In the Investors Chronicle dated 17th to 23rd May 2019 with ‘The Activist Effect’ as the main headline on the front cover, on page 32 there is an article called ‘Fund Managers are human after all – that’s the problem’, which makes a very good read although it is perhaps a bit ‘academic’. I guess that is where I come in and if I am doing my ‘job’ correctly then I hope I can convert what seems academic into something that normal people can digest.
It was written by Nilushi Karunaratne and the high level summary would be that Portfolio Managers make good Buying Decisions but make poor Selling Decisions – and the interesting bit is that some of the conclusions are perhaps worth taking onboard ourselves as Private Investors (assuming you are not a Portfolio Manager reading this !!) because, contrary to what many people think, institutional investors are often no better than we are (and many are worse). And the simple fact is that human psychological biases apply whoever you are. Later in my Conclusion bit I will address what we can learn.
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.
PS. You can find a copy of ‘The Art of Execution’ in Wheelie’s Bookshop if you are desperate to spend money.
I strongly recommend that you read Part 1 of these Blogs before attacking this chunk - otherwise it probably won’t make a whole lot of sense and it is really key that you understand what is meant by Upside Breakouts and Consolidations in particular. You can find Part 1 here:
The Stages of the ‘Trading Bases’ Approach
Right, you need to concentrate for this bit. If you are a bit jaded - you know, big night on the Fevertree and Gin last night or ‘too many beers’ (yeah, I know that is impossible but I‘m sure that never stops you trying to find the limit) - then go and get a stiff Black Coffee and take some deep breaths to get mentally and emotionally focused.
I must have had this Blog in mind for the best part of three years and the simple concepts within it I have explained to various people in the Pub many a time since I first figured out what Jason @Stealthsurf was up to. What had stopped me writing it up until now was an inability to figure out how to ‘draw’ it and it was only after mucking around with Microsoft Paint to do those ‘Mechanics of a Trade’ Blogs that I realised I had found a tool to enable me to create what was needed here.
OK, I have to admit that despite my truly remarkable MS Paint talents, some of these pictures can hardly be called a Rembrandt or Van Gogh (and I have both my ears thank you very much !! …….or I did last time I looked in the mirror…..) but hopefully they are clear enough and simple enough to get the key points across and to provide Readers with either an entirely new way to go about doing things or at least to give a lot more appreciation of ‘Break-outs’ and how this could help boost their Trading/Investing Returns.
If you have not had the dubious pleasure of the first 2 bits of this Blog Series, then you should be able to locate them at the following Links:
This final Part of the Blogs is a bit different as it postulates (is that a word?) a technique for analysing a Stock and then has an example to show it in action.
When reading any News item and in particular when looking through Results on Recovery Situations, a great way to understand the true relevance of the information is to separate bits that are Historic from bits that will impact in the Future. To a large extent I do this in my head in the Mornings when working through the RNS Statements and this is easier to do on Stocks which I know extremely well because I have held them a while and the changes in the Business leap out at me. The logic being that bits that are in the past are irrelevant really (ok, they do give some context but 9 times out of 10 they are unlikely to be repeated), and it is things that are likely to impact in the Future that really should be concerning us and getting our attention. I think this is a huge mistake a lot of People make - it is so easy to focus on past problems and totally overlook a significant change that is happening within the Business. I know this because I make this cognitive error all the time myself.
If you have not had the dubious pleasure of reading the first part of this Blog Series, then you should be able to locate it at the following Link:
Debt and Cash are arguably the most important Numbers you can find in the Headlines - and you would be amazed how often the Debt Number is conveniently not included. I have even had Results Statements in recent Days where I have found no mention of the Debt level in the first few bits of the Results Update and I have had to scroll and scroll and scroll right down to the actual ‘Financial Review’ bit to find any mention of Debt - and of course you can be 100% certain that if I have had to do this then the Debt Mountain is chunky and the Debt has probably increased (if the Debt had improved, you can guarantee they would be bragging about it up front !!).
If you follow me on the Tweet Machine you have probably noticed by now that every morning from just after 8am I am looking through the RNS News Feed for the Day (which I usually find on Investegate or if that is playing up I go to the LSE RNS Feed), and first off I am looking for Stocks I hold and any News they have put out.
Before this I usually grab my Mobile Fone where I use the ADVFN App and even bang on 8am there are movements on some of my Stocks and if I know one of them is due to put out a Trading Statement or a Results Statement, then I use the App to have a quick look at the Headlines or perhaps the full Statement if it is just a quick Trading Update. The ADVFN App is superb and an easy way to track your Stocks and you can set up Watchlists and all that for Stocks you don’t hold and of course it works on Tablets and stuff. I also use it to see what the Indexes are doing but unfortunately there is a 15 minute delay on the FREE version but I do find that the Intraday Charts it shows do seem to be pretty near Real-time.
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 !!).
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.
As often happens when I work through these big ‘Blog Series’ things, I tend to bash out a Draft and slowly over time I go over it and over it and refine and tweak and invariably they get longer rather than shorter. I am sure the idea of Proof-Reading and refining is to summarise and condense more but I am clearly pretty hopeless at that !!
I guess my logic is that I tend to need to clarify points so adding yet more text achieves this in the best way. As a result of this tweaking I have decided that it would be more appropriate to split what remains of the Blogs into two so we now have 6 Parts in total - but this one perhaps needs Readers to turn their Brains on and think about what I am scribbling, especially in the first section on Probability stuff, so maybe it is for the best that it is shorter. The Final Part will be in essence a Conclusion but there is actually quite a lot in it.
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