I was going to start this post with a brief commentary about the general state of the market. This is how I have tended to introduce my posts updating on portfolio trades. Reading back through them, it now seems quite amusing how often my degree of optimism changes week to week. While it is quite interesting to have a record of this emotional rollercoaster, I’m going to stop doing these commentaries. I’m trying to become more relaxed about short term price movements and this feels like one thing I can change (along with checking my portfolio too frequently). Preoccupation with the ups and downs of the market doesn’t help my performance. Unless I have good reason to believe a crash is coming, it’s not worth worrying. It may even be counterproductive.
Following my new approach of periodic rotation, this is a week for me to rotate one stock. I’m aiming to slowly expand my portfolio up to 25 stocks (currently at 19). If I then rotate one of position every two weeks, this means my average holding period will be a year (or my annual portfolio turnover 100%). This should coincide well with my time horizon of about a year that I discussed in last week’s post.
This week I had a bit of spare cash in my portfolio so there was no need to sell anything. I added a new holding in Games Workshop. I have held Games Workshop previously – up until January this year in what was my most profitable investment ever in absolute terms. I decided to sell in January after some careful consideration. Unfortunately, with the benefit of hindsight I can see this was a mistake. To be fair I think it was reasonable for me to be equivocal about Games Workshop’s prospects at the time, but I think given this the right decision would have been to hold on longer. A combination of a lack of patience and fear of letting my biggest win slip through my fingers drove me to sell when the momentum flagged only a little.
Looking back over the last year or two, this seems to be a mistake I’ve made several times. It’s a bit depressing to look back over this fairly short period at the list of investments I sold shortly before they made big moves up in price: Games Workshop, Craneware, Fevertree, Burford Capital, Accesso Technology, Trex, Paycom, NMC Health and Amazon. With the benefit of hindsight most of these sales now look like overreactions to temporary price volatility. It’s probably not fair to call all of them mistakes but I’m pretty sure that with greater discipline on my trading I would have held on longer in at least some cases.
A lesson I’m taking from this is that even if you have a good idea about what you are trying to do, it can be hard to stick to it if you allow yourself too much discretion. Those pesky emotions are hard to control. While I have had a well-structured approach to investing for some time now, I have been reluctant to fetter my discretion too much within this overall framework, feeling that exercising at least a little discretion should add value to my trading. Now I’m a lot less sure of that and am more clearly seeing the benefits of setting an absolute limit on how much I trade.
Circling back to Games Workshop, I still have the same view of its fundamental strengths and weaknesses as set out in my previous post. Not a great deal has changed, though the narrative in the results and trading updates issued over the past year has given me additional confidence that its recent growth spurt may continue. I’m buying back in as the momentum continues to be so strong, indeed near the strongest on my watchlist. My intention is to focus more systematically on this from now on. The valuation has increased significantly since I sold but still doesn’t seem too extended.