Small Portfolio
|
XLF & IAU
|
6.75%
|
|
Position
|
Date
|
Return
|
Days
|
CSGS
|
10/3/2011
|
40.19%
|
292
|
NLY
|
10/25/2011
|
14.90%
|
270
|
KBR
|
10/27/2011
|
-19.10%
|
268
|
VG
|
10/27/2011
|
-42.86%
|
268
|
BT
|
1/4/2012
|
12.47%
|
199
|
SAI
|
5/30/2012
|
1.37%
|
52
|
XEC
|
6/5/2012
|
13.63%
|
46
|
DECK
|
6/15/2012
|
-2.75%
|
36
|
CVX
|
7/5/2012
|
1.70%
|
16
|
RIMM
|
7/16/2012
|
-6.48%
|
5
|
S&P
|
Annualized
|
1.14%
|
|
Small Portfolio
|
Annualized
|
5.91%
|
|
Large Portfolio
|
Annualized
|
8.09%
|
As expected, RIMM is struggling out the gate. Would love to find a way to avoid that kind of
thing, but there is a reason that Value Stocks are cheap: no one in their right
mind would want them!
Of course, whenever I use my “right mind” I lose money.
The problem is that our minds tend to work faster than the
businesses we try to invest in. We think
in terms of days and weeks, while businesses operate in quarters and
years. We see a good earnings report and
a low current P/E and we want to invest in the company.
But a “Value Stock” is the exact opposite. The usual mark of a value stock is an earnings
failure.
In fact… a few earnings failures. After a couple of them we start expecting
that trend to continue.
And then, the trend doesn’t continue. We get a positive earnings surprise. And that darling growth stock with
astronomical earnings does the opposite with a surprise earnings failure.
After a while the growth stock becomes a value stock and the
value stock becomes a growth stock, and the whole cycle continues.
Value Stocks are cheap because no one wants them. They have bad prospects for the future, and
things are horrible now. But the present
slowly fades away and new earnings reports come.
The optimal holding period for my own model is currently 154
days (i.e. one to two earnings reports in the future). With ten stocks that leaves me rotating about
once every two weeks.
The next scheduled rotation is August 2nd. Until then, there’s nothing to do but
wait. I have to force myself to wait,
because my “right mind” gets bored waiting for the next few earning periods to
bail me out of stupid stocks like RIMM.
Tim
PS… here are some articles about how our brilliant minds
goof us up when we try to invest…
http://www.sciencedaily.com/releases/2012/07/120706184351.htm
http://www.ritholtz.com/blog/top-10-investor-errors/
http://www.fool.com/investing/general/2012/07/10/histories-of-things-that-never-happened.aspx
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