With 2010 underway, its important to look back at the year gone by to assess — what was done correctly can take care of its self, but the areas that need improvement require active intervention.

All told, 2009 was a year rife with both risk and opportunity. If you avoided the risk and took advantage of the opportunity, then congratulations are in order. But even those who crushed it this year always have some room to improve.

Assessing our own performance in 2009, I am pleased with our asset allocation, macro market calls and stock selection. Coming into 2009, we were appropriately Bearish; when the indicators told us to reverse course, we did so without hesitation. And when the overall markets continued powering higher without giving any major sell signals, we stayed the course.

But there were areas that I would like to see improvement in. Translating market calls into investment decisions is always the challenge. Getting the big picture right is only half the battle; there is always room to refine your approach and improve the investment decision-making process.

Here are 5 asset management choices I made that I would like to see improved in 2010:

Not Aggressive Enough: I actually discussed buying (for my own account) both in-the-money and out-of-the-money SPX calls when we were making the March buy decision. Between editing the book, dealing with clients, and general market madness, I lost track of the idea amongst the mayhem. That neglect left a lot of money on the table.

Possible solution: Pull aside a small portion of one’s assets — 5 -10% — for aggressive trading ideas, including options. Being right should provide big upside; being wrong should have only a minor impact on total net worth assets; In other words, you shouldn’t lose sleep over this account;

Improving the Sell Discipline: Some of the decisions that were made over the year look (in hindsight) to be too quick. The discipline of selling stocks that have had a great run can be refined further. Its one thing to sell a least favored stock to rotate into a more desirable position; its another thing entirely to guess that a stock has gone too far without additional corroborating data. Some positions (purchased down 90%) were sold after gaining 100%, only to see the names triple.

Possible solution: Using trailing stop losses to stay in strong names longer;

Too Much Cash: Despite making the right call in early March, we legged in slowly. I am not suggesting that you go all in on a single day or week, but the process of going from 80% cash to fully invested took longer than it should have. Directly related to the two points above, when the market is rallying aggressively, we need to carry less cash sooner and more exposure more quickly;

Possible solution: Have the courage of your convictions; better to own positions with tight stops than to only own half positions;

Undue Influence: Its always a balancing act when dealing with clients. On the one hand, you cannot blow them off when they bring you concerns (its their money!). On the other hand, you cannot allow the investing public’s group mentaliity (or panic) to infect you.  We took a lot of heat for several calls that turned out to be correct, but in a few cases, took steps at the request of clients that lowered overall performance;

Possible solution: Improve regular communication with all clients; Work on making sure they understand the process, our current thoughts, and where we are so as to avoid the 2nd guessing.  Preempt the “My way or the highway” conversation proactiviely;

Focus!: We all have many items calling out for our attention; but having too much on your plate means things fall through the cracks (like that option trade!). Our modern short attention span society has the appearance of being more productive, but probably isn’t. Free association is great for creative brainstorming sessions, but winging it during execution means stuff is going to  slide.

Possible solution: The checklist! When I stick to my TTD, I can be wonderfully productive. Must stay with that in 2010.

These are only a few of the factors that I want to improve upon in 2010; Trust me when I tell you my list gets longer every year.

Ideas, suggestions, and hints for improving are always welcome!

Category: Apprenticed Investor, Investing

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

19 Responses to “2009 Investing Mea Culpas”

  1. Transor Z says:

    Barry, here’s my mantra when it comes to client relations: You can’t save people from themselves.

    As an attorney I can only play the hand I’m dealt. I have to work with people as they are and respect how little control I really have. My guess is you have above-average trusting clients because you run a boutique shop and enjoy a strong reputation as a market analyst. Continuous improvement is admirable but I’ll wager that you have at least one client who is quite sure that he or she is much smarter than you are. :-)

  2. GB says:

    @BR Any thoughts on this next year? Do you have maybe a link or two from past posts? (this could be an opportunity for a shameless plug)

  3. crosey says:

    BR, your “Ben Franklin” approach and self-assessment will fuel your innovation and improvement. I would say that a lot of your introspection has been made in the cool light of hindsight. You’ve obviously made some good calls, and left some money on the table. But all good players leave some money on the table.

