin this in your first post on this thread. So people who did not know you may have considered you a 'raving trader', which I know you are not. I did not want others to misinterperate.

SNOOPY

[winner69]

While I don't want to turn this into a trading vs investing thread, what I believe is the distinction is as follows:

1/ Trading is using buyer and selling behaviours as reflected in the share price charts , and statistics derived from those to make your buying and selling decisions.
2/ Fundamental investing is using published financial accounts from the company and further statistics derived from those to make your buying and selling decisions.
3/ It is possible to use a coombination of 1/and 2/ to make your buy and sell decisions.
4/ Trading tends to be shorter term becasue share price cycles tend to be shorter and more volatile that business cycles. However, this is not always the case. Some trends can persist for years, as trading guru Phaedrus when he was posting here used to point out.

Snoopy - shouldn't 2) include 'analysing' such things as the market the company is in, the resources and capabilities of the company to assess if they create and maintain a competitive advantage, company strategies and business plans, assessment of management capabilities etc etc. (Heaps more things)

[Snoopy]

Snoopy - shouldn't 2) include 'analysing' such things as the market the company is in, the resources and capabilities of the company to assess if they create and maintain a competitive advantage, company strategies and business plans, assessment of management capabilities etc etc. (Heaps more things)

Yes fundamental analysis could include wider market and non financial factors. But you might counter argue that company earnings and ROE as generated by the commpany already reflect this, just as a trader might argue that the share price is a reflection of wider market factors too.

SNOOPY

[BlackPeter]

...

However, your statement above BP 'the boundaries are flowing', is IMlO so utterly and completely wrong that I must pull you up on it. There is no common ground between fundamental statistics prepared by the company and those statistics generated by share price movement. Decision statistics are classified as 'trading metrics' or 'fundamental metrics' , but never both. To suggest otherwise I see as a gross misunderstanding of the topic.

...
SNOOPY

I am confused - maybe we use the same words (trading and investing) but talk about something totally different? You seem to associate trading with (just) TA and investing with (just) FA. I don't.

Trading is the act of buying with the main focus on selling with a capital gain. Investing is buying with the main focus on achieving an investment income (typically dividends and possibly some "final" capital gain). It does not matter for this distinction which tools support you in your buying and selling decision (though some may be more appropriate for one purpose than the other).

I (nearly) always do a fundamental analysis of a stock before I buy in. My learnings seem to indicate that I need to use in future some more TA when I buy in to better conserve my capital.

Similar with exit - I used previously mainly fundamentals to exit (and learned that this frequently leads to an too early exit (and lost potential profits). I intend to put in future more attention to TA before I sell a stock where I decided that it is fundamentally overvalued.

Would you describe above as investing or trading?

As far as your distinction between trading metrics (presumably derived from TA) and fundamental metrics (presumably derived from FA) goes ... I assume you realise that TA is driven by market forces (human psychology - fear and greed) AND by the view of the day on the fundamentals of a company ... so of course is there some correlation between FA and TA ... which does not mean that they are the same thing.

If you consider that as a "gross misunderstanding of the subject", than I assume we are talking about different things - or maybe the misunderstanding is not on my side but somewhere in between ... communication channels can be diabolical ;).

[winner69]

At the end of the day we are all traders - even Snoopy

Most of the time we all are trading stocks (prices) for varying amounts of time - sometimes for a few hours and sometimes for years.

Not many of us are investors per se (not even Snoopy) - when it suits us or our mood changes we sell our 'investments' - thats trading.

Some might even call it punting.

[Joshuatree]

I think you've described yourself to a T w69; worst kept secret around:t_up: .Im having a G&T to celebrate.

[winner69]

I think you've described yourself to a T w69; worst kept secret around:t_up: .Im having a G&T to celebrate.

Thanks JT

The form books are the annual reports / broker raves ......and the ticker gives the odds ........and the NZX is the equivalent to Betfair .......and the stocks are cheered on by the punters

[Beagle]

And every year its one more lap around the track....except for the ones that got caught on the hurdles last year.

