Thread by @DavidTaggart

1/I read a book a few weeks ago called "The Art Of Execution" by Lee Freeman-Shor.

I didn't agree with him on everything but I did more often than not. And there was one very important truth in there.

Here are some notes-mostly my words but a few direct sentences

2/-Be a killer-my words for sure but something I am trying to be more and mroe by the day. If it helps say "WWWEB do" cause WarrenB is every bit the financial gangster that WarrenG claimed to be on the streets. (if you dont get the reference then you are clearly no Regulator)

3/By be a killer I mean make the right decision and just do it. We know that emotions are the #1 return killer...and yet how active do you fight the dumb ones? Also stocks dont know who you are. You owe them nothing.

4/If successful trading is about good decision making vs better analysis (both is ideal) then portfolio construction and management is at least 1/2 the game. Probably a lot more than 1/2 btw.

The bulk of portfolio management is not rocket science, just consistent decision rules

5/Winning is about asymetric returns
-Cut losses religiously-the book+my thoughts are depening on your strategy somewhere in the 5-30% range. Anything more is lunacy aside from gaps
-The drawdown to back to breakeven math is a bible for risk discipline.

6/Time stops are underused. Buying value without a catalyst, any catalyst, is how you usually end up in value traps. The same with any stock though. You should have an idea of how long it should take for the idea to start working...or not. Time is money.

7/Stops-Use them-But place them with volatility, trade catalyst, risk/reward, and opportunity cost in mind. "I put stops 12% below my purchase price" is better than nothing but that sucks and doesnt take the rest of trade into consideration. You can do better :-)

8/Most traders dont sell losers due to loss aversion. Dont be like them.

You can't chnage the past but you can change the future. Dont live in the past.

Get a coach. They can be great if used and selected correctly.

9/people get coahces for all kinds of things. WHy not trading/trader psychology? I think @DeniseKShull would agree.

-Portfolio management is both execution of each trade idea+managing portfolio, corelations, etc. Port management needs a LOT of love, more than most give it.

@DeniseKShull 10/Generally speaking dont be quick to take profits. Don't cut off the right tail. Avoiding losses is great, avoiding gains is less so. Don't be structurally short vol, short convexity.

Directional trading relies on right tail for big gains.

@DeniseKShull 11/Learn to ride winners. Go back and look at your last 200 or 100 investments and look where you sold vs what happened next. In most cases you should have held your winners longer. Either way study, maybe youre the exception and you should hold shorter.

@DeniseKShull 12/if you dont measure you will never know.

But figure out a discipline to ride winners. Maybe even add to them.

Worthwhile to study trendfollowers. Maybe even backtest a few systems. Will show you a good risk management strategy and a way to try and ride your winners.

@DeniseKShull 13/a lot of discretionary fund managers would do well to learn a few systematic tools for trade management.

Figure out if it makes sense for your strategy to trade around a position. Should you take partial profits on the way up? It helps a lot of people stay in the trade

@DeniseKShull 14/For big returns you usually need some concentration risk and to let some big positions ride. He talks about this in the book and in my experience I have found it to be accurate.

@DeniseKShull 15/at the end he ha a list of rules of the habits of winners and losers. here is how I wrote them down
Losers-
-overdiversify
-under concentrate in their best ideas
-hold losers too long
-hold winners to short
-forget to consider liquidity

@DeniseKShull 16/Winners
-best ideas only. depedns on strat but usually 10-30 positions should be like 95% of book
-position has to be big enough to matter to portfolio
-run your winners, ride them,don't cut the right tail off so much
-liquidity needs to be porportional to your aum/fund size

@DeniseKShull 17/I saved what I think is the most important point for last. Or at least the point that other people have not covered in enough detail.

When a trade you are in moves a lot-up or down-then you probably need to change something in your portfolio.

@DeniseKShull 18/if a trade is down -25% then depending on your rules and strategy you should either be adding to the position or cuttting your losses. You shoudl NOT just be sitting there twiddling your thumbs saying "it will come back"

@DeniseKShull 19/If you really beleive that and you avg losers-can work for some strats-then you need to be adding. If you don't beleive that then you should have already sold.

@DeniseKShull 20/The point is that there is something to do. Sitting on your hands in this type of scenario is usually deer in the headlights or justifying and not what a "killer" would do.

@DeniseKShull 21/So it is a relatively simple concept but not changing your portfolio as the sitution changes is usually detrimental to your returns.

The book was worth reading. He had lables for different types of managers that I didnt get into here. I focused on the habits

@DeniseKShull 22/Lee is an allocator and has stats from years running SMA's with top managers and he required them to run 10 position books for him. Just their best ideas.

@DeniseKShull 23/I will end this thread now. A lot of this has been covered in tons of other books but the inaction on big changes got me more than I would have guessed.

anyways
xoxo