OT: how to be successful in a bull & bear market

Stocks A to Z
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Hi Jim and other board members,

Thanks for so kindly sharing your wisdom. The truth is, if I had found this board a few years ago, I would be standing here a very happy person…Alas, I only found this board recently, and in many ways, it looks like my situation is hopeless. However, this is not a doom and gloom post. Rather, I am trying to learn and overcome the obstacles…in particular, I want to know what are the best resources/ courses out there which can help me become a solid, successful long term investor.

I am basically a very conservative person, molded in the frame of the "poor dad’ type personality…and always felt a penny saved is penny earned…It generally has saved me well, and I never allowed myself to be in a position where I tried to go after something which is too good to be true, and hence never was in a situation where I actually saw real time huge profits or loss of money…So, for almost a decade or so, I never invested in stocks, and just saved my money in bank. Although it is probably as big a mistake as the one I committed last year, I definitely allowed me to sleep well, and get on with my life.

Last year, after a very long period of time, I finally got into investing in individual stocks. While I initially thought my timing was horrible…it wasn’t. My biggest mistake, and guilt, is for putting so much in what I now perceive to be the worst of the stock advisor companies. For someone who was so conservative, I am still struggling to understand and rationalize how I ever allowed myself to get into this fix. I know why this happened – it certainly was not what anyone might think. I didn’t get into them thinking they will go to moon. On the contrary, I only put a small amount those companies but when they started going down by 5 to 10%, I panicked, and started putting huge amounts with the hope of dollar cost averaging and coming out the moment they hit even. That turned out to be huge mistake! I thought a 5 to 10% fall was dramatic loss, but now these are all 75 to 93% down from where I bought them!

One good thing is I now know all my mistakes. I am also sure that the market overall tends to be profitable over a long duration of time. After doing some soul searching, I sold many stocks at a huge loss (those stocks that I felt may never ever go back to even 50% of where they were a year ago; companies that had probably gone up only because of tulip phenomenon) , and bought some blue chip companies like Berkshire, Apple, Netflix, Google etc ( they are all down as I bought them a few moenths back, but not worried about them) …So, I am not looking to sell everything, and move out of stock market forever. Rather, I want to own up my mistakes, learn and become successful.

Having thought about all this, I still feel stock investing is still the best way to make money… I think there is money to be made if one can learn investing properly…I have heard of the phrase “Bulls make money, bears make money, pigs get slaughtered”.

Currently, I have allowed myself unwittingly to be in the “pigs” group…I feel there are folks who made money when the market was raging in 2020, and are also making a killing in the current market…So, how were they able to do it? and what do I need to do in order to be able to get to that level.

I know I can work very hard and am very wiling to learn. My only issue is I don’t where to start …and what are the best resources that will help me to become a very successful investor. I felt this was the most apt board to ask… Are there any courses or learning resources that you feel would be most beneficial in this regard? Would learning and becoming a CFA help?

Thanks a lot,
Charlie

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Currently, I have allowed myself unwittingly to be in the “pigs” group…I feel there are folks who made money when the market was raging in 2020, and are also making a killing in the current market…So, how were they able to do it? and what do I need to do in order to be able to get to that level.

I know I can work very hard and am very wiling to learn. My only issue is I don’t where to start …and what are the best resources that will help me to become a very successful investor. I felt this was the most apt board to ask… Are there any courses or learning resources that you feel would be most beneficial in this regard? Would learning and becoming a CFA help?

First of all, why you think you have to be a master of Investing. There are folks who are doing it for decades, who learn about various types of instruments, analysis (cash flow to what else and what not) and still not able to reproduce even market performance.

Most wealth in this world is build outside of the stock market. So first and foremost be very good at what you are doing is far more rewarding financially, and at personal level. When a stock you buy goes up, it is a very individual feeling, you can sell and take the profit and do something good, but still you hardly touch anyone else. However, in a day job when someone does good, it touches far more people, you have produced something tangible, provided a service to someone, impacted a team, etc.

So why you want to do it? Is it for money, you think you really like it or enjoy it? you are bored? you have a gambling instinct? you need action?

What is it driving you to invest, learn and become better at it?

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Thanks Kingran. That is a fair question…the honest answer is this.

I started off with an initial portfolio of 1.2 million and have lost 75% of my portfolio…

I don’t enjoy investing, I am neither bored nor have a gambling instinct…There is really only one reason I want to do this is, I want to make up to my family - I simply want to recover my loss, not a penny more (in fact, if I can even come out with a 20% loss, I will be fine!).

