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Retired private investing curmudgeon trying to stay optimistic in a world of doom and gloom crowded with pessimists revealing sour moods after 24 years of investing experience with some unusual maverick ideas
  • Sentimental SNAFU's 15 comments
    Aug 21, 2010 9:27 AM
    After much churning within different sectors and geographical regions around the world in my early years of investing in the various stock markets here in North America as well as globally with very little in the way of "alpha" in my returns, I decided to take an engineering approach to the problem at hand, namely, making above average returns on the small stake I could afford to invest in the equity markets.

    Identify the problem

    The first observation was that I was searching out "winners" and subsequently arriving late at the party with my buys; my feelings tended to make me shun the "losers" because their performance numbers would pull down my average return on invested capital.

    In the late 80's I became fascinated with the Japanese market and also the volatility in the energy sector and pondered both phenomena of the rapidly rising Nikkei (which in later years was identified as a bubble) as well as the regular swings up and down of crude oil prices which I tried to capture with new money going in as I could afford it.

    A strategy is created
    Just before the Japanese market crashed in December, 1989; I found myself in the position of seeing an excellent discount price in the Energy mutual fund that I was using with no available cash to seize the opportunity and thus took some profits out of the Japanese stocks to fund these excellent purchases in energy.

    Of course after the crash in the Nikkei in the spring of 1990, I noticed that I could replace many of my sells from the previous 10 months at a vastly reduced price even though the energy stocks hadn't increased substantially in value.

    At this same time, the monitoring of individual transactions was devised where I would calculate the net dollar value of reversing the J to E from 1989 to an E to J in 1990 and soon realized from hindsight observations that the absolute sell prices of J in 1989 were irrelevant since they could always be restored at much lower pricing in 1990.

    Thus, my methodology was born.

    The system

    By creating a spreadsheet to catalogue all transactions made on an individual basis, I was able to flag individual "reversals" of previous switches and the potential profit that could be realized if I accepted the leap of faith that the share values remained relatively stable even though the price had varied.

    In other words, if I had originally sold 100 shares but upon reversal of that sale ended up with 140 shares even after considering the price drop I was still ahead in both dollars and obviously in shares.

    This was continued through the early 90's and by 1994 I had brought the "hot" Tech stocks into the flipping mix for a 3 way play.  By 1995 I had exited the Japanese market and brought Precious Metals in to complete the trading trio.

    Avoiding GREED

    By 1998, I was faced with the emotional impact of greed and had to make a deliberate effort of continuing to sell my Tech positions sporadically even though it appeared they would never stop rising.  That was very difficult but fortunately there were some minor corrections along the way and this "flipping" out of and back into the "dot.coms" occurred 5 times within 1999 with the final out in March, 2000 and then back in slowly from November, 2002 (early !) until August, 2004 (a bit late but I was overly cautious).

    Overcoming FEAR

    The crash in the NASDAQ was very scary and when the other equity markets followed suit in September, 2000; I shifted into Dividend funds but held onto my energy and precious metals positions.  In April, 2001 I switched my precious metals holdings and some energy stocks into physical gold (a bit late but paying only $11/oz above the low of $254/oz). I had beaten the emotional sentiment of fear and had avoided going into cash which I convinced myself was a cop out.


    My method has now evolved into setting a sell target on every buy and a corresponding buyback target on every sell.  This has eliminated the last minute "second guessing" that results from having to decide at the moment of taking action whether the markets could go higher from your sell point or go lower from the buy decision.  This is the sentiment of trying to hit the top because anything less is capitulation or trying to get in at the bottom so you don't appear to be a sucker who just paid too much.

    These feelings result in indecision and sitting on your hands until a very clear signal makes taking action seem obvious.  This is more about consistently making money, never having a negative feeling about a falling market, never being panicked into realizing a loss, and never trying to score the big win with that killer move that makes you look like a hero.

    Good results make being right or wrong moot points.  Just show me the money; who cares if it's just another SNAFU ?

