Post Mortem on stocks.

One of the factors that leads to success in the Saul Method is the ability to move on without significant regrets and not to allow oneself to get price anchored in a stock. I do wonder though how many of you do postmortems 6, 12,18 months after selling out of a stock. Not so much to evaluate the stock price but also how your initial theory for entering the stock played out and how your theory for leaving the stock played out. I would think that would be an equally important learning tool - as important as the tools that got you into that stock.

As I look back at stocks I have left there are stocks that continued to decline for the very reasons I thought they would but unfortunately in 2/3 of cases I would say that those stocks increased and sometimes so dramatically that had I stayed in them I would have had better returns in total. Now granted that is largely within the frame work of the current bull but still I am now trying to do PM’s to evaluate why I left the stock and what actually happened after I left.

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CRAIGDOC66: One of the factors that leads to success in the Saul Method is the ability to move on without significant regrets and not to allow oneself to get price anchored in a stock. I do wonder though how many of you do postmortems 6, 12,18 months after selling out of a stock. Not so much to evaluate the stock price but also how your initial theory for entering the stock played out and how your theory for leaving the stock played out. I would think that would be an equally important learning tool - as important as the tools that got you into that stock.

I take two views on this which are almost contradictory.

On one hand, as Saul has stated, I don’t care about how well stocks perform which I do not own. I only care about my current portfolio.

On the other hand, I also regularly evaluate my past decisions. Which includes looking back at my past sales and evaluating if that sale (total or partial) was a good choice. I have found this an invaluable tool for helping me fine tune my decisions on how to handle stocks I own! I also started to keep a log of stocks I considered purchasing but passed on. Just as with sales, doing a post-mortem on those decisions has helped me learn.

However, I find I must be careful: It is too easy to second guess my past decisions. I need to keep in mind that I made the best choice I could at the time. Studying those past investment decisions is a tool to help myself learn to make better future decisions! (emphasis in how I state it to myself to make my purpose clear to myself)

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However, I find I must be careful: It is too easy to second guess my past decisions. I need to keep in mind that I made the best choice I could at the time. Studying those past investment decisions is a tool to help myself learn to make better future decisions!

Othalan makes some great points here. I agree. I can’t help noticing when a stock I once held (like ARCO) more than doubles, same as when a stock I looked at but failed to buy (ANET or MELI) does the same.

I could also kick myself for trimming SQ last month before it’s fantastic earnings report, or SHOP at around $50 - $60 per share.

In all of these cases, though, I had my reasons. When I look at a situation where I could have done better, I remember a few things:

  1. There were plenty of situations where I sold and the stock has done nothing (except maybe go down further): SKX, INFN, FIT, RUBI, SEDG, EFOI, etc.

The opportunity win here is TREMENDOUS. I could have had big portions of my $$ languishing in these names instead of growing fantastically in SHOP, SQ, HDP, etc. All that money could literally be up 0% or even down, instead of being up 30%, 40%, and in some cases (SHOP) 100%. Huge difference.

  1. It’s all about confidence and conviction. Never run a screen for stocks with the highest returns over the last month or year: you won’t recognize (m)any of them. Because they were the ones with the least certain outcomes. Thinking that these were destined to succeed and that you were foolish to miss out on them is madness, or at least a sadistic kind of survivorship bias. Nothing to learn from that.

  2. Maybe there are some situations I missed out on that I could have identified if a) I had been a better investor at that time, or b) I had looked closer and gotten more info. So what? I don’t have to waste a thought on what happens to stocks I don’t own, as Saul says in his knowledge base. However, if I focus on making sure when I DO have conviction, that I don’t miss…if close to 100% of stocks I own do what I want them to do, that’s what’s going to have the huge impact. This is the sum of what I’ve learned over the last couple years: don’t speculate. Speculating means this to me: Buying something because you think it could be huge…but also, you just don’t know what’s likely to happen. This can be anything from a Chinese company, to a little company with just a few million a year in revenue, to a company that makes a fad product, to a bank or other company with a complicated financial structure, to anything. It’s anything that’s outside an investor’s personal realm of competence. Ignore the ones you aren’t sure about.

Bear

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I think the big issue here is that you can’t own all the stocks in the universe that will be successful, or even 10% of them. There will always be stocks out there going up that you aren’t in. What counts is the ones you ARE in, and how they are doing. Once you sell a stock it’s just another one in that huge pool of stocks that you are not in, and therefore don’t matter.

That’s how I see it, at least.