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<I simply want to recover my loss, not a penny more (in fact, if I can even come out with a 20% loss, I will be fine!).>

Many investors had experience of climbing out a hole. It’s only a question of time frame. Good luck.

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It’s possible Berkshire could get you from $300k back up to 1 million in about 10 years, without a big risk of more losses.

Good luck to you. Sorry to hear about your struggles.

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Someone asked a different question on new year’s day on another board, but similar enough that the responses might have some interest.

Their post started:
I am quite new in the field and I need advice. I would appreciate your input on investing my savings of 5000 Canadian $ in Canadian stock exchange.
What is the best way to do it?..

Though it might or might not have merit, this was my response:
https://discussion.fool.com/the-first-advice-would-be-to-learn-m…

"The first advice would be to learn more about investing before pulling the trigger : )
There’s no hurry.
Market valuations are pretty high right now, so the extra waiting (and saving) time probably won’t hurt.
Some day things will be cheaper. The returns from now to then will not be great.

If your amount is that size, I’ll hazard a guess that you’re early in your investing career.
You’re probably more interested in getting rich than staying rich.
At a top level, there are only a few ways to get rich in investing.
Here are four general categories…

…

But back to my first comment—it’s best to learn more before pulling the trigger.
The quickest course in investing is also free–
Read all the annual Chairman’s Letters by Warren Buffet at BerkshireHathaway.com, ideally in order.
Spread them over a couple of weekends.
Investing the way they do won’t work as a general rule, but you’ll still learn a LOT about investing.

The analogy is the guy who wants to spend $5000 to make his car go faster and handle better.
The smart mechanic will often advise “take a driving course”.
The bonus is that it works for this car, and every other car you’ll ever own."

Jim

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I started off with an initial portfolio of 1.2 million and have lost 75% of my portfolio…

I am sorry for your pain. That’s a very difficult situation, and it can eat at you more than most people realize. They’re not just numbers.

My main question would be curiosity is which of these two camps you fall into–

  • You’ve lost a lot of money, and realize it’s gone, and realize that one can only expect a sane return from here.
    At a sane rate of return, it would take many years, 10-20, to get back to your original balance after inflation.
    That’s the prudent avenue.

  • You’ve lost a lot of money, and you REALLY would like to make it all back some time soonish.
    That would require some aggressive moves, but there’s aggressive [insane] and there’s aggressive [somewhat defensible].
    Heck, there’s even a book called The Aggressive Conservative Investor.
    (hint: everything in there is a lot of work)
    There are some strategies that fall into the category of “heads I win big, tails I don’t lose much”.
    A nice little precis of one view on that, though ignore the parts about bonds.
    https://www.investopedia.com/articles/investing/013114/barbe…

Let us know which camp you lean towards.

Jim

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I started off with an initial portfolio of 1.2 million and have lost 75% of my portfolio. I want to make up to my family

I am truly sorry, not just about the money but the anguish one has to go through, often in silence and alone. I pray god gives you mental strength and some luck. Now, here is a table, for you to consider. Doing 15% a year over a decade is not easy, you need a bull market, and some serious luck, not to make mistakes, and this doesn’t account for taxes.


	120	75%
0	30.0	15%
1	34.5	
2	39.7	
3	45.6	
4	52.5	
5	60.3	
6	69.4	
7	79.8	
8	91.8	
9	105.5	
10	121.4

So, having lost some serious money, you will be scarred, your ability to withstand further losses are difficult to gauge, so you need to determine whether aggressive investment is for you or go with some solid companies, that can churn out solid performance for the next decade. This includes whether you are still working, your ability to add to the pot etc.

Knowing yourself is important to develop a strategy. Knowing various valuation techniques, about different investment styles (growth, value, etc), all are good, but most importantly you need to know yourself and you need to learn about risk control.

Sometimes a bit of luck, market euphoria helps. Buying SaaS companies about 2 or 3 years ago, would have turned your investment into 4x in hurry. That may still be possible. Investing in young growing companies, often produce outsized gains, multi-baggers. But for every one company that turns out a great success, you have many that failed. The chances of buying Apple and making 4x in hurry are limited.

What would you like, a decade long journey or try to hit few multi-baggers? or some aggressive trading?

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Inspired2learn I did quickly check to see if you were posting on Saul’s and of course you have been. I’m overwhelmed with the losses you’ve suffered and just wildly guess (actually not so wild) that Upstart was a stock you had and maybe added to.

