FOLLOWING A ROUGH QUARTER, I’M ASKING MYSELF THESE 6 QUESTIONS
I just sent members our monthly performance numbers for the investment names within the portfolio. To put it bluntly, March sucked for us. It capped off a somewhat frustrating quarter where we became all too familiar with the dynamics of a sideways trading range. 3 out of 4 of the names within our portfolio are mired in a sideways range. All of the 3 closed the month at the bottom of their respective sideways range. This creates an odor in the performance numbers that is only remedied through a steady diet of positive gains in the weeks and months ahead.
I think it's important when suffering through down months - and especially down quarters - to examine one's thesis and judge whether it continues to hold valid. If you invest based on fundamentals, you must look at the individual stocks within the portfolio and ask some questions. Here are the questions I am asking myself tonight:
1. Do the fundamentals that drew me into the stocks I invested in still hold true?
2. Does the catalyst that caused me to take a position in the stock still have validity?
3. Have the names within the portfolio become more correlated to the general markets than in the months or quarters prior?
4. Have the investments in the portfolio become popular amongst investors, causing the potential for unnecessary volatility in the investment?
5. Are technical warning signs beginning to pop up?
6. Are there macro-economic developments beginning to take shape that may interfere with the potential for the investment?
If I can give a confident no answer to a majority of these questions, then I'll keep the portfolio allocated as is.
It's important that you, as an investor or trader, constantly reexamine your thesis or system of trading. It should become an especially urgent matter during drawdowns. You must constantly look at yourself and be willing to admit that I could be wrong here. You must then be willing to make the necessary adjustments to right the ship.
Be pro-active in all facets of your investment or trading life. Don't become complacent or think you have any single component of your investment or trading methodology down. It is during times of cocksure arrogance that the market will devour nuts and leave you in a state of complete and utter impotence.
Keep it alive and stay wise.