    Disclosure: No specific stocks mentioned.
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Comments (15)
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  • HA65MPH
    , contributor
    Comments (1366) | Send Message
    Neat blog , i see you are still in gold-silver ..ok , i just sent you a ps..on that very question ..and noted on this post you made about your blog ,, b...
    22 Aug 2010, 10:48 PM Reply Like
  • Mercy Jimenez
    , contributor
    Comments (1822) | Send Message
    RE your statement: "My method has now evolved into setting a sell target on every buy and a corresponding buyback target on every sell."


    Buzzer, I have followed a similar strategy on a portion of my portfolio with very positive results also. Although judging from some past comments on SA, some readers appear threatened by the notion that there is money to be made with this type of trading strategy in volatile markets. Thanks for your post.
    23 Aug 2010, 10:45 AM Reply Like
    , contributor
    Comments (23066) | Send Message
    Author’s reply » Thank you for the reassurance !


    Most investors can only think in terms of one position for their entire portfolio and that is usually in equities or out of equities and in cash or bonds.


    I like to divide myself up into 1000 little investors each doing totally different things depending on the circumstances and if the majority of the little "me" 's are making money then I the single investor can afford to carry a few "duds" out of the 1000 little guys that are screwing things up once in awhile.


    It sounds like mind games (which it is) but it sure works well !
    23 Aug 2010, 12:07 PM Reply Like
  • Sailorman
    , contributor
    Comments (72) | Send Message
    It seems to m Alpha loves to publish these negative baseless entries. There are no facts presented here. Total opinion!
    24 Aug 2010, 08:54 AM Reply Like
    , contributor
    Comments (23066) | Send Message
    Author’s reply » Seeking Alpha editors felt the same way and did not publish this blog which is about how to make money and not why it works.


    Most readers of this site want to discuss in detail what is going on in the economy, politics, and the markets whereas I could care less; I am only interested in making money on a consistent basis as the markets and the the rest of the human race go about their business.


    I guess you might call it focus.
    24 Aug 2010, 09:14 AM Reply Like
  • Loverboy
    , contributor
    Comments (645) | Send Message
    Thanks for sharing some of your strategy! I enjoy your comments, and continue to learn from you and a few others from this site.
    28 Aug 2010, 12:17 AM Reply Like
    , contributor
    Comments (23066) | Send Message
    Author’s reply » Thanks Loverboy


    My biggest problem is that my strategy lacks sophistication and as such is dismissed immediately.


    The fact that it has been successful is dismissed as coming from a bragging liar.


    My main message on this site has always been to take every action in life with optimism and never allow fear to cloud one's good judgment.


    Now I sound like an Evangelist rather than an investor ! LOL
    28 Aug 2010, 02:35 PM Reply Like
  • Jim Baruch
    , contributor
    Comments (304) | Send Message


    You forgot to add that you had great insight along the way. As Jim Rogers said, if you see a pile of cash or widgets over there laying in the floor, go pick it up. Then you say sell when I can get a good price. It sounds so simple but many people try to make it too complicated. I think you have a good method which takes the anxiety and indecisions out of making decisions, plus you throw in that dash of optimism which gives conviction to your decisions.. Hope it continues to fair well for you. I will try to apply it to my strategy; but I need a little help on that insight part thing!


    My world is similar but a little different then yours. I try to evaluate things from my own personal perception of risk in which I believe capital preservation takes precedence over capital appreciation; however, in this world of a fiat devaluating dollar, capital preservation has taken on a whole new meaning and is a much more complicated task. I try to watch stock, stock market, economic cycles and their associated Investor Herd Psyche to guide me. Basically, I just try to just stay away from the herd and do my own thing. I'm in no hurry to get in or out. I've never been any good at timing.


    I will take your advice and try to apply that optimism thing!


    Good luck in the future!


