My Investment Journey

Monthly update. This has been the most profitable month I had in 6 and a half years; my second daughter was born a couple of weeks ago, a 3.5kg investment. The dividends are a little smelly, but high growth is expected. OK, enough puns, I am just very happy. But, I had almost no time to look at shares or respond on the forum. This will continue for some time but should gradually improve.

Portfolio has declined a further $1,038.60 (2.1%) for the month.

Congratulations, KTP. Best investment you will ever make, although at times you will wish you had invested elsewhere! (just had a day like that with my 11 year old!).

KnowThePast said:

Monthly update. This has been the most profitable month I had in 6 and a half years; my second daughter was born a couple of weeks ago, a 3.5kg investment. The dividends are a little smelly, but high growth is expected. OK, enough puns, I am just very happy. But, I had almost no time to look at shares or respond on the forum. This will continue for some time but should gradually improve.

Portfolio has declined a further $1,038.60 (2.1%) for the month.

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congrats.

Great stuff KTP, just found out our second is a girl, due in October, that's two from two so the line ends with me.
All the best

Bought ITD, 6191 @ $0.23

I posted about them over a year ago. I really liked the copany, but I though they were just a little too expensive at $0.30. I am much more comfortable at this price.

KnowThePast said:

Bought ITD, 6191 @ $0.23

I posted about them over a year ago. I really liked the copany, but I though they were just a little too expensive at $0.30. I am much more comfortable at this price.

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I bought them a year ago at 30c! They probably were at best fair value - in hindsight! They have had a good year and the new facility in Malaysia should bear fruit in the bottom line this year. They are well managed, have a solid business and now look cheap on all the metrics I measure.

galumay said:

I bought them a year ago at 30c! They probably were at best fair value - in hindsight! They have had a good year and the new facility in Malaysia should bear fruit in the bottom line this year. They are well managed, have a solid business and now look cheap on all the metrics I measure.

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Hi galumay,

Yes, they've had a good year, and invested heavily as well, which should help drive growth next year and beyond.

I love their ongoing buyback, shareholders have benefited massively from it.

In 3 years, npat increased 215%, while eps increased 336%!

Monthly update - portfolio fell by $61.25 (0.1%).




I want to ask for advice from everyone who is willing to share.

For most of the past 18 months, I was investing using a semi automated strategy, concentrating on deep value, unloved stocks.

I have recently decided to change directions and instead look at small, mainly growth companies, with some other specific characteristics. My backtesting shows this to be a more promising area then deep value, both in terms of expected return, and hit rate.

This strategy usually has fewer opportunities available, there aren't enough opportunities right now to need all my portfolio in cash if I use the same position size. However, backtesting shows hit rate high enough for me to consider increasing my position size.

My dilemna is what to do with my current holdings. I still expect them to perform well over the long term. Many of them are in mining/construction and it makes me uncomfortable to sell them at what is likely the low point for the sector.

What are my options for existing, deep value stocks:
1. Sell all immediately
2. Sell in stages, in the same order that they were bought.
3. Sell in stages, use my judgement to decide which are best to sell first.
4. Sell all immediately, except for mining stocks.
5. Other?

What are your thoughts on what I should do?

KnowThePast said:

What are your thoughts on what I should do?

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I think what you should do is work out a path forward that YOU have confidence in. I would suggest writing up a decision tree or decision journal for the strategy. Consider what all the options are, what the possible risks are, the opportunity costs, the probability of varying outcomes, and what paths those options, once selected, lead to.

Define your predictions for what will happen in the case of each option, i.e. "I predict that company XYZ will be worth more than i paid for it within 12 months, because there will be a turnaround in the mining services business and as a financially healthy and well managed business XYZ will be one of the companies to benefit."

The power of the predictions is it gives you something to check your decisons agaonst going forward, you can analyse whether you were right because of a good decision, or right despite an incorrect decision - and vice versa!

I find when I write all my thinking down in a decision journal the answer becomes moe obvious and importantly I have a higher level of confidence in my decision.

I usually chuck in a worst case/best case scenario - if i cant live with what I think is the worst case scenario then its not the right decision, if i could be happy with the best case scenario, then it MAY be.

