Conviction is dangerous part 2…

Conviction is dangerous. Here we are about year later. I posted this on 6/24/2017, exactly one year ago. My net worth was down about 58% from its August 2015 peak, and my portfolio was down even more because my stock portfolio was not 100% of my net worth. I had recently crawled out of my hole and got back on my investing saddle after an 11-month hiatus. I learned some valuable lessons.

One year ago I wrote the following: The damage to my portfolio was severe, and I expect that I won’t fully recover to my August 2015 peak for another 3-4 years assuming that I continue to have good results going forward.

Just as I was convinced in 2015 that there’s no way that all my stocks could drop, I was equally convinced that it would take me a long, long time to fully recover to my previous portfolio peak. I thought that 3-4 years was an ambitious target. So I began tracking how close I was to that August 2015 peak and I also tracked how close I was to the end of 2014 value because, you see, my portfolio had fallen far below the 12/31/14 value.

I first resumed posting my portfolio on this board on 9/30/2017. Here’s that post:…

And here is that about I need my portfolio to gain to resume those previous values:

39.8% gain needed to reach 12/31/14 value
90.2% gain needed to reach August 2015 value

A 90% was still a looooong way to go and even the 40% to reach the 12/31/2014 value was a good ways off. But things were certainly heading in the right direction.

Well, in May 2018 the net worth of August 2015 was surpassed. It was quite a happy moment and something that I never thought would be achievable after the losses were realized (yes, I sold out of many stocks at the bottom which would make the recovery that much more unlikely and challenging). So here is the result one year later:

As of today:

Portfolio gain since 1/1/2017: 191% and 107% CAGR
Portfolio gain since 6/30/2017: 166% CAGR
Portfolio gain 2018 YTD: 80%

So many of you are wondering how could I have recovered so much. It mostly has to do with picking stocks that went up which I credit to Saul’s method and to the rapid rise of cloud based subscription-based business model companies. Picking the right stocks is the key to investing and to Saul’s method. I’d estimate that the stock picking got me about 2/3s of the way there. The other one third was from using some leverage. Yes, I know, people will say that leverage is bad, that options are bad. I agree that they can devastate a person’s wealth. However, I know it’s not that black and white. Leverage, when used prudently can lead to high results. And not just that, they can lead to higher expected value outcomes. But it is essential that one remains disciplined with respect to risk management. That means setting limits, stress testing, constantly adjusting for new information received, and avoiding all of the human nature/psychological pitfalls that make many people to making poor investment decisions. If you have read the Davis Dynasty book, you’ll remember that that family amassed a $900 million stock portfolio. Part of that massive wealth accumulation was due to limited use of leverage. I’m not advocating using leverage or options and I really don’t want this post to spark a long off-topic chain of follow-on posts. I’m merely describing that it’s not a black and white thing.

Another thing that’s a valuable lesson is that one must keep learning, keep taking in new information and adjusting to that information, avoid getting locked into a belief or conviction in the face of new information, and keep trying never giving up.



Insane gains! Well done! Can you share what you have in your portfolio and how long?

Maybe do monthly reviews?


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The question is:

Are you ready for the next market draw down/correction and what are you going to do differently to avoid being in the same predicament?


GauchoChris does a fairly comprehensive portfolio review each month. Go search in the first week of the month and you will probably find it for the previous month.

Also reccomended are Bear’s reviews which you will also find.

Finally, check out the additional information link to the right of this post and you will find ALL of Saul’s.

All worth the time.

Take care,