2012 Year in review
Ok, so I haven't written a blog in half a year. That's really poor on my part as it means I haven't been doing enough homework to relay my thoughts here and if I was actually getting any readers interested in what I had to blabber, I probably lost them. That being said, I stated in my last blog that I expected the Dow to end the year at 13,000 and it closed just 104 points off of my prediction. I'd love to say not bad for some novice rookie for a 6 month prediction, but I'm going to chalk it up to pure luck - if you think being off by 104 points in the Dow is a good thing, that is. The only moves I made was to put in somewhere between half and 2/3 a position in Home Depot. I will be the first to admit I am way late to that party, but at the same time I foresee growth ahead as well. I'm going to keep that simple for now and do a more in-depth analysis at a later time for you. The purpose of this entry is to assess myself for the last year. How did I do? What did I do right? What did I do wrong? It's best I be honest with you as well as honest with myself. This is the lessons of an average Joe trying to manage his own portfolio with the challenges of a real life that doesn't include a career in stocks. So let's dig in!
Let's start with what I did well. Anyone who knows me will know I'm always really hard on myself, so I'm likely to have more that I did wrong than things I did well. Looking back at last year, I think I did a fairly decent job of predicting the mid-length actions of the market. I did manage to get a good idea of where the Dow would end up despite not getting the path to how we get there wrong. Like I said, I chalk this more up to luck than anything, but hey, sometimes better to be lucky than good. Another thing I did well is that I didn't panic sell. Frankly, I didn't sell at all last year. And with a market where the S&P is up around 16% when you include dividends, that's not a bad choice. There may be things I could do better, but at least I didn't sell out on the various threats we had - to which there were many (EU financial upheaval, US Debt issues, elections, and fiscal cliffs, natural disasters galore, etc). If I were a larger institution, it would've been wiser to get out at times, but when you don't have a lot of skin in the game, it's better to ride a lot of these out if you don't want to lose your gains to the fees of buying and selling small positions. It's not easy, though - to see positions down 15-30% at times can be difficult to swallow. If you can't handle that risk, take heed of my experiences and work in ways that can maintain your capital without experiencing those unrealized losses. The final thing I felt I did well is have a good feel for where my stocks were going - what points they'd hit and what I should do. But there's more about that to be said below too.
Now for the mistakes. Wow, will they let me type enough here for that? Alright, it doesn't do me good if I get THAT hard, but I do want to be critical of myself here. I'll start with the obvious. I made a HORRIBLE call on Facebook. I thought it would make the markets fly and it was a complete flop and it just helped pull the market lower with all the EU mess that was going on at the time. Coinciding with that was my general prediction of how the market would flow from June to Dec. Sure, in the end I had things close, but my path there was all wrong. Fortunately those predictions didn't have a lot of direct impact to my portfolio. Another thing I'd say was unsuccessful was that I didn't beat the S&P 500. That's my benchmark of what I'm trying to accomplish. If I can't beat that, I might as well invest in an index fun and what fun is that? Worse yet, I'm all but certain I could've beaten it. Now I don't want to dwell on shoulda, woulda, coulda, but at the same time, there's a lesson that must be learned here. I said I did a good job at determining where my stocks were heading overall. I set price points of consideration a number of times in my writings last year, but if you go back and look through them all, what happened? The answer is nothing and therein lies the problem. My number one lesson from the year last year is this, Obtain conviction in the actions you want to take and then follow the directions you set for yourself when you do your analysis - don't let the heat of the moment of the market action paralyze your choices! Let me dig into this deeper for you. I really had 1 problem, but it looks like 2. It's more of a cause/effect kind of thing, I guess. The root of my problems last year were that my convictions weren't strong enough. Sure, I believed I had good stocks and I had solid reasons for them as I shared though out the year. However, I didn't do enough homework. There were a number of times I mentioned selling positions, but never set price points. That has to change in the future. I have to define my sell rules better. Not always on price points, it could be a change in the thesis for why I own the stock to begin with, but if the thesis goes negative, I should really be selling regardless the price. I did set a number of price points to buy stocks at and did I follow through? Very