Just sharing why I like using Scatter plots to analyze long-term returns in individual positions.
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@DavidGFool @JohnHuber72 @iancassel @IntrinsicInv @dmuthuk @Gautam__Baid @BluegrassCap @GavinSBaker @TMFInnovator @ROIChristie @TMFJMo @saxena_puru @investing_city
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Professionals might have much better Tech/Resources, but retail investors have a limited set of tools (from Brokerages, Web/Apps) to analyze how each of their long-term positions is tracking against their initial & updated thesis/expectations/holding period.
When you DIY this for the love of the game, but have too many positions & are constrained on time/effort (& this is not ur main job), it's easy to lose track & let many positions linger much longer than they should, since you don't have an easy & objective way to look at things.
Behavioral biases always find a way to creep in.
-Anchoring (waiting for losers to come back to even so that you can sell).
-Status Quo (not checking on existing positions just because you don't want to disturb things as they are).
-Anchoring (waiting for losers to come back to even so that you can sell).
-Status Quo (not checking on existing positions just because you don't want to disturb things as they are).
-Endowment effect (not looking at your holdings objectively, and thinking that your loser companies are actually worth more, just because you're holding it).
Stuff like this can wreck your Portfolio.
Stuff like this can wreck your Portfolio.
So I started using this Scatter plot of Returns% vs holding period (in months).
Most of these positions are bought for the long-term (with the expectation of increase in intrinsic value). Only Positions held for more than 1yr are entered to avoid all the short term noise.
Most of these positions are bought for the long-term (with the expectation of increase in intrinsic value). Only Positions held for more than 1yr are entered to avoid all the short term noise.
How I use it 👇
1)Are the companies performing as per your Business/Valuation thesis? In most cases, 2-3 years is more than enough to judge this.
2)For the big winners, what are all the underlying reasons for the gains? More of Business or valuation improvement or both?
1)Are the companies performing as per your Business/Valuation thesis? In most cases, 2-3 years is more than enough to judge this.
2)For the big winners, what are all the underlying reasons for the gains? More of Business or valuation improvement or both?
Is there still opportunity in this company or others in the Industry?
3)For the long-term losers, what are the fundamental and other reasons ? In flat to strong markets, you generally shouldn't have long-term losers if the company and it's future is good.
3)For the long-term losers, what are the fundamental and other reasons ? In flat to strong markets, you generally shouldn't have long-term losers if the company and it's future is good.
Get a clear & objective status on the company/stock and make a firm decision.
4)You also have to look at the path they took to be longterm losers (smaller losses getting bigger due to business deterioration, or decent gains then turning into losses due to few qtrly misses etc.)
4)You also have to look at the path they took to be longterm losers (smaller losses getting bigger due to business deterioration, or decent gains then turning into losses due to few qtrly misses etc.)
So the main goal of this was to not let the long-term losers eat up your precious capital/time. I'm still guilty of having 3-4 of those horrors, very little capital left in two of to salvage now, lesson learnt though. 😐
Thank you for reading. 🙏
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Thank you for reading. 🙏
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