Page 22 - DIY INVESTOR MAGAZINE - NOVEMBER 2018
P. 22

      THE IMPORTANCE OF BEING IDLE: PART 2 – PATIENCE AND THE DIY INVESTOR
  In Part 1 I talked about where my own reserves of patience come from; I am pretty sure being a paraplegic wheelchair user forces immense patience upon me.
Some things are simply beyond our control; there is no point getting upset and emotional, accept a problem has occurred and focus on how to fix it. If you apply this approach to the markets it will be a much more positive and helpful frame of mind.
It builds resilience and persistence – two characteristics that really help with investing and trading; never give
up and have a stubborn belligerence to beat the markets at their own, often immensely perverse, game.
Markets are beyond your control – if a stock you hold is falling and it is grating on your nerves, don’t panic and do something rash and stupid.
Go back to basics; why did you buy the stock in the first place? Does it still represent value on the criteria that you use? Is it just a natural pullback in a lazy market?
If you cannot shrug such moves off perhaps consider a more rules-based system such as using stop losses to make the decision to sell automatic, removing the emotion; take the loss and move on.
Also remember the distinction between price and value; focus on the latter and don’t let price moves lead you into bad decisions – more ‘Price Vs. Value’
Where a high level of patience is a big help
• Selling or Top-Chopping – one of my biggest errors in the past has been selling great stocks too early
– although I am getting better at letting my winners run. If the ‘urge to sell’ becomes overwhelming I only allow myself to top-slice and scale out of a position rather than sell the whole lot.
• An exception is how to deal with profit warnings; maybe my performance would improve if I adopted a global policy of ‘sell instantly’ – but I’m torn. Often a stock will put out a profit warning and immediately
drop 30% at which point it might actually be better as a buy than a sell. Some of my biggest gains have been after stocks have issued warnings - Boohoo. com (BOO) and Fiberweb (FWEB) made me something daft like 300%. The trick is to buy more as the recovery starts to kick in but you must never average down before this point.
• Don’t sell on a whim - think ahead and plan your exit well in advance; I often help myself by putting a target in a text box on a chart on ShareScope.
• Buying a stock and adding over time – patience also applies to the entry of a position; again something for careful thought and forward planning. I usually buy an initial position, maybe 2% of my portfolio, and then track its progress, adding if it still represents decent value. Sometimes a small ‘pilot’ position keeps a stock I have been attracted to in mind. It is then in my portfolio on the ADVFN app and ShareScope to check every night.
• Never rush; often I investigate the fundamentals of a stock for months before I buy it - watching its chart for a good entry point. Years of experience of UK markets and focusing on a subsection means that
I have good knowledge of 90% of the stocks that appear on my radar. I often hold a stock for years so taking a few months over the buying decision is appropriate; investment done well should never be exciting.
INVESTMENT DONE WELL SHOULD NEVER BE EXCITING
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