“Yeah, but we’re making great time!” — In reply to “Hey Yogi, I think we’re lost.”
– Yogi Berra
Past: The cost of being restless
I was doing a bit of introspection recently. I had browsing through Ben Graham’s Intelligent Investor and I became a bit conscious of my recent hyperactive trading. Recent volatility agitated me and this was clearly to be seen when I took a look at my transaction costs.
|Year||Euros||% of total|
Since I started 58% of the transaction costs are from transactions in 2010 (and my broker has actually lowered the fees this year). Of the charges in 2010 €118 (32% of the total costs) were between mid April and the end of May. However, in my defense, I have been restructuring the portfolio, which accounts for a considerable portion of the transactions.
Also, when I examine my past performance I think I can safely assume that the increase in value has mainly been caused by pure and simple luck. When the financial crisis wiped out the value of the stocks I had, only 75% of my investments were in cash, simply because I had just gotten started and I hadn’t really found anything that I was comfortable investing in. Then when I decided to put my conjectures into practice, it accidentally was 5 minutes before the big bull run in the later half of 2009. I hadn’t foreseen any of this, I was lucky.
Present: Staying sober
“Good Artists Borrow, Great Artists Steal”
– Picasso (allegedly he stole it from someone else though)
After some careful introspection I have decided to steal Jim Roth’s “10 Beliefs of Rational Investing” and incorporate them as my own investment mantra, reciting it whenever I feel a surge of panic entering my consciousness, like an AA member reciting the Serenity Prayer:
1. I do not know if the market will go up or down tomorrow, next month or next year. Neither do the experts.
2. I do know that capitalism is a good thing and long-run investing rewards good risks of capital. The market is downright predictable in the long-run.
3. If the market goes up dramatically, I will not buy more stocks. If the market goes down dramatically, I will not sell my stocks. I may, however, do the opposite.
4. I will not chase the hot stock or fund or act on the next hot stock tip.
5. I will acknowledge my intuition, feelings, and emotions, but I will not act upon them.
6. When I am shown a compelling story of how I can beat the market, I will examine the nature of the evidence being presented as well as the financial incentives for the presenter. I will display healthy skepticism, no matter how badly I want to believe it.
7. When I read a disclaimer that says “past performance is no guarantee of future performance,” I will also understand it is no indication of future performance and is probably due to random variation (luck).
8. I will keep costs dirt low so that I can get what I don’t pay for.
9. I understand others will view my strategy as dull and boring. I accept that stigma and will find other things to talk about at parties. I can live with the fact that I’m trouncing most investors year after year and building wealth.
10. If I need some more excitement in my life, I will not seek it through investments – I will try skydiving or go to Las Vegas.
The future: Updates and research
“Soccer is simple, but it is difficult to play simple.”
– Johan Cruyff
Currently I am working on refining my valuation method. In short, the basic framework will look something like this:
- Aggregate growth (revenue/profit)
- Relative market share
Balance sheet value
- Margin of safety (debt)
- Common share development
- 10 year trailing sales, earnings, cash flow, dividends
Sustainable competitive advantage
- Porters 5 forces
- MC simulation
I’m still working on the details.
Once I’ve finished that I’ll continue working on an analysis on a few industries that I have been focusing on recently and on some of their companies in greater details, namely:
- Textiles, apparel and shoes (action, outdoor, sport)
- Nutrition and supplements
- European Football