My problem is impatience

Wednesday, Jun 24 2015 by
10

Thorntons is up 42% to 145p today on news that Ferroro bid for the company (Motley Fool: http://is.gd/E6KEty). I had sold out in May (http://is.gd/X8SH92) at 92p. I made a nice profit on the trade, but still, it’s always galling to see that I could have made a lot more.

I had also sold FLYB (Flybe) prematurely, before its big runup.

Too little patience! By nature, I do not have an addictive personality. I consider that I have one of the least addicitive personality of all the people I know. There’s no objective way of measuring that, of course.

However, all this focussing on money and shares has taken its toll. There’s been too much checking, too much andreniline, too many trades.

That’s why, towards the end of last month, I decided that I really needed to step back from the whole process.

I do have share alerts for my portfolio, which would allow me to make appropriate decisions should the need arise. But what I’ve been doing is now try to trade once a month, and stop reading too much. Don’t look at what the Footsie is doing. My new strategy is to perform a comb on Stockopedia for highly ranked shares, and choose something that looks good. Old stuff gets ejected.

I have not been able to stay away from portfolio-checking as much as I would like. I am in the process of improving my portfolio application, so it inevitably means that I need to run programs that display performance and gains/losses.

However, I find that by changing the stimuli, you do affect your behaviour. As the Buddha says insightfully in Majjhima Nikaya 10: “Whatever a monk keeps pursuing with his thinking and pondering, that becomes the inclination of his awareness”. I have noticed that when I stop pursuing investing activities, and go and do something else with my life, the perpetual desire to find out what’s going on does subside.

Anyway, I’m far from proving that I’ve “conquered” my addiction. As ever, we shall see.

It’s interesting, but I’ve spoken to a few lads who work on the oil fields periodically. Alcohol is of course forbidden on oil rigs. They are not averse to a few beers, but they say that when they are on the rigs, they don’t even think about beer. I guess it varies with personality types.


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Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. The author may own shares in any companies discussed, all opinions are his/her own & are general/impersonal. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


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15 Comments on this Article show/hide all

underscored 24th Jun '15 1 of 15
2

This is why you need buying and selling rules, and to know why you hold a particular stock.

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Warranstar 24th Jun '15 2 of 15
1

I have a tendency to overtrade because I feel that a better opportunity has arisen. I find that having a procedure that I must follow before making any sale or any purchase helps me to keep my tendency to overtrade in check. And it also helps me to make better buying & selling decisions. It also reminds me why I bought a particular stock in the first place.

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pka 24th Jun '15 3 of 15
3

Trading too often tends to ruin long-term investment performance because the transaction costs of trading act like a tax on potential profits. If you sell all the shares in your portfolio and replace them with new ones once a month, you will incur monthly transaction costs of at least 1% (made up of 0.5% stamp duty plus bid-offer spreads of 0.2% to 5% depending on the stock, plus whatever stockbroker's commission is when expressed as a percentage of the total transaction cost). Even if you were able to select stocks in a way that would out-perform the FTSE All Share Index by 12% per annum, which would make you comparable to Warren Buffett as a stock-picker, that would represent 1% out-performance of the index per month, which would be destroyed by the transaction costs of turning over your whole portfolio once a month. The odds are that you are no better a stock-picker than the market as a whole, in which case on average over the long-term you would under-perform the index by 12% per year by turning over your whole portfolio once a month. (Actually the under-performance would be significantly worse than that, because of the effects of compounding, but I am trying to keep the analysis easy to understand.)

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mrwhits 25th Jun '15 4 of 15
1

tell me about it.

I closed my short on Slater and Gordon (SGH) Monday morning, for them to then go on to drop 5%, ahh well.......

but then last night they drop a further 17%.......

Kicking myself, briefly......and have moved on.

Regards

mrwhits.

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UK Value Investor 25th Jun '15 5 of 15
1

Hi Mark, I think your portfolio's performance will improve as a result of this decision. I made the switch to a single monthly trade about 5 years ago and haven't looked back. It's frequent enough so that the portfolio doesn't stagnate, but infrequent enough so that trading costs don't eat into the returns too much.

It's also nice when you don't have to check the performance of your stocks every day or even every week. "Stock gazing" is a habit well worth kicking.

Perhaps a little Buddhist meditation might help?

John

Blog: UK Value Investor
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Flackwell 26th Jun '15 6 of 15
1

Not entirely convinced

I adopt a high frequency trading strategy and I simply look for annualised returns - thus if I get say an annualised 20% in a week I may well sell and move on

Transaction costs then become irrelevant imo

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herbie47 27th Jun '15 8 of 15

Not sure of the best method, it seems some of the successful investors (Lord Lee) buy and hold for long term but looking at Stockopedia its seems that buying is more short term, ie when a share drops below say a SR of 90 or 80. Yes if SR drops then sp may fall and level off but if you hold for long term you have no trading costs and also you pick up dividends if there are any. I read some time ago that dividends contribute more than sp gains overall.

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pka 27th Jun '15 9 of 15
1

In reply to post #101873

"I read some time ago that dividends contribute more than sp gains overall."

What you read is not correct - they are both important, but capital growth is more important than reinvested dividends. There is a lengthy debate about this issue on this thread on the Motley Fool website:

http://boards.fool.co.uk/when-is-the-best-time-to-invest-13226887.aspx?sort=whole#13229476

What confuses people is that reinvesting dividends gives spectacularly better total capital gain over the long-term than not reinvesting them, so they incorrectly attribute that to the dividends. What those people overlook is that whenever dividends are reinvested they increase the capital value of the portfolio, so the amount that is subject to future capital growth is thereby increased.

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pka 27th Jun '15 10 of 15
1

In reply to post #101873

"if you hold for long term you have no trading costs and also you pick up dividends if there are any"

If you sold all the shares in your portfolio at the start of each month and reinvested the proceeds in a random selection shares of other companies, on average over the long term you would receive the same amount of dividends as if you had kept your original portfolio unchanged. So it is only the trading costs that matter.

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herbie47 27th Jun '15 11 of 15

In reply to post #101878

It probably depends on what shares you are investing in and the period, if you take the FTSE100 over the last 15 years then dividends are far higher return than capital gains? As capital gains is 0%. with smaller comapnies then yes capital gains are larger. I think the article I read was based on the FTSE100, not sure the time frame.

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herbie47 27th Jun '15 12 of 15

In reply to post #101881

Yes I did think that after I posted.

Should add stamp duty and maybe capital gains tax if applicable. I really think the Govt. should raise the capital gains tax threshold to around £50,000 and be index linked.

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herbie47 28th Jun '15 13 of 15

But then frequent traders like Robbie Burns who buy about 10 shares a month have been very successful also and probably over a shorter time.

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Mark Carter 28th Jun '15 14 of 15
2

Ultimately, of course, there's no one "right" answer. Robbie Burns trades frequently, and gets good results. Lord Lee trades infrequently, and get good results. If they swapped strategies, then they might both get lousy returns.

I've had a look at what I've been doing, and my conclusion is: too much! I wanted to step back a little from the process.

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Mark Carter 28th Jun '15 15 of 15

In reply to post #101762

Thanks John, and good advice.

I'm finding that (so far) I'm able to keep to this kind of trading discipline. Stepping back and being more sanguine about everything helps. I may never be a Robbie Burns, Paul Scott, or whatever, but in the end, does it really matter? I guess the money would be nice, though.

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About Mark Carter

Mark Carter

I am a private investor living in Scotland. I am a computer programmer by trade.

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