Cutting losses - not the best idea

I usually don't post much. Not sure why this thread has caught my attention, but it has. I have on occasion posted, and gotten some replies that just made me not want to. Everyone seems to believe that "their" method is best, etc.

First off, let me say that Mr Markets method wouldn't fit my trading style. Neither would a lot of other methods posted here as well.

What I wanted to do was find to find out the real return over the last couple of years. I always believe in numbers. In the end, that's all that really matters.

So here is what I did. I said, start wth $120,000. Every position will be $10,000 +/- Basically it allows you to diversify your portfolio into 12 positions.

I took each trade (buy / sell) and add or subtracted it from the starting cash of $120,000.

As of today, the ending cash position is $94,838.
In addition, there are open positions with values of $101184.
Yes the open positions have losses, but this is the current value.

So the total account value, is now $196,022.

So the account has grown from $120,000 to $196,000 since Jan 2002.

A return of approximately 63%. (or 30% +/- annual)

In comparison the Nasdaq has about a 5% loss,
the S&P about 1% loss, and the Dow a 5% gain, over the same 2 year period.

So I think, Mr Market has a very respectable rate of return. An "enron" here or there would certainly hurt the return. Even if he had 2 of those, and there was a $20,000 hit to the accout, the return would still be 46% compared to the market.

Two years probably isn't a wonderful sample. 5-10 years would be better. I only used the data that I had availble.

It certainly isn't my style. I couldn't handle holding for those periods of time. I'd want to use stops. I would rather watch price action than fundamentals. Prices don't lie and fundamentals do. I think I can do better than a 30% return / year. BUT, I would have to work harder to do it. I believe in TA for the shorter term, and that's my focus. I'm not out to prove to anyone but Myself.

Mr Market has been a good stock picker. I don't think he claims to be a trader, but in the end, it's about making money no matter what method you choose to get there. That's the key...it's what "you" choose.

I wish him much success in his method.
 
nice analysis....I too, don't agree with a) lack of stops or b) lack of using options on the long positions to generate some sort of income, but overall he has done a nice job of investing
 
Quote from BornToTrade:

I usually don't post much. Not sure why this thread has caught my attention, but it has. I have on occasion posted, and gotten some replies that just made me not want to. Everyone seems to believe that "their" method is best, etc.

First off, let me say that Mr Markets method wouldn't fit my trading style. Neither would a lot of other methods posted here as well.

What I wanted to do was find to find out the real return over the last couple of years. I always believe in numbers. In the end, that's all that really matters.

So here is what I did. I said, start wth $120,000. Every position will be $10,000 +/- Basically it allows you to diversify your portfolio into 12 positions.

I took each trade (buy / sell) and add or subtracted it from the starting cash of $120,000.

As of today, the ending cash position is $94,838.
In addition, there are open positions with values of $101184.
Yes the open positions have losses, but this is the current value.

So the total account value, is now $196,022.

So the account has grown from $120,000 to $196,000 since Jan 2002.

A return of approximately 63%. (or 30% +/- annual)

In comparison the Nasdaq has about a 5% loss,
the S&P about 1% loss, and the Dow a 5% gain, over the same 2 year period.

So I think, Mr Market has a very respectable rate of return. An "enron" here or there would certainly hurt the return. Even if he had 2 of those, and there was a $20,000 hit to the accout, the return would still be 46% compared to the market.

Two years probably isn't a wonderful sample. 5-10 years would be better. I only used the data that I had availble.

It certainly isn't my style. I couldn't handle holding for those periods of time. I'd want to use stops. I would rather watch price action than fundamentals. Prices don't lie and fundamentals do. I think I can do better than a 30% return / year. BUT, I would have to work harder to do it. I believe in TA for the shorter term, and that's my focus. I'm not out to prove to anyone but Myself.

Mr Market has been a good stock picker. I don't think he claims to be a trader, but in the end, it's about making money no matter what method you choose to get there. That's the key...it's what "you" choose.

I wish him much success in his method.
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very nice commentary. I appreciate your contribution to this thread. One thing the TA guys need to realize is that if you really take the time to get to know a company (e.g. COH, HELE, CCBI, KSWS), you can get comfortable with the fact that owning its shares, without a stop loss, isn't such a risky proposition. I only buy shares of real companies, not visionware with no earnings or revenues.

On the other hand, if you buy shares in a stock, simply because of its trading profile, and know nothing about it other than its ticker symbol, then you sure as hell better have a stop loss in place.

