I am an active manager of all my investments. I do not get it right all the time. Far from it. I also am mindful NO ONE gets it right all the time. The popular term these days for playing cycles is "rotation'. Let's just say like many older investors we employed it, before it had a name.
After most periods of outperformance by any stock, any sector or any fund, I generally reduce my exposure and deliberately seek out companies, funds or sectors that are out of favour. Last year's "Dogs of the Dow" if you like.
As a lay mathematician, I have always enjoyed statistical probabilities, mean reversion and outlier results. Just as no one gets it right all the time, no one gets it wrong all of the time so I will use managers and buy stocks and sectors that few will touch and wait for their thesis/industry to come back into favour. It usually does. Buy low sell high is a pretty simple truism that works in real life. So has having dry powder and earning very little while markets markets go bonkers with nothing in consolation except the knowledge that every boom ends badly and rewards those with the cash (or gold) that stayed the course.
Throughout my time, my goal has always been to mitigate downside risk rather than chase returns. I don't care about any market performance AT ALL, I only care about what I own. The corollary of this approach is that when I am really on a winner, I generally get in too soon and sell out too soon. My few 100 baggers were mostly unknown penny dreadfuls that hit pay dirt. Blue chippers have been scarce in that realm.
Over the last 30 years (with the aid of computer software) I can be confident my portfolio has lost value only three times, each due to over sized positions in a businesses that have folded or fallen from grace after I had fallen in love with their story. They hurt, like a sensitive pimple hurts, but the pain very quickly goes away, and I usually learn my lesson.
Avoiding speculative themes that have got too hot or companies / funds that grab the media spotlight has been rewarding. When the mob go crazy for something I own, I usually get out, rightly or wrongly. I invest with my own conviction and research and use index agnostic managers not an index fund. I was an "old economy" guy in the dot com craze that cost many their shirts. Like other value investors back then the bursting internet bubble made us heaps, when indices collapsed. A few of my favourite fund managers did the same. Who knew, when investing, profit is worth more than potential? In 2000, like now, not very many, but that is another story
I rarely "buy and hold" anything without a reason and the asset price must always make sense. I have never shorted anything, I am not smart enough to do it. I switch, rotate, take profits, dollar cost average and adopt every other risk management strategy one has heard of. These strategies made returns consistent rather than spectacular and being consistently good makes really good money over time.
I will not belittle any one here by naming funds or companies that have underpinned this outcome. That, my friends is history. Making money needs one to look into the future.
Anyone can read my posts and the posts of the countless other investors that have been successful. What I will say is that the Funds managed by the company this post is written about, has figured in my portfolio over the last 12-14 years.
I could never bring myself to buy shares in the manager on a PE of 30. But I could easily pay them for what they are good at, year after year after year.
At a PE of 10-12, I now have an interest in the manager. A manager now battered by the severity of anonymous online media and ignominy of failing to beat an index in a hopelessly overvalued marketplace.
That sounds good enough for me. The darling now has hairs, and a stench that frightens the feeble short term thinkers (large and small) into selling out. I can be wrong here, but my downside is somewhat limited compared to an upside in 2 to 3 years that has a fair bit of blue sky, if markets go where I believe they are destined to.
Nothing is guaranteed in this world. Mr Market does not care about my expectations or my feelings or my success. These are things investors must assess and action for themselves and know themselves and their behaviors should they be on the wrong side of a trade or in the right place at the wrong time.
Investor know thyself.
GLTASH
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