Thanks to today’s rally the portfolio closed January at +10.4%: a very nice start to 2023.
STARTERS remain the same:
BILL
SNOW
DDOG
NET
S
The Bench remains:
MDB
MNDY
Scout Team: GLBE
Special Note: GLBE deserves a larger contract as it has been playing lights out gaining +44.43% YTD. I will probably wait or any relevant pull back and boost GLBE to Bench status. In that same vein it makes me curious If the market is looking for new leaders for the year and perhaps a review of additional candidates might work out.
Note 2: I used 9 TBs in the month with all of them posting short term gains. Trading Blocks are a force/portfolio multiplier with gains been used over and over and over again which in turn produce more and more and more gains.
13 Likes
Hello Champ -
Longtime listener, first time caller here. If you are fielding questions…
I wonder if you would share some personal guidelines you follow on this trading block strategy. Seems like you’re looking for maybe a negative 3 to 4 percent before adding and then a 5-8% gain…is that about right? I don’t have the time during the day to actively monitor so the prior posters limit order idea is what I will try…
I’m trying my hand at TBs on DDOG and TMDX at the moment from their dip last week…One up one down…I don’t know that my TBs were big enough to add a whole lot to the overall portfolio anyway. Both are 5% of the overall.
Anyway, any personal rules you could share or outside resources you’ve used would be great. I’ll hang up and listen.
-Robby
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Hi Robby:
Please understand that I am very, very hesitant to provide anything other than how I approach Trading Blocks and that appears to be the substance of your post. I am an amateur investor at best and rely on a number of subscription services and Motley Fool boards from which I actively steal portfolio ideas from, This is actually the easy part.
The harder part is the development, acceptance and systematic use of the Trading Block strategy. It’s hard because you have to develop your own trading technique which is basically a violation of the old tried and true LTBH mindset. Acceptance can only be achieved alongside evidence and trust that it works - and, its really not all that valuable and or noticeably beneficial compared to the effort it takes at the bottom line when used only occasionally. So theres that to consider.
Personally, how you phrased your question pretty much defines the parameters I use. I do look for larger declines that only begin at the 3% loss level. No real reason why it just seems a good starting point to me. The upside targets are easier and my average gain per TB is much greater than 5%. Why? Largely due to the fact that I primarily target High Confidence stocks for TBs and am not all that compelled to sell if it appears to me that more upside might occur. If it does or doesn’t really doesn’t matter to me as I am comfortable being overweight in High Confidence companies for longer time frames. All that said - please keep in mind that our growth companies all tend to move in tandem with the market tides. So what that means to me is that since I have proven to myself that TBs work - I usually am working 5-7 of them at any given opportunity ACB sort of under the theory that this is a profit deal and a lot of collective gain is better than a little gain.
Now if you want rules try these:
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Don’t go into TB hole hog. Put a toe in the water and prove to yourself that it works - and pretty easily and regularly at that. Then - and only then - you can expand the process for yourself and multiply the gains.
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Use the 5 to 10% rule for topping off high confidence positions with a Trading Block. The higher the confidence and experience with the company moves your TB closer to the 10% max. Why 10% max? Don’t really know - just made those numbers up on the fly but I stick to them.
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At least as your starting point limit your TBs to one per customer. If you are successful and are good at it then perhaps go for a second TB on a company; but only, because it is a major player in your portfolio and it dropped another 3-5% from its first drop. This is risky and every time I do it I tell myself I am playing with fire. Consider that.
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Trading Blocks are never applied if the reason for a company drop relates to news, Never! TBs work best, in my ever humble opinion, when coordinated with the natural ebb and flow of the market. I try to keep in mind that despite set backs and/or Bear periods the market actually has a historical preference for upward movement. That being the case allows me to wait patiently for a companies return to glory and my short term profit.
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Patience is the key. Sometimes a company will Yo-Yo up and down over a day or a couple of days and the short time profit is really easy. Note: I find myself feeling right dang guilty when those daily swings spin off short term profits of 5-10%. (Not really) Other times I have had to wait several weeks to turn a profit but so what. Patience is the key.
