the know-nothing investor

…money doesn't grow on trees, you know?

Tag: Study

5.NOTHING MORE TO LEARN

It has been a while since I wrote in the KnowNothingInvestor blog. More than seven months have passed and if I didn’t write it’s because there’s nothing out there worthy to learn. Nahhh, that’s not true, there’s always room for improvement. So why am I not looking for improvement? But I am. Nevertheless I now have a system that have been guaranteeing me a fair share of profit and thus I’ve become more cautious. There is no need to rush or spoil what i have been working on, now I can take time and decide later what will be the next step.

Since I begun back in 2013, I’ve had returns in line with what I have expected. These are the returns after taxes and fees:

  • 2013 – -3.53%
  • 2014 – + 16.81%
  • 2015 – + 4.98 %
  • YTD – + 0.35%

But why should I bother to improve my returns if I’m doing good? I guess we humans want always more and I, not being an alien, I’m not different. One of major faults appointed to a multi-asset portfolio is that we’re aiming for average instead of grandiosity. I can live with the fact of being average, specially if in the long run I’ll beat the majority of those aiming for grandiosity. Living to be average is hard because since childhood we are taught to achieve greatness, so when we assume that we’re investing in markets to get average returns our brains start to question us if shouldn’t we be looking for greatness!?  When I started trading I was aiming for grandiosity and that didn’t go well and I learnt a lesson “I prefer to be average than broke”.

In the end, a diversified portfolio will beat the majority of hedge funds and day-traders returns, so how can this be an average strategy? I think it’s because it takes time. A lot of time and pacient, 30 or 40 years of hard saving and investing. It will be when we are too old to “live deep and suck out all the marrow of life”, as taught by the great Henry David Thoreau. But If I didn’t put my savings in a couch potato strategy I wouldn’t also spend it until my last penny “living la vida loca”. Probably, I would look for a bank deposit and then after 40 years neither “vida loca” memoires or nice retirement account. Once again I turn to Thoreau, trying to appreciate small thing in life over material stuff and realise how much I’ve already own. The plain reality is I wouldn’t spend all my money in the material world, because that isn’t who I am. It would be nice to buy more goodies, but I can perfectly live a comfort life without them.

But if I save I need to invest properly, which I am. So why do I need more? Because I’m still curious and I want to keep tuning my system to improve it. I’ll do this using a very small portion of my total capital, maximum of 4 or 5%, as taught by John C. Boogle. The way I’ll do it is yet to be decided, but value investing or hedging the portfolio assets when their going down could be the answer. I’ll take my time, there is no need to rush. After all I’m already winning the fool’s game. If I fail, I’ll rapidly quit and I’ll look elsewhere for that extra return of my portfolio.

Now it’s time to do some studying.

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1.FIRST YEARS

In 2010 I was expecting my second child and I started to wonder what could I do to improve my family’s income. Not because my income was not enough, but mainly because I wanted to insure a steady future for my family, where my kids, my wife and me could have plenty of options to decide big family’s dilemmas, such as “should our kids study abroad?”, “should we move to a bigger house?”, “Am I saving enough for retirement!?”. And if you want to have a wide range of option, money certainly helps.

So I remembered a forgotten passion that was investing in equities. In my early twenties I invested part of my first salaries in equities and I did quite well. In a short-term period I made more than 20% of profit. Then I wanted to buy my first car and I sold everything for that purpose, car which I still have by the way, but if i would have kept that stocks for much longer I would not have much left, with losses more than half of initial capital. Beginners luck I guess…

This comeback would be different, because I wanted to learn all trading secrets and tricks. I established a plan that would take me a year to study while I would save enough money to start trading. What could go wrong? And if everything went according my mind plan I probably would quit my job! Yeah right…

With such wishful thinking overflowing in my head I started to read books about technical analysis and differents styles of trading. I also became a regular visitor of trading blogs and forums. I was really curious and passionate about trading and I wanted to learn the most I could. I learnt about charts, moving averages, RSI, MACD, support and resistance lines, long, short, swing, momentum and day trading, options, CFD’s, ETF’s, money management and psychology, psychology and psychology.

Finally I got it, I needed to be psychology strong and to have some kind of money management that would allowed me to preserve my money from myself (Good lessons by the way). I also decided that I would be a long-term follower trader and I would trade contracts for difference (CDF’s), a trading instrument that is a financial derivative and is not available in US, due to restrictions by the US Securities and Exchange Commission on over-the-counter financial instruments, but allows you to have a leverage ratio of 10:1 in stocks, which was what I needed because the initial capital wasn’t much.

In 2011, after I spent one year studying and getting ready to trade, Portugal went almost bankruptcy and needed to go under EU/IMF/ECB financial assistance programme. For me as a government employe was a setback because I saw my wage shrinking. This made me re-thinking my expenses and investments and gave me more strength to learn more about investing. Nonetheless, I got real upset for seeing my pay-check cuted, I understand the implications of being a public worker, furthermore in Portugal where is real hard to get sacked in public administration. But I had always been a pretty good worker, skilled and honest, why should I have to pay for a bureaucratic, bad managed and sometimes corrupted public administration? I have not, as my liberal friends tend to tell me “If you are not glad go and find something else”, but the private sector was also hit hard and jobs got scarce. Anyway I was still in comfortable position, living near work and able to see my priority investments growing up, my kids. Why should I bother to be good at investing if can’t raise properly my children? Their are in fact my most important and valuable assets. So if I try to be the best  father I can and give them love and a good education, probably in the future I will avoid a lot of headaches and money thrown out of the window.

Since I am a father I am always remembering one sentence:

‘Prepare today your future investments’.

 PTEN