    Thanks for putting your thoughts down for us to contemplate.
    5 Sep 2010, 10:58 PM Reply Like
    , contributor
    Comments (23066) | Send Message
    Author’s reply » Jim


    There's an insight that I have commented on but didn't include in the formal write-up that relates to keeping greed in check.


    I have a very long term target of 14% ROI which is completely arbitrary and not based on a financial plan or any type of estimated retirement budgeting needs.


    I allow my risk capital to fluctuate between 15% and 18% and monitor a compound moving 15 year average annual return at the end of each month. If my 15 yr ROI exceeds 14%, I cut back on trading the volatility until the month end result drops below my target at which time I assign more capital to the active portion of my portfolio.


    Currently I am still gradually getting back up from the extreme plummet in March, 2009 and am taking as many trades on as I see having a high probability of success. The monitoring indicates a 12.2% (May), 12.3% (June), 12.6% (July), and 12.6% (August) so I have a ways to go before I can relax a bit more.


    This discipline reins in the greed phenomenon of trying for 20%+ returns every year and a lot of the pitfalls that will inevitably bring to the fore because of the high risk involved.
    7 Sep 2010, 08:48 PM Reply Like
  • dimes
    , contributor
    Comments (43) | Send Message
    Buzzer I am a relatively new to the investment world. Can you please elaborate on your buy and sell indications. Is it a buy signal to sell and vise-versa on your own predetermined research or by wallstreet firm analyst. I really appreciate the info. I read many of your comments on many blog's and get good insight. I am a young investor (trader) trying to make modest profits. You should consider writing blogs, your simplistic approach is interesting and your comments many times hilarious thanks once again.
    15 Oct 2010, 09:38 AM Reply Like
    , contributor
    Comments (23066) | Send Message
    Author’s reply » My whole approach is based on a very simple principle; reverse the investment process.


    It is normal to start with cash and attempt to buy things at a low, but what if we change the terms of reference and start with being fully invested with broad diversification and sell at an arbitrarily selected relatively high level and wait to buy it back at a discount.


    In this scenario, because you are placing value on the assets rather than the cash they can be converted to then the investment gain is in being able to purchase more assets with the same amount of currency that one received on the sell.


    So instead of monitoring dollars in your portfolio, track the growth in shares or units instead. This will totally change how you think of the success or failure of your portfolio and you will not see price reductions as a loss since the number of shares did not change.


    Think of the real estate example of counting how many rental units you own versus the resale value of those units as a whole. As long as whatever it is that you are doing, increases the number of rental units in your possession, you are growing your asset base.


    Forget about dollars because they can change in value but if you own 2% of a company it will remain at a 2% ownership stake and that IS the asset.
    15 Oct 2010, 03:21 PM Reply Like
  • dimes
    , contributor
    Comments (43) | Send Message
    thank you for the response. So you sell short when stocks(asset class) is overvalued and buy the shares back plus more when pessimism has driven the stock down to an extreme?
    21 Oct 2010, 11:32 AM Reply Like
  • dimes
    , contributor
    Comments (43) | Send Message
    Can you give me an example of a few stocks to better understand. I am not incompetent and am a big believer in the sentimental aspect and react when you feel you shouldn't. Thanks for the insight, sorry if i am not up to speed with most you guys but learning fast. I really appreciate the BUZZER.
    21 Oct 2010, 01:10 PM Reply Like
    , contributor
    Comments (23066) | Send Message
    Author’s reply » I've been using MDY, SPY, XOM, QQQQ, Canadian resource mutual funds, CI Global Energy, O'Shaughnessy US Growth but the principle applies to any stock, ETF, or Mutual fund with sufficient volatility. The Volatility (also called risk by financial advisers) is the key to success in this strategy.


    I wouldn't use Precious metals ETF's or mutual funds because accumulation is the key there in the next 5 years.
    23 Oct 2010, 09:39 PM Reply Like
  • dimes
    , contributor
    Comments (43) | Send Message
    Thank you I really appreciate the advice. I am on board with MDY.Great incite.
    2 Nov 2010, 05:48 AM Reply Like
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