Everybody seeks alpha and here on the Berk board you’ll get pretty much nothing but the same. Over on Saul’s of course the board founder claims incredible superiority while unfortunately he’s not been able to slide that success over to his deciples.

Here on the Berk board you’ll get some very decent advise and suggestions. The problem is these offerings of help will be pretty sophisticated which in itself will very likely overwhelm an rational model you can form to advance your cause.

Long ago I decided I was average so I just bought basically everything in sight using a value based approach. Yes, I have an accounting college degree, a masters in business, and I did research on a professional level. I index without the index fund, and of course hold the things I inherited or created.

My model works; I am average; my model is above average compared to most investors. My wife and I together own over 300 stocks, and we have volunteered to sell less than 10 stocks in our entire lifetime.

Life is great if you can stand it.

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Thanks everyone for the overwhelming support and kind words. It means a lot to me…

Jim, you had asked me which camp I lean towards…Prior to 2021, my answer to that would have been absolutely “option 1”…the more prudent one.

However, now, after this mountain of losses, I feel that I might need to be adapt and choose a hybrid option.

I think I would put 3/4 into the option 1, and allot 1/4th into option 2.

While the 3/4th portion of the portfolio would hopefully provide a solid foundation for my children after 20 years, I am praying that the 1/4th helps me to a faster recovery, and just about help me to gain back my self belief, and feel that I have done everything I can to make amends for my mistakes.

Once again, heartfelt thanks to everyone.

Charlie

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Charlie, here is some food for thought.

  • I aim for a return that is 80% - 120% of the market (SPY). Meaning that if the market returned 10% in a given period, I would be happy with anything between 8% and 12%. This goal keeps me from reaching too far and keeps speculation in check.

  • My rough portfolio to support the above is as follows.


Base: (typically 60% of my portfolio
-----
Index Funds : 40% (see below)
BRK         : 25% (up from historical 15%)

Value: (typically 30% of my portfolio)
------
MSFT        : 15% 
GOOG        : 10% (recently doubled my position)
AAPL        :  5% (see below)
BAM         :  2% (down from 5%)

Speculation: (typically under 10% of my portfolio)
-----------
DIS         :  2%
AMZN        :  2%
ATVI        :  2%

(rough numbers - doesn’t add up to 100% exactly)

Index Funds are split between SPY, RSP, QQQE, GLOBAL and TSX

My percentages are off a bit now, in the past I have had speculative positions in DLTR, BABA, DG, COST amongst others. Each of these did very well for me - and I have the board (Jim) to thank for most of these ideas. I would never have more than 10% of my portfolio in speculative positions. A couple of years ago there were posters on the board ridiculing many of us for not investing in “obvious 10 baggers” - its important to be disciplined and not chase. I don’t need these positions to be 10 baggers for me to meet my investment goal - and if I put more in these investments it would put my floor at risk as well.

Value - these are much harder to find and you need to be VERY patient. Keep your money in the index fund until you find a very good deal. As an example, my cost basis on MSFT is $35 / share. Apple is $23 / share. My goal is to never sell these - however I have violated that rule a couple of times (and regretted it each time). I thought COST was going to be in that bucket (my cost basis was under $325, but I couldn’t resist selling it when it got above $550 recently. Time will tell if I regret that or not). Right now I would put GOOG as a decent entry point for VALUE. Its important to understand the business and have a thesis that looks reasonable. For example with GOOG, there is a reasonable thesis that it will trade above $3500 per share in a few years. Know how to construct that and have confidence it in. Most of these won’t be 10 baggers quickly, but over a longer period they should do well. These should be predictable business’ with a track record. You will often find that when they are cheap its because they are out of favor. Follow along on the Falling Knives board for some ideas (INTC has been mentioned recently - which I think is a decent idea).

I don’t know how old you are (or rather what your timeframe is - clearly that will have a big impact - but I wouldn’t focus too much on how much was lost, but rather what your current capital base is). I am nearing the end of my accumulation phase (in fact I have taken the foot off the savings gas the past 12 months) so for me its more about “staying rich” than “getting rich”, but I have used the above strategy for the past 10 years or so. The results have been good.

