Some volatility for share prices again this week, particularly on Friday following a further North Korean missile test and some hints from the Bank of England that interest rate rises may be coming sooner rather than later. Higher interest rates would be bad news for my portfolio both because equities become less attractive relative to bonds and because of the impact on the exchange rate. A higher pound means my investments, which mostly earn in dollars, are worth less in pounds. Accordingly, my portfolio has taken a bit of a hit today.The volatility has caused me to sell a couple of holdings: RWS for an 8% loss and Microgen for a 12% loss. I have also rebought Accesso Technologies, following some positive news of a fairly significant contract win, but unfortunately at a somewhat higher price to the one I sold them at fairly recently. I previously wrote about Accesso here and not much has changed since then so I won’t write about it again.
I do feel a bit shaken around by share price volatility recently, having sold out of a few shares on lows (Accesso, Burford Capital and NMC Health), only to end up buying back when they’ve bounced again soon after. This definitely has made me feel a bit foolish, but to some extent may be the cost of following a momentum based strategy.
I seem to be doing OK in spite of this and I’d definitely rather incur some costs rather than hold my portfolio through a big correction. However, as I first mentioned a couple of weeks ago, this recent experience has made me question my use of (informal) stop losses. My current approach is a little ad hoc and more recently has perhaps become too tight. In other words, I may be being a bit quick to sell when prices start to fall rather than allowing a bit more volatility. Eight out of my ten last sales have either risen in price or remained flat since I sold. While the rest of my portfolio has also risen since I sold most of these, selling too quickly has definitely been costing me recently. I think I should have a closer look at how much this cost is, to see if it is likely to offset the cost of holding for longer through a correction. I think that’s one for the next post…
When to sell has always been the most difficult part of investing strategy. If a share falls more than 8% from its high, if it grows to comprise more than a fixed percentage of the portfolio value, if it has risen sharply and falters and so on. I hold Boohoo and it’s an expensive share. On 12th June after a sudden spurt it gave a strong candlestick reversal caused by a large director sell. Will it recover or is that a sign of impending investor weakness? Many years of investing have taught me that a profit banked is a profit for real so I sold, watched the price and bought back in on 27th July after support held and the price rose on good volume. OK I paid about the same for it as the price I sold at, but now I start afresh. It has low volatility, strong investor support and a broker consensus target of 277p, but if support starts to falter I’ll be out fast because if investors have had enough who am I to argue. and that’s the point – in momentum based investing it’s the investors who hold sway and that can be read from the charts. If that is your main investing criteria then it is best to stick to that when making sell decisions in my view. Portfolios are littered with long-term investments bought on a short-term view where the investor failed to sell early on and must now wait indefinitely to get their money back or take a big loss. The future is largely unpredictable and this must be taken into account as many have discovered when they thought they knew better.
Thanks for the comment. Yes I agree – that’s the momentum approach and as long as you’re disciplined it’s hard to see it going too wrong.