rarely. Why? I let the market turbulence at those times put fear in me that I was buying too soon. I set the price points for a reason and almost every time, I was spot on. Had I bought positions of Citigroup and ON Semiconductor at the points I was looking at, I'd be up SO much more than I am now and that would've been enough for me to at least match the S&P if not beat it nicely. When it comes to my failures to do well agaionst the S&P, it really does come down to that. If I did more homework, understood things better so I felt more certain, I may have been more likely to follow through. That being said, there's a human nature - especially when you are filling out your position with that last purchase - to fear that you're missing out on hitting closer to the bottom and a better cost basis for your stock. That fear has to be put in check. You assess your price points outside of market hours and prepare yourself to buy or sell at those point. It has to be kept that cold. Yep, it could go down more afterwards. If it does, you have to decide if your thesis is broken and if not, ride it out or find more funds to lower your cost (but don't forget that you want/need to maintain diversification). But whatever you do, don't skip out on taking the action you set. You made that choice when you were calm and cool and it will serve you well more times than not. Trust me, you're going to think "well, if it starts going back up, I'll just buy it then," but you won't follow through. Once it's going back up, you'll hit one of 2 scenarios. Either the price will still be below your price and you'll think that after it ticks up, it'll just go back down so you should wait some more. Next thing you know the price is at or above your original call. The other option is that the stock's price is above your called price, so you'll tell yourself you don't want to spend more when you already set a point that was lower and it was there. It takes a lot of work to push aside your self pride and even more so if you're full of pride. You can't call everything perfect! Do your best to make the right judgments, hold yourself accountable for what you decide to do and act on it unless something in your thesis becomes broken. Maybe you get near the low, maybe you miss it by some points. There's always another perspective to this too - if if's falling that much below the prices you set, why are you holding the stock? It's true the stock market can be inaccurate, to say the least, but if a stock is falling a bunch below where you thought it would, you best be challenging your thesis hard and looking to protect your capital by getting out before you lose more too.
So there's my layman's perspective to the 2012 year. I have much to learn and the only way to do so is to step into the fire! So I hope you come back to read this and more. Would love any feedback people have. I do this for me, but if it's helpful to others, it's always nice to know and share thoughts. We're going into the earnings season and I have 7 positions. Truth is, I probably have more positions than I should at this time and should be looking to shrink that back to 5. We'll see how that works out. And the only way to decide what I should sell is to do a heavy analysis of each stock I own. My goal will be to go through each before their earnings call, if I can (some are coming up fast), and then assess the earnings call in comparison to what I said afterwards. I hope I can put a bit more time into this than I have in the past and use it to help me do things better in 2013. Thanks for reading!
Let's start with what I did well. Anyone who knows me will know I'm always really hard on myself, so I'm likely to have more that I did wrong than things I did well. Looking back at last year, I think I did a fairly decent job of predicting the mid-length actions of the market. I did manage to get a good idea of where the Dow would end up despite not getting the path to how we get there wrong. Like I said, I chalk this more up to luck than anything, but hey, sometimes better to be lucky than good. Another thing I did well is that I didn't panic sell. Frankly, I didn't sell at all last year. And with a market where the S&P is up around 16% when you include dividends, that's not a bad choice. There may be things I could do better, but at least I didn't sell out on the various threats we had - to which there were many (EU financial upheaval, US Debt issues, elections, and fiscal cliffs, natural disasters galore, etc). If I were a larger institution, it would've been wiser to get out at times, but when you don't have a lot of skin in the game, it's better to ride a lot of these out if you don't want to lose your gains to the fees of buying and selling small positions. It's not easy, though - to see positions down 15-30% at times can be difficult to swallow. If you can't handle that risk, take heed of my experiences and work in ways that can maintain your capital without experiencing those unrealized losses. The final thing I felt I did well is have a good feel for where my stocks were going - what points they'd hit and what I should do. But there's more about that to be said below too.