There is some more detail about decision journals here, http://www.farnamstreetblog.com/2014/02/decision-journal/

I believe the effort you have put into your portfolio strategy so far, and your willingness to learn will combine to make you a better investor going forward whatever path you choose.

my other advice would be to take into account any capital gain/loss against you tax position;
if you have any CG older losses, may be worth to balance them now;
if you expect lower/higher taxation next year, you may want to delay or not profit sales etc etc
You got my point;
in 2 months we are in a new FY; Tax effect is really something you should consider in your decision

KnowThePast said:

Monthly update. This has been the most profitable month I had in 6 and a half years; my second daughter was born a couple of weeks ago, a 3.5kg investment. The dividends are a little smelly, but high growth is expected. OK, enough puns, I am just very happy. But, I had almost no time to look at shares or respond on the forum. This will continue for some time but should gradually improve.

Portfolio has declined a further $1,038.60 (2.1%) for the month.

View attachment 62193

Click to expand...

Congratulations ! You should know your priority now. Kids are precious.

galumay said:

I think what you should do is work out a path forward that YOU have confidence in. I would suggest writing up a decision tree or decision journal for the strategy. Consider what all the options are, what the possible risks are, the opportunity costs, the probability of varying outcomes, and what paths those options, once selected, lead to.

Define your predictions for what will happen in the case of each option, i.e. "I predict that company XYZ will be worth more than i paid for it within 12 months, because there will be a turnaround in the mining services business and as a financially healthy and well managed business XYZ will be one of the companies to benefit."

The power of the predictions is it gives you something to check your decisons agaonst going forward, you can analyse whether you were right because of a good decision, or right despite an incorrect decision - and vice versa!

I find when I write all my thinking down in a decision journal the answer becomes moe obvious and importantly I have a higher level of confidence in my decision.

I usually chuck in a worst case/best case scenario - if i cant live with what I think is the worst case scenario then its not the right decision, if i could be happy with the best case scenario, then it MAY be.

There is some more detail about decision journals here, http://www.farnamstreetblog.com/2014/02/decision-journal/

I believe the effort you have put into your portfolio strategy so far, and your willingness to learn will combine to make you a better investor going forward whatever path you choose.

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Galumy
While visiting this thread I read your advise.
It is indeed very inspiring for me as well.
Some times I felt shy to ask advise exactly the same way know the past asked.
I also inspired from his courage to display the losses. I often felt the guilt when I succumed with a very heavy losses from some of my scrips but never put my goals into writing as you described.
Many thanks for the post and God bless .

galumay said:

I think what you should do is work out a path forward that YOU have confidence in. I would suggest writing up a decision tree or decision journal for the strategy. Consider what all the options are, what the possible risks are, the opportunity costs, the probability of varying outcomes, and what paths those options, once selected, lead to.

Define your predictions for what will happen in the case of each option, i.e. "I predict that company XYZ will be worth more than i paid for it within 12 months, because there will be a turnaround in the mining services business and as a financially healthy and well managed business XYZ will be one of the companies to benefit."

The power of the predictions is it gives you something to check your decisons agaonst going forward, you can analyse whether you were right because of a good decision, or right despite an incorrect decision - and vice versa!

I find when I write all my thinking down in a decision journal the answer becomes moe obvious and importantly I have a higher level of confidence in my decision.

I usually chuck in a worst case/best case scenario - if i cant live with what I think is the worst case scenario then its not the right decision, if i could be happy with the best case scenario, then it MAY be.

There is some more detail about decision journals here, http://www.farnamstreetblog.com/2014/02/decision-journal/

I believe the effort you have put into your portfolio strategy so far, and your willingness to learn will combine to make you a better investor going forward whatever path you choose.

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That's seriously good advice galumay, thank you very much.

I'll definitely give the decision journal a go from now on.

qldfrog said:

my other advice would be to take into account any capital gain/loss against you tax position;
if you have any CG older losses, may be worth to balance them now;
if you expect lower/higher taxation next year, you may want to delay or not profit sales etc etc
You got my point;
in 2 months we are in a new FY; Tax effect is really something you should consider in your decision

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An excellent point, qldfrog!

I usually ignore tax considerations completely in my investment decisions.

However, in this case, where I plan on selling all these stocks anyway, it may just make perfect sense to sell them in order of losses.

For now, decided to sell some of my (mostly non-mining) stocks that are at a loss. I am still in the process of deciding what to do with others.

First sale: DCG @ 1.22. Loss of $351.62 (-33%).

KnowThePast said:

Monthly update. This has been the most profitable month I had in 6 and a half years; my second daughter was born a couple of weeks ago, a 3.5kg investment. The dividends are a little smelly, but high growth is expected. OK, enough puns, I am just very happy. But, I had almost no time to look at shares or respond on the forum. This will continue for some time but should gradually improve.