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Know that this is not Mechanical Investing even if it sounds like it. Why? Well…primarily because I don’t do this automatically. For example, Never Ever Argue With Your Instincts. Just because a company stock sells off a bit doesn’t mean I put additional money on it like on a roulette table.
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I have been asked what governs how much and how many TBs I maintain. The answer is simple and easy: The amount of cash your portfolio carries governs the process and helps to limit TBs to only your best opportunities.
8). If I have a TB in company A - and it has been slow to respond (See CRWD lately) then I don’t hesitate to close a TB at a loss if I think I have a better TB opportunity in another company. Note: Over the last year I have employed well over 200 - 225 TBs with only a handful being unprofitable - and largely so out of the process I mention above.
Now after all that I would emphasize this: Its not for everyone especially if you think raking in profit on a company TB in only a day or so is somehow linked to Day Trading. It isn’t. What TBs are linked to is maximizing returns of a concentrated High Growth portfolio whenever opportunities present themselves. In fact, to be completely transparent here - I think dealing in TBs is for folks that tend to be able to pay a lot of attention to how their stocks trade and who are willing to hold additional shares of their best high confidence companies longer term if it comes down to it.
Finally, please note that I am an amateur investor, am not capable of making any recommendations in investing (Except maybe in Real Estate), and that any and all
decision you make are your sole responsibility. Keep in mind that The Fool is much smarter than me (and most other investors around these parts not that I think of it) and they - as far as I know - have never dealt in what I call Trading Blocks and that there is probably a good and sufficient reason for that.
Good Luck and All the Best,
6 Likes
Thank you so much for taking the time for that detailed response. I believe I see the benefit of this method and will dip my toe in. Evidently set my DDOG target too low but c’est la vie.
Regards,
1 Like
My plan that I didn’t follow was/is to sell my big position of ENPH when it reaches/nears ATH and the get back in on the downside. It has bounced up and down so many times it’s not funny.
Also, probably going to use % trailing stops more. If I had practiced that I would be only down 5%-10% instead of 60%+ .
Trailing stops are like snowboarding. Everyone has a reason how they hurt themselves and why you shouldn’t snowboard. But the slopes are full of happy snowboarders. There is always someone in the peanut galley piping up about the faults in trailing stops. But my 2 friends that follow Saul still have all their money by using trailing stops. I might have been a little ahead of them when the going was good, but now I’m eating rice and beans(not really).
MoneySlob
10.5% YTD
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“Evidently set my DDOG target too low but c’est la vie.”
Not to nitpick, but I think this might be part of Champ’s point. If I’m reading things right, you didn’t set it too low. It simply didn’t reach the price at which you were willing to add the trading block.
I tend to view this strategy more as taking what the market gives you as opposed to trying to force things around the edges. I hope that’s not too off the mark from how Champ/Slob or others seem to use it.
3 Likes
I try to consider it this way: My team has 5 High Confidence companies on the floor at any given time. A trading block is simply the process of passing the ball (allocation funds) to the player with the most open look at the basket (profit). I realize thats simplification but thats really all I am doing.
The flies - such as they are - in the ointment are only the combination of my judgement and instincts on which player (or players) to pass the ball (funds) to. Other than outright catastrophe time is on my side.
As for the upside - consider that while your core allocations do the heavy lifting - with TBs it is never bad to book profit in any percentage which you then use to your advantage to book more profit with other trading blocks going forward. Consider this analogy:
You are driving in your car (have a Trading Block) and have a potential nice profit already made in it. The car has traveled a great distance but is now low on fuel (how many more miles can it go before you have to stop for gas). Same sort of scenario with a TB: you already have nice profit so do you risk losing the short term gain on a pullback or just stop the car and get some more gas (sell the TB and book the profit). All of which depends on your level of risk.
Never to soon to chunk some cash on your pile and scan/assess the flow of the game (market) for additional opportunities.
Note: Good to see MSlob as I have been wondering lately how he has been doing. He is actually the creator of this strategy - if you want to call it that. Also - it helps facilitate this as an ongoing process if you are bored and have time to do it.
All the Best,
6 Likes