the Lake Woebegone School of investing

Posted by spshapiro on February 21, 2012 (06:08AM)

When you structure a portfolio with an eye to having some positions that should do well, even if  the bulk of your portfolio is doing poorly, then you expect that you will always have some losers. You just hope that your winners will outweigh the losers, and expect that the ‘countervailing’ positions will help in a drawndown. This has worked reasonably well for me for some time, and especially since 2000. The falls haven’t been as dramatic as the market, and the returns to new highs have been quicker.

There are a number of different measures that I look at to determine how I am doing; one of them being, how well I am doing in each position year to date. Of the 46 stocks that I have a position in, only 3 are down YTD. 29 are up by double digits. I do not delude myself. This is not strictly due to great stock picking. This is largely due to a ‘bull’ market, for which I cannot take personal credit. 

Putting together that I expect to have some losers and the fact that I have so few, leads me to the conclusion that this is getting close to ‘too good to be true’. I lived through a long period of time (’83-’99) where this went on and on and on. So I know that ‘irrational exuberance’ feeling up close and personal. I also remember what it is like (from my youth) to wake up with a hangover, and I don’t have to do it again to remind me.

Once you stop trying to guess the top, you can relax. You have given up on being the best, winning the whole thing, for the satisfaction of taking home something. Over time that something, might just be better than average. Hey, we can call it the Lake Woebegone School of investing.

Posted by Fiddie on February 21, 2012 (02:19PM)

spshapiro said:

...hope that your winners will outweigh the losers, and expect that the ‘countervailing’ positions will help in a drawndown. This has worked reasonably well for me for some time, and especially since 2000. The falls haven’t been as dramatic as the market, and the returns to new highs have been quicker.

I've read that in several places - and seen it in the 3 years I've been investing directly in markets.  Quality stocks retain more of their value in bearish days and gain more in bullish. Which is why value investors do so well when they hold for several years.

This could also be an argument for a moderate amount of fundamental research even for momentum, swing, and options traders.

Posted by spshapiro on February 22, 2012 (06:07AM)

When I see a gain like this, I can't just stand by and say, "It could keep going." In the middle of Jan I sold May 47's CCs. on half the position. Blake (CEO) has been great, but after a gain of 35% in 4 months, I don't care, you don't let that just go away because the market turned. Sure I wondered since then whether I did it to myself, so yesterday I sold some Apr 46p's. Between the two premiums I collected nearly an extra 5% on the whole position, a nice capital gain if I get called on the 47's.
But as Fiddie noted, it would make no sense to do it in the first place, if I didn't mind holding HD anyway. 

Posted by The Otter Way on February 23, 2012 (11:46PM)


just thought I'd vote... I like this one better....

Posted by spshapiro on February 24, 2012 (12:04AM)

Thanks, sweetie, and if I'm elected......

Posted by incubus on February 24, 2012 (12:37AM)

Rubbing eyes, is that a T/A chart Shap just posted?

Posted by spshapiro on February 24, 2012 (06:52AM)

T & A Inky?, somebody's lookin' to get their mouth wash out?

Seriously, I don't know why cut and paste worked this time. I've held HD for more than 12 years, and I can't recall ever seeing a run like this. My decision to lock in a partial gain is not based on a chart, but how a chart conflicts with the underlying macro environment. Taking the partial gain as oppose to closing the whole position, iis based on the fundamental analysis that Blake's tenure has been productive and should continue to be so.

Posted by spshapiro on February 24, 2012 (07:16AM)

Btw, here's another one, quite similar. Maybe, the run isn't quite as long/strong but I couldn't resist selling a CC on half my position.

Posted by El Dorado on February 25, 2012 (04:59PM)

or maybe a maybe a clone of Jack Benny…

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