Saul

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This can be anything from a Chinese company, to a little company with just a few million a year in revenue, to a company that makes a fad product, to a bank or other company with a complicated financial structure, to anything. It’s anything that’s outside an investor’s personal realm of competence. Ignore the ones you aren’t sure about.

If you are not satisfied with your portfolio’s performance than maybe you are ignoring the wrong stocks. Maybe the things that are outside an investor’s personal realm of competence belong IN THAT REALM OF COMPETENCE.

If one rehashes yesterday’s trash over and over again----Unfortunately it will probably remain yesterday’s trash.

The more selling one does, the more opportunity to leave a double or triple or more on the table for someone else.

b&w

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It’s not by design but I tend to leave stocks I sold on my watch lists longer if they were winners for me. The ones that took a bite out of my portfolio I try to forget about right away-kinda like relationships.
I do keep a record of everything and take a look back every now and then-especially the “losers”. I do this because I have a habit of overestimated my abilities in this bull market.
On a side note, I just recently found this board and was very excited to find people with similar investing philosophies and invested/interested in the same stocks. Glad to be here.

Fred

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As Monty Python used to say: “And now for something completely different…”

My investing practices have changed dramatically over the decades. What I’m about to describe is what I do today, as a retired geezer with lots of free time to research stocks and the markets, someone who is withdrawing/distributing from his portfolio. Someone with no new sources of funds…and as someone who laughs at the Wall Street nostrum that “price is truth”.

I maintain a fairly limited portfolio. I don’t switch/replace stocks all that often, but the portfolio does morph over time. What I have been doing nowadays, more than ever, far more than I ever thought I would do is “swing trade” or, as others call it “channel surf”.

I mentioned earlier, in an unrelated post, that share prices of individual stocks vary greatly over the course of any 52-week period. 50% swings are common, 100% to 200% swings aren’t all that rare either. As a consequence, I try to maintain a portfolio consisting of companies that offer good potential growth. I study their financials in depth. Once I’ve found what I consider a decent company, I wait for decent entry points. That’s waaaaay easier said than done. I must assess the general state of the Market, the state of the sector and the state of the specific company. Yeah, I look at charts and trading statistics (RSI and MACD being my stalwarts), I follow Market trends and chatter, I listen to “analysts” (gag reflex often triggered). In short, I try to assess any and all information, then try to make an informed decision. Yeppers, I try to “bottom fish” catching solid companies going through bad spells (as a former corporate executive, I lived through many of those).

Once I establish a position, it’ll either grow in value or fade. If it grows in value, I have to make a decision when to harvest profits. It’s ALWAYS best to sell when one can, rather than to sell when one must. I always keep cash on hand. At present, my cash is 18% of my portfolio. This indicates I’ve serious doubts about the Market. At other times, when conditions are fine, my cash pile may be 5% or less.

When a stock has had a great run (at least a 20% gain), I’ll trim a bit. I rarely exit a position entirely. I sell good companies with the intention of buying back shares at opportune times. I use a laughably simple technique: I have a notebook I’ve kept for a decade. When I sell a stock, I jot down the ticker, the number of shares sold, the share price, the trade total. On the next line below, I write down the profit enjoyed (or the loss mourned). I leave the next line blank. I leave the line blank because I intend to buy back shares at a lower price sometime in the future. Funny thing about that: over the course of time, that empty line usually gets filled. For example: I sell 100 shares of XXXX @$10/share for a total trade of $1000. Let’s say the profit was 20%. The 3rd line remains blank until such time when I repurchase shares. Let’s say, months/years later, I buy back the number of shares I sold at $6. I note the cost. I’ve now completed a single cycle and will celebrate the original profit enjoyed and the shares repurchased at discount. To be sure, there are empty “3rd” lines sprinkled about. There are, indeed, companies long held that never recover. I parted company with CREE after decades. I had made good money for many years, but the company seems to have lost its way. I don’t foresee buying back those sold shares.

Now, here’s the point I wish to emphasize: investor forums are filled with “price is truth” types who cheer wildly when a stock is rocketing higher. Oh, yeah, pom-poms flail madly. Then (for any number of reasons) the stock price begins to fall. In short order a “precious gem” becomes a POS. I witness these reactions daily. Makes me sad. Makes me sad that folks aren’t asking the right questions: Is this a good company providing valuable goods or services? Is the management competent (or even adequate), why the drop in share price? More often than not it’s just a matter of Market sentiment. In this age of algo trading, wherein 80% of trades are by machines, price is just price and truth is something a whole lot different.

