Working the Trading Block Math

Thanks to everyone for saying hello - missed you guys and hope you are all curb stomping the market.

Today I want to simply reboot the general foundation for what I post on the board with a couple of thoughts - more for me to just get back to even keel on what it is I think I know as it pertains to what I do and how I invest. Keeping in mind that the stuff I post is intended to primarily be a historical record and bread path for family and friends who might want to follow. I think of today being sort of like when you have to shock the swimming pool to get it back to normal A few meaningful (to me) points of investing order:

  1. Never…Ever…invest more of your hard earned money than you can afford to lose.

  2. Don’t put all your investment into one basket. For example my family has several profitable businesses (and one that sucks really badly), a fairly broad portfolio of rental
    properties, an Income portfolio that covers our living needs a couple of times over; and finally a Growth portfolio that is the primary focus on this board. I also draw Social Security now days.

  3. Before you invest have a plan - or at least a skeletal outline of what your goals and objectives might be. Do you need/want income? Does Growth investing capture your soul as a risk taker? Along the lines of the famous Mike Tyson Quote, “Everyone has a plan until they get punched in the mouth”, ask yourself this: can you take a punch and how will you handle it because the market will indeed at some point punch you in the mouth. Just the way the moose poops and the markets work.

  4. I maintain a concentrated Growth portfolio ranging anywhere from 7 to 15 stocks at any given time. I select the portfolio by letting a limited number of mostly paid Growth Gurus (as well as some Fool Members ) supply me with names of interest - which I then cull by spending my - as yet unpatented, tried and true, 15 minute Deep Dive Research (DDR) time on companies of interest in order to cull the herd - so to speak. I am pretty sure that that was something of a run-on sentence of sorts. Rusty!

  5. On High Confidence companies I use layering - which I call Trading Blocks, to add points to the bottom line. This is where the math comes in.

  6. Consider a top five group of starters coached by a really talented LTBH coach. He/She is conservative and simply coaches his starters to play within themselves on offense and plays zone on defense. His players each take 10 shots per half, take only two point shots and hit 40% of them scoring 40 pts per half. Not to shabby.

  7. Now consider the same group of Starters coached with a different strategy: This coach wants to run the floor capitalizing on turnovers while pressing on defense. He can take the exact same Starters and produce better results - guaranteed. Here’s how:

Coach Trading Block allows his forwards and center to play exactly the same offense as coach LTBH. Those three Starters each continue to take 10 2pt shots a half and they maintain the exact same 40% accuracy while producing 24 pts per half. However, Coach Trading Block takes his two guards and instructs them to each continue to take 10 shots per half but frees his guards to take 5 3pt shots per half. They each continue the 40% accuracy on the 2’s producing a total of 8 pts per half. On the 3pt shots their accuracy drops to 30% producing points per half.

The the half the score is this:

Coach LTBH 40
Coach TB… 41

Since each half is a exact replica of the first half using the exact same Starters on both teams - Coach Trading Blocks Team wins each match up by 2 pts doesn’t he? Well, not really. Why? Because the other three Starters would also be taking some threes increasing the Trading Block Team’s production even more. And…more to the point, using Trading Blocks has a much higher success rate than a mere 30%. Think high 90% success range if performed correctly with patience.

Easy Peasy - Lemon Squeezy right? Not exactly. Why? Well…because… thats why. Employing this strategy on a portfolio wide basis takes a great deal of work, attention
and willingness to pull the trigger when your high confidence stocks fall - while at the same time not getting greedy when they pop back up. The formula is: High Confidence stock falls 3% or more on no news: Add Trading Block. Stock pops back up in a few days - Sell Trading Block. Repeat as needed.

Let me close by saying that this strategy is not market timing. It’s taking advantage of the normal market ups and downs while simultaneously reaping the growth from High Confidence core position allocations that remain untouched and fully maintained by the Trading Block Bottom Line Augmentation Process (TBBLAP). However, like all things you have to just do it to understand it. For dedicated LTBH folks it might seem a little awkward at first a lot like this:

All the Best.
BDH Investing

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Points 1-3 is among the best statements of investing advice I’ve ever seen on TMF or the web. Thanks for sharing. - Ears (long Champico)

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Thanks Ears - always good to hear from you!

All the Best,
BDH Investing