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Congratulations, KTP. These babies... they do keep you busy don't they. I have 3 daughters myself so forum posting is on a much lower priority than before, unfortunately.

KnowThePast said:

I want to ask for advice from everyone who is willing to share.

For most of the past 18 months, I was investing using a semi automated strategy, concentrating on deep value, unloved stocks.

I have recently decided to change directions and instead look at small, mainly growth companies, with some other specific characteristics. My backtesting shows this to be a more promising area then deep value, both in terms of expected return, and hit rate.

This strategy usually has fewer opportunities available, there aren't enough opportunities right now to need all my portfolio in cash if I use the same position size. However, backtesting shows hit rate high enough for me to consider increasing my position size.

My dilemna is what to do with my current holdings. I still expect them to perform well over the long term. Many of them are in mining/construction and it makes me uncomfortable to sell them at what is likely the low point for the sector.

What are my options for existing, deep value stocks:
1. Sell all immediately
2. Sell in stages, in the same order that they were bought.
3. Sell in stages, use my judgement to decide which are best to sell first.
4. Sell all immediately, except for mining stocks.
5. Other?

What are your thoughts on what I should do?

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I think you should re-evaluate what you've done first. Why are you ditching your old strategy? Are you losing patience, losing confidence, admitting failure or really think you can do better with a different approach?

Tech/a often mentions the "beginners loop" (or something to that effect), where a new student in technical analysis change his methods every so often because the previous one didn't work out. They do back test and find new kickass indicators and re-write their trading plans and improve the expected expectancy on paper... yet in the end the new approach would fail again, and the trader goes back to square one and start all over with new plan, indicator, signals etc etc.

I am not saying that is what you are doing... but I can see the parallel. So it's up to you to ask yourself the honest and hard questions. Your portfolio underperformed XJOAI by 30%... that is not good. I bet you if you are up 30% you won't be looking to change strategy.

If you are admitting failure... then sure, sell up and move on. But you should also lookback on why the strategy failed.

If you are losing patience... then I'd say stick with it. If your initial plan is indeed a 5-year (or however long) one and you are only 2-years into it... then you are doing yourself a dis-service by ending it prematurely. May be trim a thing or two that no longer fits your criteria today. But you are not allowing the strategy to work itself out in the fullness of time.

If you are just losing confidence... then stick with it and change nothing. We all lose confidence in our ability at one stage or another. It's no reason to change an otherwise correct course of action.

If you really think you can make better returns using a different approach... I'd test that assumption again. Will you have the patience and committment to stick with it over the intended timeframe? I'd also check and make sure that the return from your new approach is going to be better than the current starting point (namely, start of year 3 of a 5 year plan).

Only you can answer these questions.

Good reply skc and I support your suggestions.

IMHO the portfolio doesn't have enough large winners and too many large losers.

Review your selection criteria. The answers you need will be there in your results if you really what to find them.

peter2 said:

Good reply skc and I support your suggestions.

IMHO the portfolio doesn't have enough large winners and too many large losers.

Review your selection criteria. The answers you need will be there in your results if you really what to find them.

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It is a very good reply from skc, I obviously have no idea of the answers to the questions he poses as its not my portfolio, but I would be very wary of the view that "the portfolio doesn't have enough large winners and too many large losers." - without understanding the strategy and without intimate knowledge of the companies that really doesnt add much to understanding whether there is a 'fault' with the strategy or not.

As skc suggests, if the timescale for the success of the strategy is long term then dumping the strategy because its not performing in a certain way is dangerous.

One of the things I have learnt is to be careful of using relative performance as a metric, for a long term invester it can be very corrosive to your discipline and strategy to be comparing your performance to say the the ASX200, its the same effect as the ability to check the price of your shares in real time, all the time.

Its not easy to move with confidence to absolute measure of performance, but for a long term investor I think its important. Especially if you are a contrarian investor looking to unlock hidden value, you are likely to underperform on a relative measure almost by definition.

peter2 said:

Good reply skc and I support your suggestions.

IMHO the portfolio doesn't have enough large winners and too many large losers.

Review your selection criteria. The answers you need will be there in your results if you really what to find them.

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I agree.
If the portfolio doesn't have more nett winners than nett losers
Or
Much larger winners than nett losers

It's never going to be profitable.

Regardless of whatever form of analysis you take up.

If you don't change anything you'll get similar results.

tech/a said:

I agree.
....
It's never going to be profitable.

...

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Well thats dependent on strategy and timescale. From a trader's point of view, no doubt thats true....