Burned by my emotions again . . .
Once again my "gut" has betrayed me. I stopped out of CPA yesterday thinking that the market was starting to weaken. Why did I think it was weakening you innocently ask? Because everybody said it was, and I listened to them. Time and time again, I listen to the "chatter" and diverge from my trading plan. Has it ever worked better for me to trade that way, you ask? Um, no. Why do I still do it? You might think I do it because I'm an idiot. You are right.
I went to a free financial seminar a couple of weekends ago expecting a sales pitch and tidbits of worthless information. I came away from it with some new perspectives that challenged my thinking.
One of the concepts was about how the fear of losing financially hinders winning financially. You can see that played out in my daily experience. All of my mistakes have been driven by fear. There's always that lurking pit in my gut that today could be the day that the market drops 10% and I need to be out before it does. I think by always trying to position myself to miss the big loss I have kept myself from making more than enough gains to offset the difference.
Here's what I mean. Since January, I've been combining the results of two stock screens to choose my portfolio of stocks. One of those screens has made 42% YTD and the other has made 23% YTD. Averaged together that makes 32.5% (not taking commissions or spreads into account). Last Friday my portfolio was at about 27%--a 5.5% difference in 4.5 months. So, essentially, I've lost 5.5% in 4 months because I'm scared of losing--which is what I've done. If I keep on like this my screens will beat me by over 16% by the end of the year. That's a pretty high price to pay for letting my fear control my decision making.
I think once I am able to completely control my fear, I'll be able to make some really decent returns. The opportunities are out there, and I hope to be able to communicate to everyone out there that fear keeps us from succeeding in anything.
If you are interested in listening to the guys from the seminar you can stream their local radio show here.
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4 comments:
"I think by always trying to position myself to miss the big loss I have kept myself from making more than enough gains to offset the difference."
Yes, that's exactly it. Your screens don't use stops and you shouldn't either. Stops give you a false sense of control. For every 15% drop you miss, you miss a number of 15% gains.
Why do you care about a bear market? How correlated is your strategy to the market?
That's just the thing. My specific strategy is too young for me to be confident in it. The macro strategy (utilizing the Zweig screen) does quite well in bear markets. It gained 17% in 2002 while the DOW dropped 17%.
You are right. I need to stop wimping out.
I've really enjoyed reading your blog; it has helped me to think more about my own trading/investing style.
I have a few questions about your trading system.
1. How many positions do you hold in your portfolio? Is each position equally dollar weighted (e.g. 5 postions = 20% of capitial)
2. Do you have a % risk per postion that you are using?
3. After getting the stocks from your screens, do you look at charts to determine an entry point? Do you enter with a market or limit order?
4. How often do you run the screen?
1) I hold at least 5 positions and less than 10. I usually average about7. I equally weight the positions.
2) Ideally I risk 2% of my portfolio value on each position.
3) I look at technical charts but rarely use them. I've found I'm not good at recognizing good entry and exit points so I just jump in Monday morning with a market order while watching the tape in real time.
4) I run my screen once a week on Sunday.
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