Position sizing

[maxthetrade]

14 minutes ago, SharperDingaan said:

Our primary objective is training, and not a minimum return. We're in it to make money, and fund various objectives - but it's really all about transferring skills, and walking the talk. Our best return is an investment blowing up, that requires the uncles expertise and experience to fix - hence crypto and UK housing development as desirable long term investments.

 

I understand where you're coming from. In this case there is no future generation. All the assets will most probably go to an endowment.

 

Personally I'm encouraging my nieces and nephew to go to the US or Asia for at least a year to get a different perspective and to learn about different cultures. 

[Sweet]

A useful accompaniment to this thread would be when to sell.

 

I recently read an opinion that was well supported that you should never sell food companies.

 

I noted @dealraker comments about having a few go to zero, but several 100 baggers.

 

You only have to get a few right.

[SharperDingaan]

12 hours ago, Sweet said:

A useful accompaniment to this thread would be when to sell.

 

 

There is a very big difference between selling to initiate a swing trade, selling at some risk adjusted target price, and selling just the beneficial ownership. We routinely do swing trades and win more often than we lose. We almost always lose on the risk adjusted target price - sold too early, missed the subsequent big move, didn't sell when we should have, etc.  We almost always win on the beneficial ownership - sale of calls that didn't exercise, margining to withdraw value, etc.  

 

Swing trades are never 100% of the holding, at most it's a 50% sale to achieve MTM neutrality. It is one thing to take advantage of current market opportunities, but if you are not on board with the company's overall plan - you really shouldn't be in it, period. The bar that scorpioncapital speaks of below.

 

Point here, is that we use the sell decision as primarily a portfolio wide risk reduction tool, not an end as to itself. 

Different PoV.

 

SD

Edited October 7, 2022 by SharperDingaan

[scorpioncapital]

selling to zero should have a high bar assuming your buying also had a high bar of thoughtfulness.

but trimming or even large selling if you see some weakness or issues (but not enough to get out, after all you could be wrong)

 

 

[Spekulatius]

12 hours ago, Sweet said:

A useful accompaniment to this thread would be when to sell.

 

I recently read an opinion that was well supported that you should never sell food companies.

 

I noted @dealraker comments about having a few go to zero, but several 100 baggers.

 

You only have to get a few right.

These hundred baggers(Railroads)  that @dealraker wrote about are not "one decision" stocks. Railroads are examples of stocks that have just performed very well over long periods of time. You could have bought those many times along the journey to 100 bagging at opportune times and achieved very good results. other examples would be VISA and MA etc.

 

It not a Sea Unlimited that goes up 10x in 2 years and then gives back most of it's games. There are many Sea unlimited stocks that multi-bag and then give back all there gains.

 

Maybe the lesson is that once you recognize a business with staying power and long runway and durable moat you should keep tracking it and look for opportunities to add to your position. Over long periods of time, there should be opportunities to add to your positions or start new ones that you may have missed.

[Cod Liver Oil]

Druk is not really a stock picker. He is a great portfolio risk manager. I spend way too much time on security selection and, being perennially agnostic toward the market,  punt on exposure. In times like these risk exposure dwarfs security selection in importance. Its a blind spot for me.

[dealraker]

I live on a nice point of land on a pretty lake with a southeast facing and I've been planted here almost 40 years.  I had $75k in the house originally (I am/was also a licensed contractor in NC), added about $50k since then.  Last year I could have sold the house for well over $1 million.  Today?  Probably far less.  And there are times I'm pretty much sure I couldn't give the damn place away.

 

Same thing happens with the businesses you own.    I guess that means we should anticipate economic conditions and sell them based on those guesses?   House too I guess.  

 

I've missed all those opportunities now for nearly 50 years.   I plan on missing all of them until I die too.   Kinda based on things like inheriting enough Berkshire in 1975 to pay 1/2 the cost of a CJ-5 Jeep.  Briefly considered selling that stock back then, but didn't.  At some point somebody should make a list of all the times it would have been better to sell...wait...and buy back the stock.  I'm sure it would be a several page long list.

 

 

[RedLion]

On 10/6/2022 at 1:58 PM, SharperDingaan said:

Family investments are little different to institutional investments; they require a very clear Investment Policy Statement, reviewed every 3 years.

Purpose, objectives, risk constraints, etc.

 

Our primary objective is training, and not a minimum return. We're in it to make money, and fund various objectives - but it's really all about transferring skills, and walking the talk. Our best return is an investment blowing up, that requires the uncles expertise and experience to fix - hence crypto and UK housing development as desirable long term investments.

