Advice for a newbie who just bought shares

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24th Aug '15 by v2001

8 comments 8413 reads

At the beginning of this month august I bought the following 3 shares at 5k each, probably at the peak:
Safestore, ranking is 95
Clinigen ranking is 66
Epwin. stock ranking is 99

my intention was to add more shares to this to build up the portfolio but I didn't get around to it, as went away on holiday for a week.

Now all three shares have dropped on average 11% each, causing me a average 33% loss at moment. Should I stick and hold onto these shares during this bad time or sell them and accept my losses?

im looking for advice please as a newbie on the best course of action. should I sit and wait and ride it out, or sell?

im also in a position where i have another 4k to add to the portfoilio with other companies..

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About the Author

V2001

Premium Member

8 comments

Rusty2

24th Aug '15

Your loss is 11% not 33%. Who knows which way the market will go, I would hold for now but watch what is happening. Or you can sell and watch from the sidelines if you are not comfortable.

underscored

24th Aug '15

There are probably better qualified persons on this board to help you out, I have moved over from indexing only in the last year.

What I have learned about myself, is that I need - and have developed - a system/framework. I now have an idea of why I am buying a share, and when I should be selling it/trimming/holding. This is a system I need to have belief so as to stick to it through thick and thin whilst minimizing random portfolio churn (fees).

Without a system or an understanding of what my buy and sell signals are, I am lost and likely to be driven by noise and emotions. Not a very good strategy. See for example https://en.wikipedia.org/wiki/Thinking,_Fast_and_Slow system 1 buying and selling vs system 2.

"My" system is now based upon using the stockranks, so it is not really "my" system. Stockranks as best I understand them are based on the academic literature regarding so called "factors". I have read up on all the factor based arguments as best as I can, there does seem to be some weak evidence (primarily retrospective studies) out there in the literature to support some of the factor zoo; particularly Value, Quality, Momentum and Low Volatility.

I am trying to build up a diverse profile of high stockrank low volatility companies, buying well the value rank is high and selling when it is low. This bias to value has certainly kicked me in the knackers today :D but that was not unexpected... I also expect to under perform the market at times, potentially years, staying the course will be tricky.

Alanjames999

24th Aug '15

Last week, and today in particular were carnage and it is hard to keep a rational mind in such a market. All my stocks have dropped heavily. I did set two stops this morning (retail with some exposure to china) neither were hit and I still have the holdings.

The main point I will make from your portfolio as most people will see, is that you hold too few stocks. Increasing your holdings will spread risk and remove volatility from your portfolio.

Also, diversification in asset classes helps a lot. Benjamin Graham in the Intelligent investor does not stress enough the importance of purchasing a minimum of 25% of bonds into your portfolio. I didn't realise how important this still is until you experience a market like today, as my stocks dived south my bonds did not move. This gives you a nice cushion to keep rational and not sell as the market dives.

So, my main thoughts with your particular situation is to think of ways to remove volatility in your portfolio. The best way to make money is to not lose it even if it means being a bit more defensive.

:)

v2001

24th Aug '15

that's good advice alan james. I was actually looking into bonds before my holiday that's why I didn't add any more shares in. I didn't forsee this crash so thought I have time on my side to build a more diverse portfoilio. I entered into this game at the wrong time, a few months earlier would have been nice for me. oh well it can still be salvaged im sure.

ive also been looking at the stock ranks, is quality and momentum the way to go. value should be above half way but not to high... ?

underscored

24th Aug '15

My strategy is to buy when value with reasonable quality combines with momentum to take the price into mid range or expensive range, then sell as either quality or momentum deteriorates, see Dart as a good example.

For myself I am not convinced that bonds are the right place for me to be, considering my time horizon, risk capacity and risk tolerance. Obviously this all depends on personal circumstances, but considering the nose bleed valuations of bonds, I do wonder how relevant bonds are to a young investor with a starter portfolio they are not intending to draw from other the next 10 years? Maybe something like a Santander 123 account (3% up to 20k) would be better for short term liquidity?

I would be interested to hear wiser and more experienced voices.

v2001

24th Aug '15

yes the only thing that concerns me with bonds at the moment is that interest rate rises are drawing closer which will affect bonds. however strategic bonds do better in general during rate rises, but still not something I think I should indulge in right now so early on, especially seeing that we are in a crash at the moment...

Alanjames999

24th Aug '15

yes the apparent interest rate hike is looming, which has a negative effect on bonds. My point was to diversify in asset class and increase holdings in multiple stocks opposed to 3.

I don't own individual bonds but a bond fund, which has been a nice financial cushion as all my stocks went very south the last week

TangoDoc

25th Aug '15

I hold stocks for the dividend income with little concern for the future resale value. It's bit like buying a house you intend to live in until it no longer suits your need. If house prices rise or fall, it makes no difference; the thing you wanted the house for still exists, whatever anyone else thinks about it. What matters to me is the likely future prospect that the company will make money and consider it has a duty to share it with me. Since nobody can ever see into the future with any accuracy, that assessment depends on past track record and, most importantly, a reasonable dividend cover even in troubled times. I never, never buy shares in a company because I hope someone else will want to buy them at some date in the future for more money. My only concern at this moment, when my portfolio value has gone down and looks to sink further is that I don't have loose money right now to take advantage of some terrific bargains. Three other things occur to me at times like this. Those who sell in a panic now hold cash and will have to find a better home for it sooner or later because interest rates are less than inflation. Secondly, the buyers must think they are getting something they want at a price they accept and lastly, life goes on and a global capitalist system always waxes and wanes like this and changes in price are a reflection of very little volume. If we buy and sell, buy and sell on fluctuations, only brokers profit.

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Advice for a newbie who just bought shares

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V2001

8 comments

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