My Investment Journey

[KnowThePast]

Hi Know

Really in-depth post and long running too.

Well done for your dedication to improvement and also for sharing your experiences and issues.

<snip>


However it is enjoyable as a hobby and the loss of a couple of % here or there and time is not a supremely expensive hobby.

Plus you have only a few years of data, in a long term 20-30 year horizon, that is quite small.

I hope I have not asked too much

cheers

Hi Omega and thanks for the feedback.

To properly evaluate my performance, there are two time period, that I think should be judged separately.
1. First 2 years, it was discretionary investing, holding mostly cash for a large period of time.
2. Last 2 years - semi-automated trading.

First 2 years, I have significantly under performed.

For the next 2 years, however, my automated portfolio (now ~80% of my stocks), have returned, as of 2 weeks ago, 49.78% vs XAO -1.5%. In terms of time taken to manage it, that has also drastically decreased in the last 2 years. Once, I do a quick scan with my software to see if anything needs to be sold/bought, usually not. Together with some record keeping, 1 hour/month is about right.

I run a different, but also automated strategy in my super, which has doubled in the last 4 years.

It has taken many, many hours to get to a point where I am comfortable doing this and get good results. The hourly rate, given the size of my portfolio is not good. But, you are quite right that it is an enjoyable hobby. As an aside, it led me to develop a back-testing tool, that I am now commercialising.

Also, 2 years is not much. 50% out-performance may not be sustainable. The goal is to keep learning and if I can keep up my rate of progress in knowledge and performance for another 5-10-20 years, I am sure the profits will more than make up for it.

To answer your specific questions:
Returns include bank interest, dividends and brokerage.
No tax or dividend imputation,
I do not calculate SD or volatility.

Cheers

KTP

 

[OmegaTrader]

Hi Omega and thanks for the feedback.

To properly evaluate my performance, there are two time period, that I think should be judged separately.
1. First 2 years, it was discretionary investing, holding mostly cash for a large period of time.
2. Last 2 years - semi-automated trading.

First 2 years, I have significantly under performed.

For the next 2 years, however, my automated portfolio (now ~80% of my stocks), have returned, as of 2 weeks ago, 49.78% vs XAO -1.5%. In terms of time taken to manage it, that has also drastically decreased in the last 2 years. Once, I do a quick scan with my software to see if anything needs to be sold/bought, usually not. Together with some record keeping, 1 hour/month is about right.

I run a different, but also automated strategy in my super, which has doubled in the last 4 years.

It has taken many, many hours to get to a point where I am comfortable doing this and get good results. The hourly rate, given the size of my portfolio is not good. But, you are quite right that it is an enjoyable hobby. As an aside, it led me to develop a back-testing tool, that I am now commercialising.

Also, 2 years is not much. 50% out-performance may not be sustainable. The goal is to keep learning and if I can keep up my rate of progress in knowledge and performance for another 5-10-20 years, I am sure the profits will more than make up for it.

To answer your specific questions:
Returns include bank interest, dividends and brokerage.
No tax or dividend imputation,
I do not calculate SD or volatility.

Cheers

KTP

Discretionary period no alpha, getting better results which is good, your returns increasing which is extra good!!

Semi-automated period return is 49.78%.

Super strategy 200% in 4 years = .1892.....geomean

=18.92% return each year

These are both really high returns.

Unfortunately without risk or volatility it is pretty hard to judge the merits.

I could also gear my investments a lot to get high returns, but without the risk component the full story is not told.

Tax is also really important.

Unlikely scenario:
buy and hold an you never sell or incur capital gain.Maybe you it will it. NO tax

More likely:
you sell it after a long time for a 50% discount on the tax component.

Plus you are getting dividends with 30% refundable imputation


It is pretty concerning if your analysis and back-testing tool does not include standard risk metrics

STD, Alpha, drawdown etc etc

Maybe you should look at implementing these.

More volatility= greater chance of over betting = greater chance of ruin


Your hourly rate given 12 hours a year is actually astronomical!!



Hourly rate for 12 hours a year

$50,000 @ 50% alpha

$2083.33 an hour

$50,000 @ 25% alpha

$1041.66 an hour


$50,000 @ 10% alpha

$416.66 an hour

$50,000 @ 1% alpha

$41.66 an hour


good luck

Omega

 

[jjbinks]

great thread KTP. Thanks for documenting your journey. Did you design your own software?

 

[KnowThePast]

great thread KTP. Thanks for documenting your journey. Did you design your own software?

Thanks jjbinks,

Yes, I developed it myself.

 

[KnowThePast]

Tax is also really important.
Omega

I don't include tax in my forum postings, as everybody's tax situation is different. I do, of course, work it out for my own purposes, both tax return and measuring returns.

It is pretty concerning if your analysis and back-testing tool does not include standard risk metrics

STD, Alpha, drawdown etc etc

Maybe you should look at implementing these.

More volatility= greater chance of over betting = greater chance of ruin

Omega

My tool supports all these metrics, I meant I don't use them for this investment strategy.

I think it was Howard Marks, who said that you can't avoid all risk, you have to choose which one you are prepared to take. I invest in small caps, so almost by default, liquidity and volatility are risks I am prepared to take. Calculating volatility of less liquid stocks is not something that I feel benefits this strategy in any way.

