I don’t expect to transact for the remainder of the year so this analysis will be very likely good for 2016.
I did a complete 2016 trade by trade review of my IRA account, which is where I do all my trading, and the remaining accounts that I manage mimic closely whatever I do in my IRA.
My total return for 2016, including cash which earned nothing, was 102%. More than satisfactory. But that is not why I did the analysis.
The ExodusPoint Partners International Fund returned 0.36% for May, bringing its year-to-date return to 3.31% in a year that's been particularly challenging for most hedge funds, pushing many into the red. Macroeconomic factors continued to weigh on the market, resulting in significant intra-month volatility for May, although risk assets generally ended the month flat. Macro Read More
I wanted to understand how I generated this return. Here is what I found.
During the year, I made exactly 10, what I call, trigger finger-stupid-dumbass-mindless-impulsive-uninformed trades. I lost money in 9 out of 10. Fortunately, and since I had no conviction in them, I got out just as quickly as I got in, thus minimizing my loss. And the tenth profitable trigger-finger trade, purely by luck, was a big winner. Still, collectively I lost money on those 10 trades.
Here are the 10 stocks that got my blood flowing in 2016: DCIX, DSX, EGLE, GLF, KRO, AT, BXE, VRS, HERO and TOPS.
Other than these 10, I traded and invested in only five stocks during the year – these names I was thoroughly familiar with and have been for many years. I knew the balance sheets inside out, understood the value proposition and upside/downside.
Approximately 53% of my 102% profit was from a single stock – Ocwen. I bought it at a point where I could see no further downside in spite of the perceived risk. When a stock goes from $60 to $2, $58 of risk has been taken out of it already. This is not a case of easier said than done – it is actually quite easy to judge. I understood the story completely and therefore put a lot of my capital on it and it paid off.
The remainder 47% of profit was quite evenly divided into four other stocks – CNX, GAIA, TROX and GRBK. Here again, I knew the stories inside out and saw that a lot of risk had been taken out when I invested in them.
So what is the conclusion of this analysis? For me it is:
- Have some goddamn discipline and don’t give in to impulse – think long and hard before you press that “Buy” button. Because 90% of the time, you will lose money on uninformed trades and quite unnecessarily so. If you want to have fun and get your heart racing, go to a casino and get it out of your system.
- Continue to invest in and even trade stocks that you are intimately intimately intimately familiar with. Because knowing the value proposition allows one have the conviction to put a lot of capital at work.
- Be patient and wait for the right opportunity. This is the single most difficult thing to do but impatience is a sure way to lose money.
- To hell with diversification (or is it diworseification?) and liquidity.
I wish you all Happy Holidays!
Article by Oozing Alpha