Here are my most recent returns (as of May 31)

 
        5Y        3Y       1Y
tecmo : 17.68%    20.82%   3.42%
SP500 : 13.38%    16.44%  -0.30%

Best of luck!

tecmo
…

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Some other ideas for my “Value” bucket

FB (yuck!, but it is cheap)
NLFX(I decided on DIS instead, but this looks good)

If AAPL got under $100 per share I would put in the ‘recommended’ list as well. Same for MSFT under $200

tecmo
…

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Thanks a lot Tecmo! This is very helpful. It is wonderful to see this portfolio…and the fact that you have a cost basis of MSFT at $35 per share and AAPL at $23 per share tells me how you have crafted your portfolio, by choosing some of the best very early on and managed to hold on these amazing winners…And equally important, you never let the greed overtake your good sense, and have majority of your money in the index funds and BRK…

And yes, I am constantly on this board trying the learn from the wisdom of Jim and all the posters. Thanks for telling me about the Falling knives board and I will be sure to look into that as well. Hopefully lady luck will smile on me soon.

Once again, thanks so much!
Charlie

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I think it’s potentially very dangerous to advise somebody who just lost 75% of his wealth (with SaaS, as Chompin found).

Especially to tell him it’s not impossible SaaS might become a multi-bagger again or that more general investing in young growing companies often results in those.

Or to point him to the falling knifes board and the results with DLTR, DG etc. Or to tell him GOOG should become…

Etc. etc.

This is no criticism on the facts King, Tecmo or others present. Of course factually they are totally right, and I understand they are saying that mainly in response to the poster’s option 2:

I think I would put 3/4 into the option 1, and allot 1/4th into option 2.

I mean it simply psychologically, trying to put myself in his shoes. Even if saying nicely and apparently absolutely reasonable this:

While the 3/4th portion of the portfolio would hopefully provide a solid foundation for my children after 20 years, I am praying that the 1/4th helps me to a faster recovery, and just about help me to gain back my self belief

there will be the tendency to violate those good intentions to recover faster from such a Desaster — especially when that nice sounding strategy seems to fail for a longer time, to use force and to “double down”, with the 1/4th becoming more and more etc. Good intentions are one thing but…

I might be wrong as my English is not native and not that great, but the 2nd part of “to gain back my self belief” seems to be linked to the speculative 1/4th. If this interpretation is correct and having success with that part mentally is required, it’s evidence for “fatal attraction”, a recipe for doom.

Giving financial advice comes with a huge responsibility and one should be extremely careful (see Jim’s post) and also sceptical towards nice words and intentions. It’s human to have illusions about one’s own nature and about what one will do in this or that case.

Sorry if this sounds harsh.

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This is my personal experiences. I encountered three times when my total brokerage accounts value dropped more than 50% from recent peak. The first is around 2000-2002 before I followed value investing approach, I took the loss and sold everything, including Apple, which alone would have nearly doubled my current asset if it had been hold. The second is 2008-2009 after I had learnt everything about Warren Buffett and value investing for about 5 years. I hold on to everything and it turned out good. During this period and up to 2015, my performance outperformed index by about 2% a year. The third time is 2020, I again hold on to major holdings, sold some and bought some with margin debt, again it turned out good and I have sold significant amount to have 20% cash. In the past 15 years, my performance probably matches the index.

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I think it’s potentially very dangerous to advise somebody who just lost 75% of his wealth (with SaaS, as Chompin found).
Especially to tell him it’s not impossible SaaS might become a multi-bagger again or that more general investing in young growing companies often results in those.
Or to point him to the falling knifes board and the results with DLTR, DG etc. Or to tell him GOOG should become…

A good observation.
I think they key here is that what is likely of most use to the poster is not some stock tips and tickers, no matter how good they are.
What is more needed is a general approach to investing which suits the writer’s situation.

Not that I have one to propose.
A good answer to that question would require some more inputs, not suited to a public board.
How many years more of saving does the person reasonably expect, and how many years of retirement?
What other assets are there? How is the balance between expenditure and income going?
How much time might be available, and suitable, to devote to learning and practising prudent investing?

Absent that, all one can spout is homilies, which would be of limited use.
The homilies you get depend primarily on who you ask, not what you ask.
I’d probably spout things like this:
No bonds, or bond-like things. Don’t reach for yield.
No cash “substitutes”. Don’t reach for yield.
Don’t own things you yourself believe are overvalued.
The same old blather that I ramble on about.

So much for the good advice. What about bad advice? That’s more fun.

Is there a prudent way to be speculative and greedy? Maybe.
I don’t have any problem with wildly speculative positions, but they should in aggregate be a position size commensurate with their likelihood of going poof.
For some people, a “barbell” strategy works well.
The absolute extreme of a “barbell” strategy would be something like 99% T-bills and 1% lottery tickets.
Preferably lottery tickets with a positive central expected return! (upside return times upside probability > downside loss times downside probability)
Certain call options might fall into that category.