    The reality of the past year was that fundamentals did not always corroborate what the technicals were showing, and with unprecedented government intervention, how do you consistently distinguish truth from myth? Especially when managing others’ money. You have to err on the side of capital preservation, which you seem to have done well.

    Best wishes for 2010!

  4. Dennis says:

    The fact that you even engage in this introspective process — and in public view — puts you miles above most money managers.

    Kudos.

  5. Jack McHugh says:

    Nice example of introspection, Barry.

  6. Thanks!

    To paraphrase Groucho: Honest humble, and sincere — if you can fake that, you got it made!

  7. In essence, an investor must recognize the speed of markets and attempt to stay with (or preferably ahead) of them, at least most of the time. Fast markets call for fast decisions, assuming one is attempting some form of market timing or even various risk management measures.

    Lessons learned from 2009 may or may not apply to 2010. Everything is in flux — nothing stays the same; however, the investor must convince themselves that history at least “rhymes.”

    Personally, I do not believe 2010 will “rhyme” with any year in recent memory. The more I think and the more I analyze, the more I convince myself to be largely passive.

    With that said, I like BR’s idea of taking big risks with small amounts of money and smaller, more deliberate and calculated risks with the remainder.

    “We do not, in fact step out of the movement of things, ask ‘What am I to do’ and, having obtained an answer, step in again. All our actions, all our questionings and answerings, are part of the movement of things, and if we can work on things, things can work on us…” ~ John Anderson

  8. wally says:

    The ‘not aggressive enough’ call is one made in hindsight. It could, at the time, have led to disaster – don’t forget that.

  9. Marcus says:

    Hi Barry,

    I take 20 minutes before leaving the office to fill out a To Do List for the next day. By putting down phone numbers, linking documents needed, and laying out actions for the next day, I “hit the ground running” each morning.

    This makes my responses timely.

    ‘Read the Big Picture’ is usually on my daily To Dos.

    Great blog. Thanks for the valuable information and insights.

  10. torrie-amos says:

    fwiw, the higher up the ladder the more opportunities come you’re way, having a critical analysis process for them in relation to long term goals and your own personality is perhaps a way too go forward

    it’s obivous you’re passionate, and you like too try new things, overall though are some of these new things distractions in the long term

    you love KNOWLEDGE, are you as focused as you want to be in relation too a ten year plan

    example, client communication, this will always be an issue, could you come up with a 2-3 year plan on optimizing this and then never ever having to revisit it? (obviously based on your specifics)

    also, a true assesment of you’re weakness’s, do they really hinder or are they part of you’re decision process, are some somewhat hidden due to the fact they show up rarely, yet, when they do in hindsight they are major, what were the specific red flags so as to be better prepared 5-7-10 years in the future, because when it comes back around the old memory is fuzzy

    my own personal ones this year are very different than what i thought, yet, i’ve been working on a several year program on decision making, and optimizing it

    now, when i work with clients, i focus like a laser beam and am great, fine and dandy

    with my own stuff, for 40 years i was in the system and had guard rails around me, on my own I seem to have monthly brain cycles and yearly brain cycles, ie, thinking patterns

    For the month:

    week 1- struggle between logical and creative thinking makes me very hesitant in cris

    week 2- impulsivity abounds, hesitation dies a quick death, and i jump forward with both feet, almost always in week 2 in hindsight i make 1 bad decision that always leads to 2 others, ahhh, vicious circle

    week 3- new idea’s and excitement take hold, ways to clean up the messes, while trying to do regular work

    week 4- discipline, discipline, discipline, a fight between focus and completion of assigned tasks

    On a quarterly basis,

    q1- i’m usually slow to get going
    q2-growing energy each week
    q3-my main growing season of taking on new projects and stuff, and get a heck of alot done, give me 10 things on my to do list, and i’ll get 18 done, give me 2 and nothing happens
    q4-i am superman, lol, lot’s of focus and energy

    so, on a yearly basis, the second half is always great, first half i’m behind in the race, and in q2 i can lose focus on what is important and go off in many different directions

    now, what i have is a general trend of my own feelings and cycles, and can comparie it too any market cycle

    right now i’m personally quite positive because i feel i have a better handle on the man in the mirror

    good luck
    hoped that helped

  11. tCA says:

    Re: “• Focus…

    Possible solution: The checklist! When I stick to my TTD, I can be wonderfully productive. Must stay with that in 2010.”

