One of the dangers of learning in real time is learning in real time, and not all lessons are easy or fun. My new investment strategy has real thought, theory, and testing behind it. What it lacked was an understanding of real world conditions, and after two of the best months ever in the stock market we were due for a drawdown. It just happened to come as I was changing things up.
In some ways this accelerated the timeline. When the market pulls back it can mean that desired positions are suddenly on sale. History teaches us that what goes down, goes back up, and that the top companies have a track record of going up more than they go down. The issue is these were all new positions for me and a lot of my buy in was ugly. This is why professional investors have defined entry points, but they also have more established portfolios and more money. Lacking that I created a system based on chaos.
It is a simple idea. I have a weekly pay in but I need an accelerant and therefore I will harvest the short term volatility of the market and use it to buy long term stability. The only issue is volatility cuts both ways and while last week I was able to use negative volatility to generate a surprising amount of capital and convert it into ownership of desirable stocks I was also losing equity from both my chaos engines and core positions. That created a very ugly looking surface area.
That is why I created better tracking for those chaos positions. I now have a spreadsheet. I know where I bought, what I would get if the position sold, what I have made so far, and where my true breakeven point is. This stops the position from being emotionally anchored to anything other than its bottom line. The question isn’t where I bought or where I sold and missed out on bigger gains, but it is what have a made or lost from this position so far, and where do I need to get to.
This creates a much healthier engine and can stop the surface level ugliness from becoming either an emotional tax or an excuse to make a poor decision. This way I know what decision I am making and the true cost or benefit of making it. The market provides us with the potential to lose in a near infinite amount of ways, and only a few to gain. That means creating different focus points that keep us away from the more dangerous aspects of human nature.
David Huzzard Writes 