Every year throws up many valuable investment lessons, and 2016 was no different.
For me these investment lessons come primarily from the companies I buy and sell, both winners and losers, mistakes and successes.
I uncover these lessons by writing a post-sale review at the end of every investment. My hope is that these lessons can then be incorporated into my investment strategy to make it, and any real-world portfolios which use it, perform better in the future.
Recently I published a 2015 investment lessons ebook to bring all of 2015’s post-sale reviews together into one document.
That seemed to be quite popular among readers of this blog, so with 2016 over I’ve decided to do it again by collecting together all of the post-sale reviews from 2016 into a single, downloadable ebook.
As it says in the introduction, “Although I cannot guarantee that reading this ebook will help you improve your investment process and make you a better investor, I hope that it will, at least in some small way.”
John,
I have been following your transparent journey of investment log for a while.
The only critique I would make is I am uncomfortable with using the word ‘defensive’
There is no such thing.
Your investment lessons of 2015 & 2016 show that – Mr Market has a mind of its own!
That said, Keep up the scribe as it will inspire others.
All the best for 2017.
Rajan.
Hi Rajan, that’s a good point and defensive is a strong word. However, within the world of investing it has several meanings, most of which are appropriate for my portfolio. Those meanings are:
1) Defensive sectors: These are sectors that are not affected by economic ups and downs as much as most other sectors. Think of things like non-life insurance (e.g. car insurance) or personal goods (such as dishwasher powder). People generally don’t cut back on these things during recessions, so they are defensive relative to the majority of the market.
2) Defensive investors: I use this term in a similar way to Ben Graham (the father of value investing). When he wrote about defensive investors he meant investors who were looking for a satisfactory return without excessive risk. His example was a widow who needed a reasonable and relatively reliable return on her investments, and that’s how I think about the defensiveness of my portfolio.
However, if somebody thinks that defensiveness means a defence against everything then you’re right; there is no such thing.
Hi John,
You have mentioned before that your investment strategy includes the purchase and sale of one company’s shares every month. With regards to your learning from hindsight it might be instructive to review your portfolio at the end of the year by comparing its actual performance with that which would have been achieved had you left your portfolio as it was at the beginning of the year, in other words without having dealt at all during the year.
Although I don’t make such regular changes to my own portfolio it is something I have thought of doing, especially after watching the price of shares I’ve recently sold begin to rise – something I’m sure has happened to us all! Have you ever tried to do this?
Hi Chris, tracking shares post-sale is something I’ve thought about on and off, but have yet to put into practice because my gut tells me the return on effort won’t be worth it.
Just off the top of my head, here are some thoughts:
1) Tracking post-sale stocks for a single year probably isn’t enough. The stock market is a noisy system and so I’d probably need to track them for five years to get a better sense of whether I’m selling too soon. That’s a lot of stocks to track.
2) If I find that I’m selling too soon, i.e. that sold stocks typically outperform existing holdings, then what? Should I buy and sell less frequently, perhaps once every other month, so I only trade six times in a year which would be three sells and three buys? Possibly. But to see if there was any real improvement I’d have to track two portfolios, one doing monthly trades and one doing bi-monthly trades, for several years. And even then it might not be clear which portfolio was best, or worse, one could perform better over five years but only because it got lucky, and in the next five years the other portfolio could do better.
I guess I’m saying that the market is very noisy, very unpredictable, and it can take years to see what works and what doesn’t, and even then it can be difficult to be sure.
So although I try to improve my strategy over time by making small changes, I will only make a change if it seems fairly obvious that it will improve things. Currently I don’t think that’s true of reducing my trading frequency, and the cost in terms of time and effort to find out if less trading is better could be very high.
Thanks for your reply, John.
I, too, baulked at the idea of back-tracking my sold shares as I hold over 50 in my portfolio and also wondered whether the time and effort would be sufficiently rewarding. As you say, one year (maximum) is a short timescale to make a valid comparison, but I suppose if you were to do this every year and discover the difference between actual and default (no share dealing) performance was negligible every year, or even positive in favour of the latter, that may just constitute a reason for doing nothing (how boring!)
I agree Chris, it’s a potentially useful project. I would just rather see the results of someone else’s research than to have to do it myself!
Haha, that’s exactly why I was asking whether you had!