I’m very bothered by some questions I’ve been getting privately from a member who is still in the learning stage and want to make sure those new to P123 understand something very important, something that may not be apparent from the quantity of messages on the forum.
“Trading” per se, getting the best possible execution prices, is all well and good. But it is not something you must do, especially if you aren’t a full-time professional. If you have the temperament for trading and are willing to put in the effort, that’s fine. But that’s not necessarily the same as “investing.” (They can but need not be done simultaneously.)
Speaking for myself, I’m not a trader. I’m an investor. I cannot remember the last time I put in anything other than a market order and I am never picky about the day or time when I trade. The P123 strategies I use are not sensitive to such issues. I rebalance every four weeks and if I’m a day or so late, it doesn’t bother me; the time of day when I trade varies based on when I remember and/or get around to it; I don’t go so far down in terms of liquidity that I need to concern myself about slippage; I never trade a model with less than 10 stocks and usually it’s more than that (my cherry-picking-the-blue-chips is an exception to my usual 4-week more-than-5 day-rebalancing habits). I live or die based on the merits of the ideas that inspire my models, not trading details. And as I said today in an e-mail to one user on the topic of managing slippage, “if you don’t like the price, then don’t make the trade.” (That’s the only foolproof protection available to you against “getting your face ripped off” by market makers – their expression, not mine.)
So for those of you who are new at this, please, please, please, please do not presume based on what you often see in the forums that you have to be concerned about the nitty-gritty of when and how you trade. It’s fine if you’re into that sort of thing, but is only a tiny (very tiny) part of what p123 is about.
Note for R2G users:
I’m aware that at this moment, much of the available R2G product consists of five-stock models rebalanced weekly. I suspect that may be a byproduct of our first-generation interface, which seems to have allowed data-mined models to look good. The overhaul now on the front burner will change that and, I believe, also make to easier for models aimed at “investing” as opposed to “trading” to get noticed by prospective subscribers. (We do have such models now, but they are not yet getting the prominence they deserve. That is what will change, and I believe, make designers inclined to create such models more willing to enter R2G – including me, aside from the models I posted early on to help get the platform off the ground.)
I think that the problem described above is unrealistic expectations by new users. If the average investor has made 2.5% per year for the last 20 years then why should one be able to make 50-100 % per year with a large amount of capital without being an investment guru? New users should consider holding a large number of securities (50+), with low to moderate turnover (under 500 % but ideally much less than this), and liquid securities (mid to large caps) for the majority of their portfolio, and be happy when you beat the averages. There are plenty of reasonably priced r2go that fit this profile. If you follow the preceding suggestions then your frustration will significantly decrease. I wish you all the best of luck.
Scott describes my overall strategy well and I have been happy with the results. I too don’t focus on getting the last cent out of every trade (but I do follow a regular system for trading.)
Marc - another thing that needs to change is the weekly EMAIL winner’s circle. When I see 15%+ gains week after week I have to wonder what I, as an investor, am doing wrong.
As I posted in the general forum today, there is excellent research that the best money managers (who have to deal with capacity issues) are long term investors.
PS They also don’t make many big sector bets vs the benchmark they are trying to beat. Turns out that the sector bettors can’t sustain outperformance over time.
I agree with Stitts with on the weekly winner’s circle email. In particular, short term - 1 week & 1 month - winner lists are useless because they don’t tell anything about the long-term success of a portfolio. I would rather like to see only 1, 2 and 5 year results. Furthermore, most life ports in ‘public circles’ are based on next open or even previous close, and hene do not bear any real-world results.
The winner’s circle also doesn’t bear any resemblance to portfolios that one would actually trade (liquidity, etc). In some cases data glitches send a port into outer space.
Marc - You’re sermon is well recieved. But the others here are absolutly right about the seductive numbers that arrive in my inbox every Saturday morning.