    It seems a bit analagous to Bill Walsh’s style of scripting out his first 15 plays of a football game and adjusting from there. The Niners had a decent run under his watch. Whether it’s done when you get in or the night before, ala Marcus, having that process to get your day going makes a ton of sense.

    As an aside, not only was Walsh a big process/scripting guy, he’s also the innovator behind the widely replicated West Coast offense. Obviously, his process allowed time for creativity leading to the development of today’s standard NFL offense.

  12. call me ahab says:

    hindsight is 20/20- always easy to look back w/ zero emotion and say this is what I should have done-

    because there is no longer any uncertainty and you already know the outcome-

    good luck

  13. HarryWanger says:

    ahab: You are correct. It’s always easy to look back. I remember trading in the dot com era and when I made mistakes, I recorded them into a thick volume of “commandments” vowing I’d never repeat those mistakes. Well, they help to an extent but it’s amazing how many times you repeat the same mistakes only to look back and say, had I…..

    I appreciate Barry posting this though. It does show integrity in a field where that is overwhelmingly lacking.

  14. [...] Five investing mea culpas for the year that was.  (Big Picture) [...]

  15. hgordon says:

    BR -

    As others have noted, you should not beat yourself up too much on market timing. Maybe you have seen this graphic that is making the rounds -

    “In the chart below, our friends at Bespoke Research have calculated the cumulative return of a $1 investment in the DJIA since 1950 (ex dividends). In the chart, they also calculated how much that dollar would be worth if an investor had missed out on the best five days of each year, missed out on the five worst days of each year, or if they missed out on the five best and worst days.

    Obviously, all three scenarios would be nearly impossible to accomplish. With the possibility of turning $55.35 up to $75,481 we can understand why people would be compelled to try. But the chart also highlights the enormous pitfalls of incorrect timing. If you invested $1 in the DJIA in 1950 and missed out on the five best days of each year, your $1 investment would now be worth 4 cents, which represents a decline of 96%.”

    http://static.seekingalpha.com/uploads/2010/1/6/saupload_clip_image001.jpg

    From
    http://seekingalpha.com/article/181180-enjoy-this-rally-while-getting-ready-for-the-next-correction

  16. jskeelz says:

    Re: Not Aggressive Enough — I’m curious to know whether SPX calls purchased in early March would have paid off, and if so, whether DITM, ATM, or OTM would be the way to go. I have used options in the past — wrote calls for income and bought puts (successfully) for speculation on the downside but no multi-leg trades. It seems to me that much of the upside potential in the calls would be offset by the decrease in volitility that occurred at the same time. How does a 400 point SPX increase compare with a 40 or 60 point decrease in the VIX? Of course, there were some good options plays to be had — puts on the ultrashorts would have worked out nicely, but I seem to remember Barry likening options on ultrashorts to dousing oneself with gasoline and playing with matches.

  17. insaneclownposse says:

    Dude, the entire post-Lehman crash and subsequent rally was such a mindfuck that anyone who has managed to emerge with most of their capital intact is a goddamned hero in my opinion. Kudos to ya Barry for having the open mind to thread the needle. Personally, I don’t feel like the lessons learned during the 2007-2009 bear market are going to be that useful moving forward. None of us are likely to see those market conditions ever again during our lives.

  18. Winston Munn says:

    I always listen to my Uncle Festus on such things: Bulls make money; Bears make money; Pigs get rich.

  19. [...] – 2009 investing mea culpas. [...]