This Guest Blog has been kindly sent to me in order for Readers to see what Journal.Investments are providing in terms of a Website through which you can record information about particular Stocks in a structured way with various ways to analyse your performance and it is FREE to use. I first became aware of this perhaps a year ago and I have had various chats with the guys who run it with regards to how it can be shared with the wider community. It is now ready so feel free to take advantage. Having proof-read the text they sent me I have to say that it does sound a very useful tool.
I have no commercial relationship with Journal.Investments. Cheers, WD. PS. You can find a copy of ‘The Art of Execution’ in Wheelie’s Bookshop if you are desperate to spend money.
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I am definitely courting controversy with this one.
We see it all the time – “You can’t time the Market” and “You must stay fully invested” and all this sort of stuff. To an extent I do agree with this but to be honest it is quite a limited extent and I would make the argument that it is far too simplistic and totally ignores stacks of considerations that we need to weigh up in the Real World. No doubt you will have spotted that I bleat on about ‘The Real World’ all the time and it is a big thing with me. I find that so much Financial Writing is academic and theoretical and so obviously not written by people who actually trade and invest in the Markets on a daily basis – if they did, they wouldn’t write this cr*p.
I am approaching an important and significant milestone with my Investing activities where I will need to start taking Cash out of my Main ISA Share Account in order to have dosh for my day to day spending needs. In this blog I intend to go through the implications of this and to look at best ways to manage any Drawdown so I get out the Cash I need to eat but also so that I still achieve decent Investment Returns and manage to compound gains as much as I can but obviously removing Cash reduces this beneficial effect. I am pretty sure that careful management of the Drawdown process should mean the impact on Returns is not too hefty.
I have now been ‘retired’ for pretty much 10 years (by the way, today is my second birthday – 21 years since my Bike Accident !!) and up until now I have had Cash and Investments outside of my ISA Share Accounts which I was merrily spending through but that source is drying up. I still have a big chunk of my overall Wealth in a Prudential With-Profits Bond but I see this as a bit of a ‘rainy day’ kind of thing and in a way it is for ‘emergencies’ such as if we are in a horrible Bear Market when I can’t see obvious ways to get Cash out of my Share Accounts. Fortunately over those 10 years my Main ISA has grown a lot.
I am breaking all the well established ‘Rules’ of Blog scribbling with this one as I am going ahead without a plan and half watching the Lionesses in the Semi-Final against the USA which is very distracting (I am sure if I was watching the Men’s game I would be able to focus almost 100% on the Blog because it would be extremely dull as Men’s Footie often is).
I got the idea for this Blog from a fairly new chap to the Markets who strikes me as very much in the early stages of trying to figure out what the hell is going on (don’t worry, you will always feel like that, even after 20+ years with the Markets forever throwing up new tricks and challenges) and getting drowned in the sheer Wall of Noise that just bombards us. It is by no means a Blog subject I have not written about before and I intend to include Links at the bottom to several related Blogs on the subject which should help understanding (oh boll*x, the US have just scored a second goal……).
In a recent Blog I sort of hinted at the contents of this particular Blog because it is something that has been playing on my mind for many months and I have only just got around to creating a Blog that gets it down in document form. It has been excruciating because my head has been really buzzing with the desire to write this one but I had other ones to finish and on top of that the sun has been out and I have been messing around with the paintwork on my Z3 again – in essence I cocked up the rear wing for a second time and I just have to get it sorted.
The title to this Blog has been pinched partly from the book, ‘The Art of Execution’ by Lee Freeman-Shor (you can find a copy of this in Wheelie’s Bookshop) although I have probably stretched the true meaning a bit to fit my own view of how I want to run my Portfolio in the future.