 

[OmegaTrader]

My tool supports all these metrics, I meant I don't use them for this investment strategy.

I think it was Howard Marks, who said that you can't avoid all risk, you have to choose which one you are prepared to take. I invest in small caps, so almost by default, liquidity and volatility are risks I am prepared to take. Calculating volatility of less liquid stocks is not something that I feel benefits this strategy in any way.

Without risk or volatility you are not comparing apples with apples.


I will take on more volatility because I can't avoid risk.

and not include it in my calculations because I cannot avoid risk.

I don't think that is a proper interpretation of the quote.

I think the point of the quote is that you need to have some skin in the game to get returns and accept losses to some extent

Not to ignore volatility.

For a 50% return you are probably taking on a lot more risk.

So it looks great but is not telling the whole story.

There is a massive risk of over-betting and ruin

Volatility is one of the cornerstones of modern finance.....

The point is could you just gear a more passive strategy and get the same returns for the same risk.

50% return is an extreme number....

 

[KnowThePast]

Without risk or volatility you are not comparing apples with apples.
Volatility is one of the cornerstones of modern finance.....

Hi Omega,

There's plenty of controversy about using volatility as a proxy for risk.

Consensus amongst most well known fundamental, long term investors is that it is not the right tool for that kind of portfolio.

We'll have to agree to disagree on this one.

The risks I do look at:
Leverage - I do not have any, but may add it in the future.
Industry risk - I override my automated trading to make sure my stocks are concentrated in any one or a number of industries.
Liquidity risk - partially, this is a risk I am willing to take on. My personal circumstances are such that it is unlikely I will need to get cash out from this portfolio in the coming years. Still, I monitor my purchases to make sure that I still have most of my stocks to trade out of relatively quickly. Not too difficult given my portfolio size.
Bankruptcy - diversification. The type of stocks I buy, bankruptcy isn't too common and holding an average of 25 stocks is enough to offset that.

 

[OmegaTrader]

Hi Omega,

There's plenty of controversy about using volatility as a proxy for risk.

Consensus amongst most well known fundamental, long term investors is that it is not the right tool for that kind of portfolio.

We'll have to agree to disagree on this one.

The risks I do look at:
Leverage - I do not have any, but may add it in the future.
Industry risk - I override my automated trading to make sure my stocks are concentrated in any one or a number of industries.
Liquidity risk - partially, this is a risk I am willing to take on. My personal circumstances are such that it is unlikely I will need to get cash out from this portfolio in the coming years. Still, I monitor my purchases to make sure that I still have most of my stocks to trade out of relatively quickly. Not too difficult given my portfolio size.
Bankruptcy - diversification. The type of stocks I buy, bankruptcy isn't too common and holding an average of 25 stocks is enough to offset that.

Agree to disagree.

What is your corellation to the market?

 

[KnowThePast]

Agree to disagree.

What is your corellation to the market?

I don't use it, so I don't calculate it.

 

[KnowThePast]

Monthly update - portfolio has gone up $771 (1.5%) for the month.

 

[KnowThePast]

Bought PNW - 6614 @ $0.3027

 

[OmegaTrader]

I don't use it, so I don't calculate it.

haha

agree to disagree

good luck

 

[KnowThePast]

Monthly update - portfolio has lost $1,137.46 (2.1%) for the month.

 

[KnowThePast]

Monthly update: portfolio lost $1,642.05 (-3.1%) for the month.

 

[KnowThePast]

Monthly update - portfolio has lost $21 over the month.

After getting off to a hot start, it has now under performed the index in 4 out of the last 5 months. If the next month is the same, I will look at changing strategy.

 

[systematic]

After getting off to a hot start, it has now under performed the index in 4 out of the last 5 months. If the next month is the same, I will look at changing strategy.

Curious about the comment, KTP. I thought you were using a reasonably longer term approach? Under-performing the index 4 of 5 months is well within normalcy, I would have thought?

 

[KnowThePast]

Hi systematic,

I backtest my strategy, and decide on the triggers when to change it. For this particular strategy, it has not under-performed more than 3 months in a row for more than 10 years. So, having 5+ of those months is a trigger for me.

I don't expect to find a long term automated strategy that will always work, adapting and changing strategy will be needed.

As part of revaluation next month, I will need to consider reasons for the under-performance. If the reasons established are reasonable, I may stick with it. As an example, there could be a re-pricing of small growth stocks..

 

[systematic]

For this particular strategy, it has not under-performed more than 3 months in a row for more than 10 years. So, having 5+ of those months is a trigger for me.

Got ya, thanks for clarifying.

I don't expect to find a long term automated strategy that will always work, adapting and changing strategy will be needed.

I agree with the first bit (I don't see how anyone could disagree!) but my conclusion from that is different to yours: I'd say, 'but I stick with it' where you would say, 'adapt and change.' It's interesting stuff, we're all different! Thanks for sharing KTP, as always

 

[KnowThePast]

Monthly update - portfolio has gone up $1,630 (3.1%) for the month.

The automated stocks outperformed by over 5% this month, so I am no longer going to re-evaluate that strategy this month.

 

[KnowThePast]

Monthly update - portfolio has lost $860.25 for the month, slight behind the index.