And yes, there are times (particularly when dealing with volatile stocks) when I swing trade a particularly volatile stock multiple times over the course of months, compounding gains upon gains. This may come as a surprise to some but I enjoyed a 46% increase in my portfolio by trading a whole lotta shares of…wait for it…ENPH and FCX.

Investing isn’t easy. It’s been a lifetime pursuit for me and I’ve screwed up lots, learned lots and profited much.

May we all live long and prosper!

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putnid: As Monty Python used to say: “And now for something completely different…”

Putnid, thank you very much for the description of how you trade!

I have actually tried quite hard to not swing trade as you describe. I tend to see patterns and the patterns so often look appealing to exactly the philosophy you describe. But being a novice investor I wanted to first focus on finances and understanding how the companies are growing.

Though I’ve noticed Saul’s trading philosophy does have some elements of what you describe as swing trading, the way he has this tendency to reduce his position size (or sell out entirely) as a stock gets to a high point.

One question: What risks do you see in your investment style that might not be apparent to someone more focused on a long-term growth perspective?

Putnid, it occurs to me this is rather far off topic for the board, mind contacting me privately about this so we don't distract from the main purpose of the board?

What I have been doing nowadays, more than ever, far more than I ever thought I would do is “swing trade”…

Yeah, me too. I pick just a few sterling companies that I get a good feel for and then trade just them. Being impatient, I mostly trade options, usually selling puts. It’s about as far away as I can get from the fixed income stuff they recommend for retirees.

I’ve been watching this board and I must admit I just don’t understand how people can feel they have a good understanding of so many companies. My brain can’t handle more than a few.

-IGU-

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My brain can’t handle more than a few.
Nor can mine. But some companies are simple to understand the only question being whether they can keep doing what they are doing but more so, The TAM is so huge it can’t be calculated , the CAP seems significant. Amazon. That’s all you really need to know leaving time for others that require lots of technical reading to understand, maybe long patent searches (Arcam for me) And one glance at the appropriate length chart will tell you the single most important factor, that the stock price is moving up.

And since I am retired if I really get interested in something I am willing to work days on that and little else. The more I know the more money I invest. But as Denny and I have noted there are limits on expertise, you don’t want to get so close you can’t see the forest for the trees.

If the position is small enough I may mostly rely on others that I respect. They aren’t always right but then neither am I.

All told 15 stocks would be my ideal maximum.

Sometimes a very small position based on just one simple idea CMG on the idea that they have finally figured out a way to keep the fresh taste without the salmonella .If they have, customers will come back in droves. If they haven’t, CMG won’t be much lower, people like Mexican food. Even bad Mexican food like most of their competitors sell. And the chart is starting to look good, CMG is moving up. I won’t spend much time following it, it’s a year or more of holding to know
whether I am wrong or right. And it adds a bit of diversity to my very tech heavy portfolio. Normally I would reinforce a Peter Lynch idea like this by eating at several stores, but I am not fond of even good Tex Mex cuisine.

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One question: What risks do you see in your investment style that might not be apparent to someone more focused on a long-term growth perspective? - othalan

Hello David!

I do NOT recommend swing-trading for many/most investors! Particularly novice investors! Seriously. As I stated early in my post, I’m a retired geezer with 4+ decades of investing experience. It took me that long to learn from a whole lotta mistakes…a whole lotta lessons learned. I should also mention that I devote approx. 5-6 hours per day studying stocks and the Market. All the while, Bloomberg news plays in the background. I’m veritably stewed in Market information daily. Even so, swing-trading is a hit-or-miss business. No, that’s not something I’d recommend to anyone with far less time, money or experience.

In fact, I’d strongly advise the average novice investor to focus on index funds in the beginning. Index funds will familiarize the novice with Market vicissitudes. They’ll pay a bit o’ dividends, and they’ll provide opportunities to explore individual risk tolerances. It takes a while to learn how much pain one can take, and how patient one is. I invested in index funds when I started. They kept me from losing too much money (one is assured the Market will eventually recover…individual stocks may not). It’s good to build up a decent-sized portfolio before diving into individual stock picking.

I can’t emphasize enough that losses in the beginning of an investing career really hurt! If you lost 20% or more in early ventures, you’ll have that much less to build upon over time. Investing is a marathon, not a sprint. Start slow and easy. Develop skills and move on. The rewards come decades later.

I encourage everyone to save, invest and plan for the future. I believe investing in stocks can be most beneficial, but I encourage taking a patient, long-term view. I’ve seen waaaaay too many people chase rockets hoping to strike it rich quick. It rarely works that way and they simply quit from discouragement. That would be the biggest mistake.

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