If you haven’t read Part 1 yet, you can find it underneath this Blog on the ‘Educational Blogs’ page or simply click this link:
http://wheeliedealer.weebly.com/educational-blogs/market-inefficiencies-and-overconfidence-part-1-of-2 This next paragraph from the Article is interesting – it essentially says that all Market Participants can be a bit mad and prone to psychological errors but that these cancel each other out if these traits are common on both the Sell and Buy side of the market. Problems start when everyone starts thinking the same and this makes sense in my experience. For example, when Fear grips the markets and we get a general sell-off, then people are mostly thinking the same and there are lots of people selling and very few buying – it is only once it gets extremely low that the fearful Sellers dry up and the Buyers can then take the upper hand and before long the people who were Sellers now become Buyers and everyone starts thinking alike again and driving the Prices up. Herd mentality and all that. “The presence of overconfidence alone doesn’t create an inefficient market. Indeed, a market with overconfident buyers and sellers on both sides creates a heterogeneous, diverse, and therefore wise crowd. But crowds tend to go mad (and thus inefficient) once investors all start to follow the same rules and think alike.”
I was reading Investors Chronicle from 26th April to 2nd May with ‘Breaking the Mould’ on the cover and on page 32 I came across a very interesting article by Alex Newman entitled ‘Finding the Edge’ and it got me thinking and it also struck me that there were some useful concepts in here for me to look further into and to share with a Blog that Reader’s might appreciate.
If you have access to a copy of the mag or the online version, it is certainly well worth a read although I must say that it is rather too academic and theory based for my tastes – I found myself re-reading several bits a few times before I really figured out what point was being made. It suffers I think from the usual issues of being far too over-complicated and I suspect the Academic Research was done by someone who is more of a Professor and Economist than an actual person who Invests or Trades in Shares (or any Asset for that matter). I see this sort of thing all the time - I find it useful because I can take snippets of what the Academic Research covers and think about it in the context of what I do with Stocks and my experience and understanding of how Markets work in reality - and of course in The Real World things tend to be highly different.
Following on from a different Blog I put out recently that was inspired by some text written by Chris Dillow in Investors Chronicle, again I have been reading one of his Articles and taking inspiration from it. This one appeared in the Magazine from 13th July to 19th July 2018 which had ‘Income Majors’ on the front cover and the Article was entitled ‘In the genes’ and appeared on Page 16. If you are a subscriber to the Magazine then I suggest you go onto the online version and do a search for the article because it is well worth reading. Having said that I have reproduced a few sections of the text here so this will give a good flavour of what is in it.
The starting paragraph is based on some Research that had been done which suggested that Investment Performance was related to our genetic make-up (presumably intelligence levels and Chris mentions the genetic factors that increase our potential Educational Attainment) and that factors such as ACTUAL Educational Attainment, Income Levels and inheritance had less influence. So this suggested that our genes predict how well we save and invest and further on in the article he mentions that such Genetic Factors explain about a third of our Investment Results; and I take from this that at least a part of the other two-thirds is down to how we manage our Portfolios in terms of things like Running Winners, Chopping Losers, Averaging Down at the right time, Avoiding AIM Garbage, TopChopping, Risk Management, Hedging, etc. And of course another chunk of that two-thirds will be down to pure dumb Luck (but if we control as much as possible of the other stuff then the Luck is less of a hindrance and of course sometimes we will get Good Luck which is the sort I like !!).
Earlier this afternoon I was reading a copy of Investors Chronicle from a few Weeks ago (as always I am way out of date on my reading !!) and there was a couple of pages on a Regular Feature that Chris Dillow writes regarding several different Investment Strategies and how they work over time (Editor’s note - this Blog was first written in draft form back in mid 2018).
I reckon I might have done a Blog around this before or at least I have probably referred to what Chris does in this Strategy Piece and I guess that is one of the catches of having written various Blogs for nearly 4 Years now - I totally forget what I have written about and what I haven’t !!
Conclusion
I have found it very useful creating this Blog Series because it puts down in Black & White what the true likely Costs of ‘Moving into Cash’ are and then the exercise of relating this to Portfolio Size has been highly revealing and has essentially indicated that unless your Portfolio is over at least £100k then it really isn’t worth the bother - and arguably when you consider the hassle and timing issues of doing it, the whole thing might not make sense unless your Portfolio is worth over £300K or so - it is obviously for Readers to run the Numbers and see how it would work out for their own Portfolios in the same way that I have done. And of course it is very much a personal preference thing and related to how comfortable you feel about perceived Risk at any point in time. |
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