 

SD

 

Can you give any insight about UK housing as a long term investment? Are you invested in rental property or an actual development from the ground up? I've been looking for a real estate investment and have been looking for something close to home that pencils out and have a chunk of US dollars earmarked for that purpose. It's occurred to me that maybe I should be trying to buy an investment property in Canada or the UK right now to capitalize on the strong US dollar since a 3 CAP rate rental property/part time job to manage it just doesn't seem that attractive right now.

[SharperDingaan]

Our recent UK investment was three flats in London that were bought cheap because of structural damage.

One of the uncles is a UK Quantity Surveyor, and we have a family friend who is also a structural engineer with experience in the UK construction industry. While the structural repair will be costly, it will be cheaper and quicker than demolish and replace, and the location warrants it. Upon completion we will be left with 2 very desirable modern flats, leased to our nephews, financed against a small mortgage. They can use the places themselves, or re-lease to someone else; but they will manage the properties - and will be responsible for cash shortages should they occur.  Unique situation.

 

I have always taken the view, that you plan today for where you would like to live 10-15 years hence - how long you will be there, what kind of property, what location, etc. After that it's just a matter of opportunities, and taking advantage as they materialize. Take advantage of the strong USD to buy up a few government bonds in the target country, and simply wait; at some point there will be a crash in the local property market, and that will be the time to go shopping.

 

The exception to this, is if the target country has a history of ongoing devaluation.

Different kind of animal.

 

SD

Edited October 13, 2022 by SharperDingaan

[jfan]

https://thequestionableinvestor.substack.com/p/thoughts-on-decision-making-position?sd=pf

 

Wasn't sure where to put this post...its a little bit about my thoughts on position sizing, decision making, Meta, BTC, and Francis Chou. 

 

Welcome people's feedback. Thanks in advance.

[SharperDingaan]

Good write-up.

 

Keep in mind that a forecast is 'dynamic', NOT static. Borrow from the corporate world ....

• Every company has a 3-5 yr strategic plan; and does things today so as to be where planned in 3-5 yrs. Typically the IPS of a institutional account, the 5-yr plan of a communist nation, and your goals for the wealth you are accumulating. Very boring, doesn't change much, but sets the strategic direction.
• Every company converts the strategic plan into a series of annual budgets, and ties incentives into quantified objectives. Actuals are measured against budget, and adjustments made as necessary. You do the same when you set your asset allocations, your margin, and periodically rebalance your portfolio.
• Every company manager will then apply tactical overlays, so as to outperform the budget expectation, and earn a bonus. If they work the manager gets rich, if they don't the manager gets fired &/or experiences a career setback. You do the same when you swing trade, sell options for income, etc.  

Point here, is that at any given time you may 'appear' to be trading, whereas in fact - you are doing anything but. Market conditions are continually changing, hence so are your tactical overlays, and your risk profile. These are also things that you can do yourself, and relatively easily .... so if you're paying someone a fee for this, they had better be giving you significant value add.

 

Just as a dentist doesn't do his own teeth, it's also a good idea to periodically commission an 'independent' review; are the asset mixes still valid, tax fallouts, estate planning, etc. However keep in mind that the advisors are also trying to sell you something, if they were as good as claimed they would already be rich - and therefore NOT talking to you, and that you may very well know more than they do. Usually, the older and more 'grizzled' the reviewer the better, and a preference for female versus male - as mom/grandma aren't going to put up with inflated ego!

 

Do your job well and you will meet all kinds of 'interesting' people, some more 'colorful' than others.

You will also very quickly learn not to judge from appearances, and how the 'real world' operates. My kind of scum!

 

Good luck.

SD

 

  

Edited October 15, 2022 by SharperDingaan

[jfan]

Thank you @SharperDingaan. I respect your opinion greatly. In fact,  your posts have been particularly insightful for me. Your ideas and @Gregmal have both shaped a fair amount of my understanding on this framework. 

 

You make an excellent point that forecasting is a dynamic process and requires updating , continuous learning, and reflection of past conclusions. Matching your time frame with the 1/2 life of the relevant inputs is key. I guess a reasonable analog is we know that keeping an ideal body mass is important to good health and longevity but knowing the day to day fluctuations in weight is less impactful unless you are planning to get into your wedding suit/dress.

 

You also make a great point on advice and advisors. The key is to have your own independent thought. I am finally grasping the fact that to function adeptly in this world requires simultaneous skepticism and keeping an open mind to people and ideas, although can be sometimes in opposition, is an absolute necessity.

 

Again, appreciate the feedback.