And before you say, "It takes too much time to do fundamental analysis", you should remember that I just do this in my spare time. Usually it takes me about an hour, soup to nuts, to come up with my stock picks (it takes me another hour to do the clever write up). Daytrading is a full time job...so to me daytrading is a lot more work and time investment.

As for the analysis of my return, often times I compound my profits into a new pick, depending on how the overall market is doing, so the number you came up with was a little understated. But I really really value your critique as it was very thoughtful and unbiased.
 
Quote from BornToTrade:

I usually don't post much. Not sure why this thread has caught my attention, but it has. I have on occasion posted, and gotten some replies that just made me not want to. Everyone seems to believe that "their" method is best, etc.

First off, let me say that Mr Markets method wouldn't fit my trading style. Neither would a lot of other methods posted here as well.

What I wanted to do was find to find out the real return over the last couple of years. I always believe in numbers. In the end, that's all that really matters.

So here is what I did. I said, start wth $120,000. Every position will be $10,000 +/- Basically it allows you to diversify your portfolio into 12 positions.

I took each trade (buy / sell) and add or subtracted it from the starting cash of $120,000.

As of today, the ending cash position is $94,838.
In addition, there are open positions with values of $101184.
Yes the open positions have losses, but this is the current value.

So the total account value, is now $196,022.

So the account has grown from $120,000 to $196,000 since Jan 2002.

A return of approximately 63%. (or 30% +/- annual)

In comparison the Nasdaq has about a 5% loss,
the S&P about 1% loss, and the Dow a 5% gain, over the same 2 year period.

So I think, Mr Market has a very respectable rate of return. An "enron" here or there would certainly hurt the return. Even if he had 2 of those, and there was a $20,000 hit to the accout, the return would still be 46% compared to the market.

Two years probably isn't a wonderful sample. 5-10 years would be better. I only used the data that I had availble.

It certainly isn't my style. I couldn't handle holding for those periods of time. I'd want to use stops. I would rather watch price action than fundamentals. Prices don't lie and fundamentals do. I think I can do better than a 30% return / year. BUT, I would have to work harder to do it. I believe in TA for the shorter term, and that's my focus. I'm not out to prove to anyone but Myself.

Mr Market has been a good stock picker. I don't think he claims to be a trader, but in the end, it's about making money no matter what method you choose to get there. That's the key...it's what "you" choose.

I wish him much success in his method.
More...

Nice piece of work that confirms what I thought. The downside of MM's approach, other than the lack of stops, is the fact that he would have sold TASR for a 15% profit.
 
Here is the quick and dirty spreadsheet. It isn't pretty but I just wanted to see the numbers.

Mr Market, I was assuming you would probably increase the position size, so that it might start out at $10,000, and as the account grows, 1/12th might now be $12-13,000, etc, and take a larger position. So the return would be greater. I wasn't keeping a running balance of current positions so I just went with a straight 10,000. If anything, the returns could be better but this was conservative. I didn't factor in commissions but those would be small since it isn't traded. Total maybe $1000 + / -.

I know the analysis isn't perfect, and you can't see any real draw downs, but, if you were to compare this to someone buying the QQQs or DIA, or a mutual fund, they would suffer the same ups and downs.

I think, if were to trade this strategy, and I wasn't using stops, I might close out a position if a better one came along. So let's say I had a clunker that was down 20% and my 12 slots were filled. A new oppurtunity came along but there wasn't the 10,000 available to take it, I'd probably sell the loser and change horses. your account hasn't "lost" anything as you already had the loser, but the new horse might go where you wanted faster. Much the same is Mr Market might sell at 15% and pick a new horse, I might sell the loser, and hope for a new 15% one.

I'm trying to remember where I read something about diversification, and how when you get above 10 (10 stocks) you aren't gaining much as you diversify. At some point, you are over diversified, and all you are doing is cancelling out your + and -. I'll have to find the article. As I recall, 8-12 or something was a reasonable diversification.
 

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Quote from AAAintheBeltway:

Nice piece of work that confirms what I thought. The downside of MM's approach, other than the lack of stops, is the fact that he would have sold TASR for a 15% profit.
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Actually I never would have bought TASR as it does not have the 3 yr track record I require. Since I only hold for 15%, TASR would not have served me any better than any other of the 49 consecutive profitable trades of 15% or better that I presently have, using the methodology I developed when I was a grad student at Wharton when I wasn't in the gym bench pressing 385 lbs.
 
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