EP 4:  Trust Numbers, Not Opinions:  Actively Trading Your Stock Portfolio

September 02, 2019

In this week's Market Call, Louis Llanes discusses common obstacles that investors face in order to reach their goals and how actively trading a stock portfolio can add value to building wealth.  Louis explains how managing your stock portfolio can help beat the erosion of capital due to inflation and taxes.

In this video Louis asserts that it is better to trust the data more than opinions.  He explains how seeking stocks that demonstrate properties of trending higher can improve performance. He discusses the importance of lowering risk when the general stock market is in a draw-down and to stop taking on new positions when risk levels rise. He discusses pre-defining the acceptable risk levels for each stock and sizing positions for this risk. He delves into letting profit runs by leaving ample room for normal volatility. This process of "letting your winners run and cutting back on losers" can improve trading statistics.  He discusses asymmetric return profiles and higher average win versus average losers.  He discusses selecting from a universe of stock that have new products, redefining an industry, high quality, sound valuation.  How price is a great indicator if a situation is improving for any particular company.

Louis charts a few stocks to illustrate a stock in an uptrend and those with choppiness that can lead to losses with this type of trading.  Lastly, Louis talks about the pitfalls with back tests and hypothetical results as well as the useful data that can be gained from analyzing the data in light of economic conditions and operational considerations such as commissions and slippage.  He also warns agains the hindsight bias inherent with all back tests. 

Louis walks through a disciplined way to trade a stock portfolio to help investors grow capital while employing a strategy to manage risk and managing market changes.  He discusses the pitfalls of listening to the media, conflicting advice, and how this leads to lack of clarity.  He also discusses how there is a wide difference between advisors and their expertise and how conflicts can lead to poor recommendations.  He discusses how a systematic way of investing can help reduce errors from problems with conflicting advice and potentially making smarter investment choices.

Lack of clarity and fear can lead to losses or poor performance because opportunities can be missed due to holding too much cash and investors can wait for a significant gain in markets before investing and then the timing may be amiss and often these investors do not have a risk management strategy which can compound the errors.  He discusses the importance of having a lower correlation between holding and how investors tend to hold higher correlated instruments.

Unnecessary capital gains, expenses, and a bias toward large cap companies which can increase risk when markets get volatile.

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