There’s a nice fellow on the Mechanical Investing board who runs a separated portfolio like that, and has run essentially the same method for over 22 years.
(he did go to all cash for a short while, I believe, and later on added a basic market timing signal for when to be more conservative)
He aims for 2/3 cash and 1/3 out-of-the-money call options against stocks picked mechanically.
Each month he invests 1/9 the portfolio value in positions to be held for 3 months.
Frequently the call options expire worthless, causing huge drawdowns, which is what the cash is for.
But even with most of the allocation to cash, the portfolio has had a CAGR of 16.7% since inception.
The average return on a single option position held for 3 months has been about 20% in three months, non annualized, across about 900 positions.
That sounds great, but an average hides wild variability. A few dozen positions were -100%, and they weren’t randomly distributed through time.
But…16.7% for over 22 years is pretty good. Especially as it started in November 1999.
That’s about 10%/year better than the S&P, enough to put him in the superinvestor category;
that portfolio has about 8 times the balance that it would have had invested in SPY.
Again: an average can hide wild variability. It was NOT an easy ride.
The reason I mention this approach is the potential utility of a barbell approach.
Sometimes a mix of a lot of super-conservatism (cash) and a little bit of craziness is more useful, overall, than 100% conventionality.

Jim

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Hi Said2,

No, not harsh at all…I know you mean well.

I lost 75% only because of my folly. Like I said, I was Naive…I placed my full trust in Stock advisor and those were the only companies I bought. Companies like Zoom, Fiverr, Lemonade, novocure, Etsy, and so many others that were recommended by Motley fool were the ones that had contributed to my downfall. Upstart was indeed one of the biggest folly of all, but Tom Gardner absolutely was convinced when he pounded the table on it, and said 380 was just a beginning. Yes, Saul’s boards were also euphoric about it, and I think another investment letter by Bert hochfield also said the same…So, I thought with UPSt I had 3 separate groups being extremely bullish…Alas, turned out to be wrong.

However, I do realize now that the macro trend is a key player and only solid appropriately valued companies with good cash flow will do well in this environment.
So, in that sense, I hope companies like Berkshire, Google, apple, Or Dollar tree, will do reasonably well… Most importantly, the one thing I secretly desire is, not having to panic if stock prices go down… And in these companies, I feel I am getting that confidence.

I am not going to say anything wrong about the stock advisor or other boards, as I alone am responsible for my actions. Let’s just say that I am not able to stomach companies, not just one, but more than a group of 30 stocks, all falling in excess of 75%. However, I feel with Jim and others, I don’t see anything that falls in that category. And even more importantly, if, god forbid, it falls down significantly, I have a feeling that everyone in this group will be buying such drops rather than selling…And That confidence is what I am seeking…
I think that is the philosophy that is being taught here.

Oh, with the 1/4th option, I don’t think Jim and the others are going to suggest throwing them in “hopefully to moon” options…I sense those are reasonably calculated sensible aggressive strategies,… The one thing I have in my side is time…I have no need for the money as my wants are extremely limited…I just want to be able to provide a good nest for my children in 20 years time…

Thanks again,
Charlie

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Thanks so much bigshan for sharing your experiences. This is very helpful…as it tells me, that as along as one invests in reasonably good companies, and have a long time horizon, they can expect to do well.

I have a long time horizon (no need to sell or immediate use of money)…and so I just need to ensure that I become a better investor.

Thanks again,
Charlie

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This is no criticism on the facts King

I have not provided any specific stock advice. Rather, talked about understanding oneself, risk mitigation, etc.

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Thanks again Jim! I completely agree with everything you have said.

You had mentioned “What is more needed is a general approach to investing which suits the writer’s situation…A good answer to that question would require some more inputs, not suited to a public board.”

I respect that and will send a separate response…but broadly, I hope to work for at least another 20 years.

I live very frugally…Like I said before, I (and my wonderful better half) truly have very limited wants and save mostly for the kids futures…which is why my current situation stings a lot…

But I am fortunate to have a very supportive family!

My good wife is always an optimist…and apart from comforting me, goodness me, she is even able to say “Well, look at the bright side…what if you never invested for another 20 years and simply kept it in the bank, and then invested like this, and lost so much…“That” would have been a disaster”

So, my desire now, is simply to accept my mistakes, learn the various ways of investing, and become more successful.

Thanks again,
Charlie

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