What Ifs. Mon Oct 26

It's 11.30 am and here's what looks like a bit of good news with the Producer Price Index rising by a less than expected 0.1% in the third quarter. It makes a rate rise next week look less of a certainty. The market is down 35 points, about 13 points off the lows, and running a bit worse than NZ or Japan which are also open for trading. US overnight futures are only down a tad.

My positions are mixed; Bly down a tick, Lyc is down 1, Rmd is up 3 and Wsa is down 10.

I've added a new position in brewer and winemaker, Fosters Group. I'm long at 563 and the breakout was at 561 with a second nearby resistance level at 564 which has also been passed when the stock peaked earlier at 565. I like this set up where there's a buy signal after a retracement because more often than not the stock will reach or pass the recent high. In this case it's just above 580.

I've been making money for the last few months but my performance has only tracked the index. Given the speed with which I move in and out of things I assume that if the market had fallen sharply at some point in this period I would have avoided most of the damage compared to a buy and hold approach. So, perhaps I've made the same sort of return with less downside; but in the past I would generally have made 2 or 3 times the market move.

I've been trying to analyse what's at the root of this because I think the cause is psychological rather than anything much to do with technique. More precisely, any technical weaknesses are being driven by an impatience or jumpiness that I haven't been able to shake. So, over the weekend I tried asking myself a few "what if" questions.

For example, what if I had a huge amount of money, say 100 million dollars, would I still want to trade? The answer for me was yes. Sure, I'd invest a lot of it fairly conservatively, I'd take more holidays, give more to charities and have more time off but I'd really like to trade two pools of money - one agressively and one fairly passively. That was reassuring, because it answered a question that was nagging at me: I'd been wondering whether my problem was that I no longer had the appetite for this type of work.

A large part of this problem with impatience might be simple "shell shock" where the effect of the long, vicious bear market is such that I've become super cautious. I describe it as vicious but really the bear market was largely a missed opportunity for a trend follower like me, except that the shorting ban made things very difficult so that instead of being short I was often finding myself long the least bad stocks which did outperform but not enough to make money. Along with the near collapse of the parent company of my clearer - which could have lost me most of my company's capital - I wonder if I've been carrying scars from that period. Of course, these events were a once in a generation or even a once in a century experience and to be too strongly influenced by them is a clear mistake.

So what to do about it? I'm not sure exactly, but one thing is to put less pressure on myself to make money quickly. For example, I think I'm pretty good at spotting the outperformers but too quick to get out of them. I was very keen on Vba a month ago and went long at just above 40. A month later and the stock is the best performer in the Xjo index of 200 stocks, up 33%. Quite honestly, I don't think there has been a stock I've liked more in the last month but I don't think I've made money in Vba because it hasn't been moving as explosively as I've wanted. Clearly it's a problem when a 33% rise in a month is not good enough for you.

I'm not suddenly going to hold all of my positions for a month but I would like to give them more time and space in general.

12.42 The market has recovered some more, now down 22 points. I've bought some Energy World Corporation at 48. It bounced strongly in early October after making a double bottom. It has corrected for 8 consecutive trading days and the range has been getting smaller and smaller. If it can hold today's gains then it's very likely a higher low with the potential for a sharp reversal back up.

4.13 The market drifted lower with most things slipping a touch. Ewc was the success story for the day as it rallied to close at 51.5. The chart for the Xjo index shows how tight it's been lately, with the last seven trading days chopping around 4800 or so.
Given the long uptrend, I think it's more likely that we'll push to new highs.