Unrequited love and the picking of shares

USA/China

At last my portfolio is making a little progress. This is happening on the UK side and the US. There are several factors which are helping.

First my assessment of the overall market worked out. I made a good guess that 16300 was a key level for the market in this latest viscous pull back. The Dow turned round at 16332 after a near 5% decline from its all time high. I bought on the way down, mostly on the 29th July but, as you know I picked Chinese shares. My guess that there would be a turnaround in the US market kept me in the bulk of my trades despite initial losses which, without a belief that this was not the beginning of the end, would have sent me scurrying for the hills. The net result is that I have 1.2% in profits in just 2.5 weeks. The scales up to 25% in a year - comfortably within the range that back testing predicts using Vector Vest.

That result includes nasty realized losses which I took on certain internet real estate shares. And it includes some shares which I have only just bought and which are still carrying unpleasant early losses. The big movers are BITA which is up 37% and XRS at 22%.

The realized losses would have been reversed had I held my nerve. I sold because of a negative article published in Seeking Alpha, a web site that publishes reports by all manner of commentators. I suspect that it includes rampers and short sellers as well as proper analysts. It's the second time I have been caught out by reading some of their stuff. I should be more careful.

UK

My performance in the UK has been equally good. I exclude GVC wich accounts for almost half of my UK holding. I picked it for different reasons from the rest of my UK portfolio and is doing very nicely thank you. 

I began my buying campaign on 1st July and a third of my new UK holdings date back to that time. On average my holdings are 3-4 weeks old. In that time they are up by over 5.5%. On an annual basis that

equates to over 80%. And this was in a period when the market fell by 1.5% overall but with major rises and falls in between.

Top performers are GEMD, up almost 20%, RNWH up 17% since 22 July, OMI up 14% since 30 July.

They were purchased using my old time tried and tested share picking system which, unfortunately cannot be back tested by Vector Vest. VV does not allow testing price movements relative to the market, nor does it allow the testing of cash-flow per share compared with earnings per share and its measures of PE and eps growth are obscure so I cannot check if they are comparable. These measures are all integral to my UK share picking technique.

Share picking

What is important is that this share picking system has kept me solvent and happy for 17 years. I have enjoyed a very comfortable lifestyle all of that time based exclusively on my share trading which has this share picking methodology at its core.

My approach to share picking is, and always has been, shot gun rather than sniping. I use a system for picking shares that I know works on average and buy at least five shares at a time which have the characteristics that predict, on average, that they will rise in the next few weeks or months. The proviso is that there is no general pull back.

My miserable performance over the past few years has been the result of my continuing but mistaken fear that the market would pull back. When I have had the courage to be active in the market, for example in 2012 I have performed up to or close to my average performance of 14% pa 1998 to 2013 (17% pa up to 2010).

Why we grow to love our shares

Treacy, in Crowd Money, talks of the problems from which investors suffer. He quotes a seminar delegate who said he found it much harder to sell shares than to buy them. Treacy's analysis is that rather than thinking of greed and fear as driving investment decisions, impulses which best fit the economist's view of market activity, we should use love as the best emotional analogy. 

When we fall in love we are overwhelmed by elation. We have made a choice of companion and we look

forward to a happy, exciting and rewarding relationship. This is paralleled when we buy a share. The good feeling beds in as profits role in. The thrill of the buy is in contrast to the dismay when things begin to go wrong. These are the emotions of a jilted lover. Loyalty goes unrewarded and a feeling of shocked ambivalence takes over. Disbelief makes the investor hold on too long. Too much has been invested in the relationship and it proves hard to give up. Blame is placed on the instrument, the adviser who recommended the share anything but a willingness to accept that things have changed. It is hard to throw in the towel and losses generate resentment.  Love makes us want to hold on. We made our choice at the outset and we cannot let go of the partner of our dreams.