Now for the mistakes. Wow, will they let me type enough here for that? Alright, it doesn't do me good if I get THAT hard, but I do want to be critical of myself here. I'll start with the obvious. I made a HORRIBLE call on Facebook. I thought it would make the markets fly and it was a complete flop and it just helped pull the market lower with all the EU mess that was going on at the time. Coinciding with that was my general prediction of how the market would flow from June to Dec. Sure, in the end I had things close, but my path there was all wrong. Fortunately those predictions didn't have a lot of direct impact to my portfolio. Another thing I'd say was unsuccessful was that I didn't beat the S&P 500. That's my benchmark of what I'm trying to accomplish. If I can't beat that, I might as well invest in an index fun and what fun is that? Worse yet, I'm all but certain I could've beaten it. Now I don't want to dwell on shoulda, woulda, coulda, but at the same time, there's a lesson that must be learned here. I said I did a good job at determining where my stocks were heading overall. I set price points of consideration a number of times in my writings last year, but if you go back and look through them all, what happened? The answer is nothing and therein lies the problem. My number one lesson from the year last year is this, Obtain conviction in the actions you want to take and then follow the directions you set for yourself when you do your analysis - don't let the heat of the moment of the market action paralyze your choices! Let me dig into this deeper for you. I really had 1 problem, but it looks like 2. It's more of a cause/effect kind of thing, I guess. The root of my problems last year were that my convictions weren't strong enough. Sure, I believed I had good stocks and I had solid reasons for them as I shared though out the year. However, I didn't do enough homework. There were a number of times I mentioned selling positions, but never set price points. That has to change in the future. I have to define my sell rules better. Not always on price points, it could be a change in the thesis for why I own the stock to begin with, but if the thesis goes negative, I should really be selling regardless the price. I did set a number of price points to buy stocks at and did I follow through? Very rarely. Why? I let the market turbulence at those times put fear in me that I was buying too soon. I set the price points for a reason and almost every time, I was spot on. Had I bought positions of Citigroup and ON Semiconductor at the points I was looking at, I'd be up SO much more than I am now and that would've been enough for me to at least match the S&P if not beat it nicely. When it comes to my failures to do well agaionst the S&P, it really does come down to that. If I did more homework, understood things better so I felt more certain, I may have been more likely to follow through. That being said, there's a human nature - especially when you are filling out your position with that last purchase - to fear that you're missing out on hitting closer to the bottom and a better cost basis for your stock. That fear has to be put in check. You assess your price points outside of market hours and prepare yourself to buy or sell at those point. It has to be kept that cold. Yep, it could go down more afterwards. If it does, you have to decide if your thesis is broken and if not, ride it out or find more funds to lower your cost (but don't forget that you want/need to maintain diversification). But whatever you do, don't skip out on taking the action you set. You made that choice when you were calm and cool and it will serve you well more times than not. Trust me, you're going to think "well, if it starts going back up, I'll just buy it then," but you won't follow through. Once it's going back up, you'll hit one of 2 scenarios. Either the price will still be below your price and you'll think that after it ticks up, it'll just go back down so you should wait some more. Next thing you know the price is at or above your original call. The other option is that the stock's price is above your called price, so you'll tell yourself you don't want to spend more when you already set a point that was lower and it was there. It takes a lot of work to push aside your self pride and even more so if you're full of pride. You can't call everything perfect! Do your best to make the right judgments, hold yourself accountable for what you decide to do and act on it unless something in your thesis becomes broken. Maybe you get near the low, maybe you miss it by some points. There's always another perspective to this too - if if's falling that much below the prices you set, why are you holding the stock? It's true the stock market can be inaccurate, to say the least, but if a stock is falling a bunch below where you thought it would, you best be challenging your thesis hard and looking to protect your capital by getting out before you lose more too.
So there's my layman's perspective to the 2012 year. I have much to learn and the only way to do so is to step into the fire! So I hope you come back to read this and more. Would love any feedback people have. I do this for me, but if it's helpful to others, it's always nice to know and share thoughts. We're going into the earnings season and I have 7 positions. Truth is, I probably have more positions than I should at this time and should be looking to shrink that back to 5. We'll see how that works out. And the only way to decide what I should sell is to do a heavy analysis of each stock I own. My goal will be to go through each before their earnings call, if I can (some are coming up fast), and then assess the earnings call in comparison to what I said afterwards. I hope I can put a bit more time into this than I have in the past and use it to help me do things better in 2013. Thanks for reading!
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