BTW Top thread BP :)

[winner69]

And every year its one more lap around the track....except for the ones that got caught on the hurdles last year.

BTW Top thread BP :)

Roger, Do you back the jockey or the horse?

Like Chris or is AIR you fancy

[winner69]

At the races the most money goes on the most talked about (by sharetraders!)

Today on the racetrack that seems to be THL with jockey Rob aboard

A dead cert ........or over the odds .....or maybe under

Whatever plenty of cheerleaders on course to ride THL home

[winner69]

One source says that the NZX turnover rate is about 12 (12 times the market cap is traded each year)

Good for liquidity but sort of says not many 'investors' out there - everybody is trading?

Does anybody here ever work out their portfolio churn?

I'd guess Snoopy's churn is quite low ......but Roger's is quite high .....just a feeling and won't offend anybody else by guessing theirs.

[kiora]

One source says that the NZX turnover rate is about 12 (12 times the market cap is traded each year)

Good for liquidity but sort of says not many 'investors' out there - everybody is trading?

Does anybody here ever work out their portfolio churn?

I'd guess Snoopy's churn is quite low ......but Roger's is quite high .....just a feeling and won't offend anybody else by guessing theirs.

Mine is 10% for last year,which is significantly higher than other years.
Is this what is called a dumb portfolio?
Whats yours?

[Snoopy]

I am confused - maybe we use the same words (trading and investing) but talk about something totally different? You seem to associate trading with (just) TA and investing with (just) FA. I don't.

Trading is the act of buying with the main focus on selling with a capital gain. Investing is buying with the main focus on achieving an investment income (typically dividends and possibly some "final" capital gain). It does not matter for this distinction which tools support you in your buying and selling decision (though some may be more appropriate for one purpose than the other).


BP I think you make a fair point. Yes you certainly can trade without using technical analysis tools, although I would venture to say that the vast majority of traders do use technical analysis tools. Your first post on this thread started talking about technical analysis tools (downtrend, MA200, uptrend), with no mention of anything else. This I think is what set me on the path of assuming that you considered 'trading' and 'trading via technical analysis' the same thing. I accept that I should not have made such an assumption.



I (nearly) always do a fundamental analysis of a stock before I buy in. My learnings seem to indicate that I need to use in future some more TA when I buy in to better conserve my capital.

Similar with exit - I used previously mainly fundamentals to exit (and learned that this frequently leads to an too early exit (and lost potential profits). I intend to put in future more attention to TA before I sell a stock where I decided that it is fundamentally overvalued.

Would you describe above as investing or trading?


Given you use FA as a starting point and do not mention what you expect as a target gain from your 'trade', I would suggest what you do is more investing than trading.

The main point I would make though BP, is to not beat yourself up for not buying at the trough or selling at the peak. These troughs and peaks are based on a different market that exists without your trades, which would not be the same if you actually did trade the trades. Furthermore you assume that you, against all those other TA practitioners will somehow be able to outsmart them by picking a top/bottom that others using the same tools do not. Work out the number of shares traded per year as a percentage of the shares on issue. Then work out the number of shares traded within a lagging touching distance of each peak and trough. I bet you will find the number of traders who got it right for just the buy transaction is tiny. Take that number and calculate the subset of traders who managed to sell out just after the peak and I think the number would be miniscule. Observing a share price graph which ignores liquidity is giving you a false sense of what is realistically possible.

SNOOPY

[Snoopy]

I think that this is what I got. If you are after more, than - why don't you run this exercise for your portfolio and tell us about your learnings? You are absolutely allowed to include dividends and share your learnings with us :p.


Seeing as we are still before the cut of date of the FY2017 NZX stock picking contest, could I suggest that you can use this as a useful tool for measuring how well you are doing. Pick five shares that are representative of your real portfolio and see how you go. You get instant updates as to how your portfolio is doing verses the brokers picks. If you can beat most of the brokers I would say you are doing well. A much more sensible target than something based on an unattainable retro hyper chart based target based on the knowledge of perfect hindsight, impossible peak picking (even TA will only get you in or out after the peak) and perfect market liquidity when you want it.

