On seeking to change oneself

Following my last post, and a good night's sleep, I awoke and as soon as was possible commenced in deleveraging my own portfolio. Gone were the Apple shorts, gone the FTSE shorts. Back to simply holding positions in a few stocks where I felt I had an edge, which is to say a few stocks that I believed to be undervalued. But such transformations of temperament do not take place immediately.

According to the research I've been conducting, habits are the key to all outcomes. A more advanced argument from the realms of NLP is that values drive beliefs, which in turn drives your thoughts and from there you get your habits, which leads to your actions and thence your outcomes. But, crucially, those habits can be manipulated away from their basic tendencies with sufficient work. In some forms this is done by revisiting values that may inhibit outcomes at the other end of the relationship. I haven't been too successful with this approach though. In other cases, a simple application of a new habit (generally where it doesn't conflict with deeply held beliefs) will be sufficient to bring about new outcomes.

So, how do habits form? Well, simply from repetitive actions. By repeating an action every day for a month, it has been shown, a new habit can be formed. This seems to be a great path for creating outcomes in the future that I would dearly like, and I'm happy to say that some progress has been made in this area.

So, following the closing out of the more speculative positions, I adopted a new approach, although I did retain some of the old habits, which have caused some pain to my P+L. The new approach is the one I seek to maintain forever more. That of the Value Investor. Do enough work in valuing a stock to be comfortable with your own view on where it should be fairly priced. Check the market price and buy if significantly undervalued. Simple.

As a case in point, there was some volatility in the price of shares in Man Group following an earnings announcement on 28th May. First the shares fell by 10% on the earnings news. This was surprising to me as I thought the news was fairly positive. They had written down a retained stake in the trading arm that was (wisely) sold off recently, and underlying profits apart from that were strong, given the climate. So the immediate sell off was a bit odd in my view. And, what does one do when he finds an undervalued stock trading at a discount to intrinsic value - he buys. Unfortunately I bought when the stock was down 5%, so didn't get the best prices of the day but did well enough paying an average of 245p/share. They stock is back up at 285p today (16% above where I was buying) against a fall of around 5% in the FTSE 100 index over the same period.

But hang on. A one month period does not a long term investor make. At least the market voted my way after the first day of decline. Similarly my other favourite, Hallin Marine Subsea International, posted healthy gains over the past month and stands at 146p/share today. My view is that both these stocks are significantly undervalued and I continue to own them.

In my more speculative trades, I am now short US treasuries to benefit from a perceived rise in fears over inflation to come. I would like to short oil at what was recently over $70/barrel, but think I have no edge here. Incidentally, I have no real edge in treasuries, but was annoyed not to have done something about my views when 10 year yields hit 2%, so have done something about it at 3.54% (now 3.7%) and have a stop limit order in place in case I am wrong. For the general indicies, I have (speculatively) bought put options that expire in September on the S+P at a strike of 850. This is my psychological hedge, to offset the annoyance if markets tank and I'm not involved in the fall.

And so, it appears, the new thought habits haven't set in quite yet. I've not been glued to  a screen as I have my CFA exam on 6th June and have been busy ever since. Off to Italy this evening, so more busy-ness for a couple of days. On changing habits, Antony Robins notes that it is the pain and pleasure associated with outcomes that leads people to really seek change in their lives. Well, enough pain has been endured watching red numbers grow larger as my bearishness has been met with rising markets this year. And the last month has seen some pleasure from the shoort-term gains on Man Group stock and rising treasury yields. Perhaps more research, when there is time, and more competent investing with positive outcomes is the key to long-term success.

Of course that's why investors want to see track records in the first place, as they may be repeatable in the future.

So here's to creating the habits of success. Think long-term. Perform robust analysis. Always, ALWAYS preserve capital. And try to be macro-agnostic, or at least not incredibly biased in one (negative) direction all the time!!!