Fundamentals: don't kid yourself!
Des, after the past year of market declines, I'm quite surprised you're still on your high horse about stock picking based on fundamentals. It may help you justify your losses to your wife but in the end numbers don't lie. Our club's performance has lagged the S&P 500 index, probably our best comparable, in part because we didn't diversify away non-systematic risk. If you look at the stocks, SLB has lagged XLE, DE has lagged MOO and COW, LLL has definitely lagged XRT, and nevermind GE. Only GS outperformed XLF during our holding period and that had nothing to do with fundamentals; just plain dumb luck. All of these are highly leveraged to the economic cycle and we have suffered the consequences of not being diversified.
There are many ways to make money in the markets: macro, momentum, technical, charts, etc. Just because you read a few reports and think you have a good hypothesis, don't think that fundy's are any better than the next way. The recent cratering of the energy market should have taught you some lessons about leverage and risk, if not humility :) How far has the fundy's got you during this bear market? For full disclosure, I was down about 36% from market peak and now around 30% off all time highs with some boring health care, utilities and dividend/bond funds in the mix.
So what if I choose QQQQ over any one tech name? I'm giving an honest opinion. I think the sector is going to do well for the macro and technical reasons I outlined. I don't have the opportunity/ability to research a company which I believe will justify it's non-systematic risk. Note, I am always willing to buy a given stock when the individual story justifies the risk.
In this club, our goal should be to make money NOT tell good investment stories. If you like stock picking as a form of excitement, then I'm sure you have your own portfolio to play with. Save the stories for the wife.
BTW, don't take any of this too personally, I enjoy the club immensely, reading old blog posts seeing how clever and naive we were with the benefit of hindsight. I just think we have to be a bit more respectful of everyone's opinions, stock or otherwise :)
posted by Junk Bonds @ 3/30/2009 10:04:00 PM
1 Comments:
Hey Ed, guess what nice story, but you're not the only one that beat the market. Full disclosure, I didn't own utilities and had very little in a bond index until recently. Peak to trough I was down more than 50%. (I don't have the exact) Yep! leverage to oil and gold mostly with a smattering of small caps and income trusts to boot! Apr 1/08 to today I'm down 36%. YTD I'm trouncing the S&P with a positive 8.5%. So you're right there are many ways to make money.
Look, you're right about non-systemic risk and the benefit of ETFs. I could have done better in my personal account if I had utilized some of these strategies you've highlighted on the blog.
But you can't deny me fun! I'm still looking for angles mostly at a company level but sometimes at a macro level (i.e. peak oil, monetary inflation) At one point last fall Tanganyika Oil was my largest single holding at 20%. I thought that the chance of the takeover not being completed was small and the upside was around 25%.
Time horizons are important. I'm not a day trader and the club wasn't formed to be one either. On an annual basis I think it's important to look at one's results against some measure of performance. I keep track of every single trade pluses and minuses to keep account. I tried to summarize some of the club's reasons for buys and sells in that email thread. Wasn't sure that I was pontificating about fundamental stock analysis. You must have been remembering some old blog posts!
Our club hasn't got off to a good start. We picked SLB because you thought that in a retreating market for oil, it was best to stay with the market leader. (I had to troll for that but I knew there was a reason we didn't pick XLE)
We probably should have stayed with MOO or COW instead of DE. Lesson learned. Unless we have a compelling reason to own a specific company and we just have a hypothesis about the sector, then stay with the ETF.
With GS we were debating about that or MS, and we picked GS probably because Paulson was the Treasury secretary, and GS people seemed to infiltrate every level of government!
And whats with the good story stuff! Lulu was a good story. Good enough for my personal account where I lost money before I unloaded it! I try to bring my best ideas to this club just like I hope everyone else does. If I was slagging somebodies opinions, bring on the feedback. It's been months since I was disrespectful, hasn't it?
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