SNOOPY

[BlackPeter]

The main point I would make though BP, is to not beat yourself up for not buying at the trough or selling at the peak. These troughs and peaks are based on a different market that exists without your trades, which would not be the same if you actually did trade. Furthermore you assume that you, against all those other TA practitioners will somehow be able to outsmart them by picking a top bottom that others using the same tools do not. Work out the number of shares traded per year as a percentage of the shares on issue. Then work out the number of shares traded within a lagging touching distance of each peak and trough. I bet you will find the number of traders who got it right for just the buy transaction is tiny. Take that number and calculate the subset of traders who managed to sell out just after the peak and I think the number would be miniscule. Observing a share price graph which ignores liquidity is giving you a false sense of what is realistically possible.

Good point - and certainly worthwhile to highlight. So, no - I agree - I will never get the whole 75% I missed, but I shall try to reduce this number - and I think this is a worthwhile attempt.

I guess some of my largest forgone gains are shares I sold because they appeared to be fundamentally too dear (like FPH or MFT) and they just kept rising. Just holding on (well not FPH in the recent months) would have made me lots of additional gains ...

Will I be able to measure that? Sure. Will the measure be comparable to my previous numbers? Only if the bull market keeps running. I suppose if we move into a bear (as some people predict for the last handful of years) than things will change anyway (less risk to forgo gains but much higher risk to lose money in a downtrend).

But again - my main point was not that everybody should use more TA ... it was that I found it incredibly eye opening to just look at my pattern of trades and analyse them with the view of what can be improved. If anything, than this is something I would recommend others to do as well - and hey - they might get totally different learnings for their trading patterns (which might be totally appropriate for their situation).

[Raz]

Great thread, until I started this analysis myself two years ago I use to always sell too early on the uptrend..waiting and using TA has helped me to deal with my natural bias..the returns on my portfolio as a result have improved greatly. I do think people need to take a hybrid approach to their portfolio, consider investing or trading are just tools to be considered given the current market at the time for a particular financial instrument.

[Snoopy]

Great thread, until I started this analysis myself two years ago I use to always sell too early on the uptrend..waiting and using TA has helped me to deal with my natural bias..the returns on my portfolio as a result have improved greatly. I do think people need to take a hybrid approach to their portfolio, consider investing or trading are just tools to be considered given the current market at the time for a particular financial instrument.


Or perhaps the fact that you thought you 'sold early' was influenced by the market rising and 'lifting the valuation of all boats'. If you had applied the same TA hopes when the market was falling, you may have found that you would have been 'worse off' as the market confirmed that your calculated 'fair valuation' selling price was in fact 'very fair' while you lost money hoping that Mr Market would give you a better price for no good reason. Dare I suggest that greed is not a good investment strategy?

SNOOPY

[kiora]

Yes, I heard that as well. As any saying - it does contain some truth, but it is wrong if generalized. I am sure, we both can find examples where the saying is applicable (that's what index fonds live of, but don't buy them at the end of a bull ...) as well as examples where it is absolutely wrong. How much time do you need to give if you purchased XRO shares at $40 - or OHE shares at $5.75 (sorry, couldn't resist ...) or WYN shares at any price, unless you carefully timed their exit?

The (quite expensive, may I say) investment manager of my ex-companies superfund tended to love this saying ... but than they managed to grow the growth fund over 18 years at an average interest rate of less than 4% p.a. "Time in the market" does count, but combining it with sensible timing can add in my experience a lot of value.

Personally I prefer sayings which I tested as making sense ... the above is as well one of these mistakes I try to avoid repeating, but great if it works for you.

or OHE shares at $5.75 (sorry, couldn't resist ...)
Works for me buying FPH av $3.75, TIL at $1.35 av, CBL,av $195 sorry couldn't resist. Ok OHE break even roughly,AIA brought IPO after a few ups & downys sold beginning of yr too early.Thats what happens when following brokers recommendations,but hey wanted to pay off RC facility.Difficult to always be right BP