Part of the rationale for starting this blog was that it would provide some discipline against acting impulsively and making unforced errors. I’m far from immune from fear and greed and the powerful impulses to act these emotions can generate. In the past I’ve occasionally succumbed to bouts of panic or impatience and made some pretty bonkers decisions as a result. Committing myself to record all of my trades and justify the rationale behind them publically provides a mechanism to restrain myself – it’s much easier to behave like an idiot when you think no-one is watching.
In general I think my blog has performed this function well. I feel my investing decisions have become more measured and less impulsive, especially since I have committed to trade at most once every couple of weeks. I spend much more time patiently mulling over the relative merits of alternative investments and waiting for opportunities to present themselves, rather than feeling an urgency to invest in the next great idea as soon as I come across it (and then sell again as soon as a flaw is revealed). Unfortunately, every now and again I slip up and act impulsively, as I did for my last trade. Here is a bit of self-flagellation to motivate me not to do it again…
Two weeks ago I brought forward my trade scheduled for last week and used it to sell out of Somero and buy into Boohoo, after it issued some impressive looking results. Boohoo shares promptly fell by 10% and Somero issued a trading statement the following day, sending the shares up by almost 15%. Ouch! I allow myself some flexibility to bring forward trades if an exceptional buying opportunity requiring swift action presents itself. In hindsight this was clearly not one of those cases. Given Boohoo had updated the market that trading was going well just a few weeks earlier and the price had already rebounded strongly off its lows, the results needed to be more exceptional to justify jumping straight in. I should have at least waited to get a sense of the share price reaction. The impulsive decision to buy Boohoo led to the impulsive decision to sell Somero. Both decisions cost me (at least the timing did). What’s especially grating is that I’ve made a similar mistake with Boohoo before.
So what’s the moral of the story? It’s an investing classic. Be more patient and slower to invoke ‘exceptional circumstances’ as a justification for deviating from the plan.