Such should be the introduction at Traders Anonomous. Sadly most traders belong to this group whether they realise it or not.
During meetings with clients I often see the excitement in their eyes when I explain asset based value investing. Usually I give out plenty of examples to explain what I am saying and just as often clients ask me if they should buy all those stocks at once.
Apart from freak market conditions I don’t believe that they should.Personally I aim to add about one value share per month. Ok market conditions vary so I may purchase more shares one month than in others.
Looking back through my trading diary I made trades in the following months:
October: I purchased 3 lots but in 2 companies ( Caza.L = 1 purchase, JCR.L = 2 purchases ). I sold half my Caza stake for a near 70% profit in 2 weeks. I continue to run the other half to this day.
November: I purchased one lot in a new company ( SEA.L ) and sold it a week later for a near 10% gain. I sold a little JCR for a 17% profit in just over 2 weeks. JCR has since delisted, I bought after the delisting announcement, and I am happy to run the remaining lot as it pays a dividend of over 12%.
December: I bought small initial stakes in 3 companies.
January: Nothing thus far.
This is about the most active that I am. Those trades occured because I found undervalued opportunities. Sometimes these opportunities surface often, most notably in bear(ish) markets, and sometimes you can’t find anything suitable to invest in for month on end. When the fish are biting fish otherwise just lie back and get a tan. :O)
JCR actually is the ultimate value investment. There is no ticker to remind me how fickle the herd is, I can’t sell at a whim ( there is a matched bargain facility ) and I just have to hold the business and it will pay me a 12%+ dividend per year. I bought it on something like just over 2 times 5 year average pre-tax profits. After the delisting announcement everyone ran for the door, so the share price fell massively,but I started buying the shares because the value was so clear.
I think of JCR like a perpetual bond although I am fairly sure something will happen in the next 5 years. If it doesn’t then that’s fine too.
Anyhow getting back on topic: research has shown that those who turn their portfolio over frequently don’t beat the market. Those that trade rarely, often outperform the market. There’s an excellent write up on this by Jason Zweig in the newer edition of The Intelligent Investor by Benjamin Graham.
So I ask each of you to look at your portfolio and see how often you turn it over on an annual basis.
On a final note my trades above were all winners this is because I wait for deep value and for everything to be in my favour. This takes patience and discipline which can be acquired by practise. I, too, was a hyper trader once until I learned my lesson.
Stockbrokers depend on activity to make money, a value investor depends on inactivity.