Posts filed under “Apprenticed Investor”
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!
When he was at Societe Generale, I very much enjoyed the work of James Montier. He is now working with Jeremy Grantham at GMO. I have two of James’ books in my queue, Behavioural Finance: Insights into Irrational Minds and Markets (2002) and Behavioural Investing: A Practitioners Guide to Applying Behavioural Finance (2007). He hasn’t…Read More
Here are the full run of reviews of the book:
Mainstream Media Reviews
New York Times:
Rescues Unlimited: Government as Wall Street’s Enabler
By DEVIN LEONARD
NYT, August 2, 2009
Wall Street Journal:
… And Dave Has His Book List
WSJ, July 26, 2009
Greenspan Flunks Test, Bush Falls Into $15 Trillion Pit: Books
Review by James Pressley
Bloomberg, May 27 2009
Book Review: Rescue Fatigue
Michael Maiello, 07.16.09, 12:01 AM EDT
Barry Ritholtz’s ”Bailout Nation.”
Named and shamed
Reviewed by Muhammad Cohen
The roots of ‘Bailout Nation’
Commentary: Ritholtz book dissects crisis and Greenspan
By Howard Gold
Bailout study widens the “Big Picture”
Thu Jun 11, 2009 3:47pm EDT
By Pedro Nicolaci da Costa
Economics stories can be unexciting, but recent books try to keep their readers awake.
Miami Herald, Monday, 06.01.09
Las Vegas Business Press
Big bailouts a perversion of capitalism, author argues
October 05, 2009
Faux capitalists look for the free lunch
September 19, 2009
‘Self-Inflicted Damage’: Highlights From ‘Bailout Nation’
New Book From Bailout Critic Barry Ritholtz Takes on Citigroup, Chrysler and More
ABC NEWS Business Unit, May 27, 2009
I did this interview with a financial site some time ago — Its as good a time to post it as any.
How long have you been blogging?
About 5 or 10 years, depending upon your definition.
From a weekly email, I eventually moved to Geocities around 1998. That was kinda blog-like. I started “blogging proper” over the Summer of 2003 – I was a beta tester for Typepad. In late 2008, I moved to my own domain (Ritholtz.com) and Word Press.
What got your started blogging?
Its kinda funny – I originally wanted to access my most recent version of written work. Between the office and laptop and house, I always seemed to have an older version of whatever I was working on. It also find it a convenient way to track/bookmark certain pages and articles.
I was very much surprised when an audience showed up.
What is the focus of your blog, i.e. how does it set you apart from the other bloggers out there?
My focus is whatever interests me. I mean that quite literally – if I find it intriguing, it ends up on the blog. So while there is a lot of sophisticated, high level analysis and commentary, I also drop in lots of asides about cars, movies, music, gadgets, concerts, etc.
I think the combination of markets, economics, investing, and technology is what appeals to people — then the personal stuff lets them get to know me.
Its not a conscious marketing thing . . . I merely scratch whatever is itching.
I did a long video interview with Steve Forbes — it should be posted later this week. Meanwhile, this is part of the pre-interview I did prior to that shoot: What is the greatest financial lesson you’ve ever learned? You’re a monkey. It all comes down to that. You are a slightly clever, pants-wearing primate….Read More
A friend I used to work with who buys distressed debt/CDOs emails me this: I don’t remember when you had this on your site, but it caught my eye. I printed it and hung on my computer screen. I read it once a day. It restores in me faith that my perseverance, honesty and respectful…Read More
Yesterday, I discussed why the Barrons vs Cramer debate was irrelevant, and why people should never invest based on what they watch on TV. A number of commentors observed that despite the many exhortations to think of television as merely entertainment, many a fool are still watching Mad Money for investing insights. When I wrote…Read More
This time of year, many investors are looking at their asset allocation, and stock selection. Perhaps they should be asking themselves, “How dense are my dopamine receptors?” As it turns out, some people process the brain’s “reward” chemicals differently, depending upon the number of receptors they have, The BBC reported on a recent study by…Read More
A friend asked me an interesting question over the weekend: What was the thing about writing the book that surprised you the most? Lots of things about the process were pretty much as I expected. The deadlines, the structural changes, the battles with publishers/editors — were all pretty much as you would imagine. The importance…Read More