August 5, 2012- Of Timing the Markets and Time frames

Seth Godin’s recent post “Time Frames” struck me somehow.  It’s very short anyway, so I’ll be pasting the excerpt below.

Time frames

The giant multinational can start a project knowing that it will take years to pay off.

The struggling freelancer might be willing to invest a few days.

Venture capital, particularly for web companies, mostly changes the time horizon. It means that the bootstrapping entrepreneur can make longer term investments, building assets that scale instead of cashing them in daily.

Goverments do some of their best work when they take on projects with time horizons that would frighten away even large companies. You’re going to waithow long for that bridge to pay off?

One interesting side effect of going public is that companies that use venture capital to lengthen their time horizon suddenly (in just one day) have to switch gears to a time horizon that’s measured in days or quarters.

And one useful note: if you’re having trouble selling/working with or for an organization, it might be because you don’t understand each other’s time frame.

*****

I want to copy quotes and scribbles I sometimes write.  Back in the days, I wrote the following line:

” When you marry fundamentals and technicals, your baby is a high probability trade.”

I’ve always had the trading mentality.  I never had quite that “feeling” of owning a company, as though it were really my baby.  Even if I liked the company so much, I never quite felt I owned it.  Even if Peter Lynch will remind me in his book that “a share of stock isn’t a lottery ticket, but it’s part ownership of a business”, for some reason, I’ve always wanted to be in the “action.”  It took some time for me to let the fear of not catching every move pass.

To put into context,

I used to be a really short term trader.  The longest time frame that I held a stock in recall will most likely be Lepanto Mining back in the days when it was hot.  It took me around 7-9 months to hold that winner.  That was the longest time frame for me.  What I’ve learned though is that the longer I hold onto a winner, the better the feeling of confidence it gave me to weather out the pullbacks in the prices.  Also, I learned that the more I didn’t trade in and out, the better my portfolio went.  So I’ve tried to strike a balance.  I’ve tried to hold a portion and trade a portion.  Sometimes, however, I can’t really quite hold my winners and get tempted to just sell everything.  The cost of selling those winners – well – are one hell of a gun.

*****

Despite endless data telling me how peso cost averaging works wonders in a person’s portfolio, I’ve never really did what I’ve preached.  I’ve always had a combination of stocks with which after a few 5-10% moves in a span of weeks,  I’ll be quick to sell.  Rarely, has it been that I’ve held on to my winners, but I’ve been learning the merits that no one knows how high or how low a pullback will take, nor can anyone with great timing ability completely buy back a stock he/she sold at a cheaper price than he sold it for.  Slippage can be costly.  That slippage can be a 5% difference, a 10% difference or who knows what.

That’s why end of the day – the lines Seth Godin wrote about struck me.

Knowing that a business will take years to pay off, but the pay off will be huge, I need to strike a balance to learn to hold on my positions longer than merely days, months or so.  Instead of cashing every profit, simply sell a portion.  I’ve tried to strike a balance, a compromise if you will.  50-50, trade and invest.  Sometimes, you’re better off leaving the wheel to the markets.  When you’ve caught yourself a winning baby, you just let it run or let it walk, until they beat the dust out of you.  And when they fall, so long as you’ve bet on many horses, turtles, ducks and foxes, you’ll never find your portfolio losing pace from the race.

See that MBT? wild right?  Well, that’s the merit of peso cost averaging, and the patient turtles just doing what they love to do.

Time frame.  Time frame.  Time frame.  Loosen that time frame when you have a winner, and you’ll wonder how beautiful your portfolio has become.  The less you tamper with your winners, the more they perform WITHOUT your help.

And that my friends, is the clearest and purest definition of your money working hard for you. 🙂

– Faceless Trader

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3 Responses to August 5, 2012- Of Timing the Markets and Time frames

  1. pyt says:

    very hard not to take profits. better if you forget your password on your long term account so you can’t sell.

    Like

  2. ronald says:

    its really hard to resist the urge to take profits on a winner because we fear we’ll give back those profits when prices reverses(this is particularly true when trading basuras …prices changes very fast).But this is the way to be profitable ,to let your profits bigger and run ,on those ocassional winners as againts those many small losses.

    Like

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