This is my last column of the year and because of deadlines this means I am already on holiday. I have a few year-end traditions, of which two relate to markets.
First I will reread Trading in the Zone by Mark Douglas. This is by far the best book on market psychology and I reread it every year. Often some small point will resonate with my year in the markets and hopefully keep me constantly improving.
The second tradition is my portfolio review.
I start by crunching my returns for the year and the past three and five years. The 2024 return matters, but the longer-term return matters more because some years I may just get lucky — or unlucky. But my longer-term return must beat the market, otherwise I might as well quit and buy an exchange traded fund.
I also check what I got right during the year. This includes what I bought, what I sold and what I did not buy. Did I get the entry price right? Did the stock do largely as expected? If not, why not?
Selling is my weakness, specifically selling too soon. I have held onto my 2024 clothing retailers, which have given me 100%-plus returns. But how to maximise the return, even though I don’t expect another doubling next year?
How do the results over the past year fit in with my thinking when I initially bought them? Is there anything I missed?
I also have a look at what I missed. Some shares, such as Sasol, are a good miss. I investigated the stock in March and decided no thanks. But some misses hurt and then the question is why I missed them.
Now, of course we can’t catch every good idea; we simply don’t have enough capital. So, what I am looking at is the megatrends playing out, like AI. I have exposure there, but what’s bubbling up?
I also want to look at what I hold now. I have written before that when I buy long-term positions I make a short list of what I like and don’t like about the stocks. How do the results over the past year fit in with my thinking when I initially bought them?
Is there anything I missed? Are there things that are better or worse that I didn’t list? This part of the review takes a fair bit of time. During the year, as results and other announcements come out, I read them in detail, of course. But the next set of results or breaking news will often distract me from deeply reflecting on the stocks.
But over the holidays I have the time to really think about the stocks I hold, considering expectations, changing trends and maybe new risks.
I also check my watch list to see if anything needs to be added or deleted and if my reasons for having them on the list still make sense.
The process is never perfect but it’s important to ensure consistency in investing and trading.
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