Thread by @macropotamus

Equity investing:
As I continue to improve on my selection & shift my focus on names that have potential to surprise to their upward fundamentals, the discipline of selling & trimming winning positions (on valuation, sizing, lack of catalysts) keeps making me feel like an idiot.

It was "easier" when I covered cyclical sectors or traded turnaround names or companies going through changes (industry, company specific). More predictable, or said differently, less room for imagination about these companies.

With fast growing companies, it becomes tricky. I would often miss at least half of the upward movement (latter part) as fundamental stories change (outlook expansion), followed by increase in speculative interests.

Sometimes it works out as I sell/trim them before they break down. It is luck, nothing else.

I also observe that It is easier to stick with large/mega cap growth names even when valuation becomes expensive and stocks have a great run. SMIDs are difficult to hold on to.

So what is the point here?

Absolutely nothing.

I would say that with individual names, it is becoming eaiser to accept "being an idiot" and missing out, knowing that there are many other interesting names/stories out there also makes it bearable.

Also, as a consolation prize, I would avoid nasty reversals by giving up sometimes spectacular gains.

The questions are:

1. Have I not done enough research to recognize or have confidence about the expanded fundamentals?

2. Could I have sized the positions smaller just to enjoy a low confidence ride?

3. Could I have converted them to positions which I manage based on price actions?

Then it comes down to risk managment, portfolio construction, and more importantly, resources (time/energy).

It is probably worth a while to keep digging and convert/resize the position with a newer thesis but I get bored with the stories, especially just expansion of existing stories.

Reducing the size for risk managment is fine, reducing the size because you no longer have...

...confidence in it but want to keep it for a speculative ride is risky.

Managing it through price actions requires full time attention, and you will likely get stopped out because you no longer like the stocks, only to see them going higher after and humiliating you.

I have been refining my approach and now it is “move on and look for other good pitches.” Sometimes I would go back to the same stocks (even at higher prices, and usually after a while) with a fresh look.

It works for me. I can sleep through the night and still keep all the fun of looking at and researching companies on my own time.

I have gone through booms and busts. Eventually you appreciate the role of luck, even more so when you are lucky enough to still stay in the game. (Thank goodness!)

Proper risk management (and I would stress) and being kind & helpful will make it sustainable and keep you sane.