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Half Right and/or Half Wrong

One of my favorite books on investing is the very first book Jim Cramer ever wrote, called Confessions of a Street Addict. He wrote the book quite a while ago, before he had a show on CNBC and had turned into kind of a meme of his own, back in 2002.

Cramer was a hedge fund manager and a pretty good one. The book is about those hedge fund years. It has a lot of insights on how he managed the market with his fund.

There are some nuggets in the book that I have taken to as my own rules. Three of those are what Cramer used to do when he began to fall behind. He used 3 maneuvers when his fund was not doing well and he could not break the slump:

  1. Circling the Wagons
  2. Maidens to the Volcano
  3. Going Flat

Circling the wagons is when you pare back to a few positions that you have the highest conviction in, selling everything else.

Maidens to the Volcano is a sacrifice – sell the positions you love the most to appease the trading gods.

Going flat is the nuclear option, selling everything, good and bad.

I do all these things when I start to get frustrated with how my stocks are doing. Usually in stages of grief.

I start by circling the wagons, selling positions I’m not certain of in the first place. This time round it was stuff like Renalytix, Arca Biopharma, Millendo Therapeutics – stocks that I think could go up, but have some reservations about.

With my portfolio still not going up enough on up days and going down too much on down days, I start chucking the maidens. My first maiden this time around was Rada Electronics. Love the stock. Sold it, about 50c from the bottom too. Sold Intellicheck, this time better timed as it kept coming down. Sold most of Eastside Distilling.

Still not working. Market rallies, my portfolio does nothing. Market falls, my portfolio falls. A couple of days of this is enough. F- it – I’m going flat. Sell everything other than a few mega-cap positions like Facebook and Amazon and Google that were the only things that are working. Dump everything else, long, short and otherwise.

I sit on that for a few days. I ruminate. At first, I feel a huge wave of relief. My portfolio is not going up, but it is also not going down. I’m out. I can take a step back. Not worry about reading the news. I write something about how I don’t get this market, stepping aside, blah, blah blah. But what I really need is some perspective and I only get that when I step away for a few days.

But then the next stage of the process starts. I begin to get that gnawing feeling. I have not been looking at the market, not paying much attention, but nevertheless I’m getting anxious – anxious about being out.

So I start drilling down into that anxiety. What am I anxious about? Which stock am I craving?

I’m doing the work now on those names that are gnawing at me. Going through the numbers again, reading my notes. It is easier to do the work because I have no skin in the game. Do I really want to own this? Is it really worthwhile? Oh yeah, I forgot about that, this is a good idea. How is the market not seeing this?

Through this process I begin to see what I really want to own and what I did not need to. The stocks that give me that gnawing feeling, and where I take that second look and think man, that is a good idea – those are the one’s I buy back. The stocks that don’t – those are the one’s I should not have been holding in the first place.

Call it a process. A cleanse. I seem to need to go through this every so often.

The stocks that really gnawed on me? Rada. Intellicheck. Eastside Distilling. Biomerica. To a lesser extent, Smith-Micro. I bought those all back, some with even more conviction than before.

It is a terribly inefficient process. I will have to pay taxes on all those sales I made. I had to buy Rada back well above where I sold it. Obviously I’m paying all these trading fees on flushing everything out and then buying it back.

But I don’t know how else to do it? I never get clear-headed until I’m out. I never know what I really want to own until I don’t own any of it.

So anyway, that’s my last couple of weeks. This market is too strong. I was very right to get out of the index hedges. I was right to get into the mega-caps.

In addition to Facebook, Google and Amazon, I also bought the pharma stocks I mentioned in an earlier post – Bristol Myers, Abbvie and Lilly. I added to my Facebook position. I bought back Sharpspring, I stock I owned last fall. I’m still short puts on the high-flyers, though I feel like I screwed that up by not going for the EV names like RIDE, AYRO, GOEV, NKLA, and XL. Those are the real losers here and I kinda missed that.

And I was wrong to get out of all the micro-caps. But it was a necessary wrong. I had to get out, only to see what I needed to get back into.

One Comment Post a comment
  1. Michael Friesen #

    much appreciated how you cover how the sausage is *really* made. All the fancy funds claiming to be “top quartile” and having a “consistent process” – blah blah blah. I think what you are describing is the messy reality of investing psychology, no matter how consistent or rigorous the investor’s process is, and it is great to see it described in close to real-time. I will complement you that you are able to sell a stock, re-evaluate, and then buy it back; don’t think many humans are able to do that, as you probably know by watching other investors. I suspect what you have earned and will earn from being able to have that flexibility, will outweigh the frictional costs of trading (within reason) in & out. best wishes

    April 15, 2021

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