Thursday, December 04, 2014

Just Step Away From The Batter

Not sure if any of my thirty readers have ever watched Good Eats, a cooking show hosted by Alton Brown. Very entertaining stuff.  He spends a fair amount of time talking about the science behind cooking. One line he uses regularly is "step away from the batter", when stirring batter to make pancakes or waffles. It turns out that scientifically you can stir too much, and that makes the pancakes tougher (in a bad way).

I think you can apply that logic to investing as well. "Step Away From The Batter". It is so tempting to always be stirring the investment stew, trying to make it better, feeling like you are doing something. But my experience has been than more often than not, the moves I make don't work out so well. My better trades are those I make and then step away from the batter.

So this week I have been unwinding, with the intent that 2015 "will be different". I will not be a mad trader next year, that just hasn't worked very well. I will not be overweight in speculative names.

My portfolio will consist of 8 MFI tranches, each with five stocks. I will also keep most of my dividend plays, but the focus will move away from individual stocks to closed end funds and perhaps mutual funds or ETFs. And when I buy a dividend security, it has to be held for at least a year. Then on the discretionary side, really just the HIG and BAC warrants.

NO IPOs, no leveraged ETFs, no options, no speculative buys on m&a. Just stick with my approach that works and step away from the batter.


jb said...

I think that is a solid plan. Let the core investments ride and then don't look at them too often. That's essentially my approach. However, I do have a separate pool of money that I like to use for deep in the money covered calls or arbitrage situations. It is generally less than 3% of my overall portfolio. Playing around with those situations makes it feel like I'm 'doing something' without really having a huge impact on my portfolio returns. The returns from those two strategies (roughly 7% IRR) are less than my main portfolio, but it keeps it 'interesting' with investments that don't correlate directly to market ups and downs.

Karl Nelson said...

Very well said Marshall. I have also been gradually adopting a similar plan and it works for me. I do have a little stash of some funds that are for experiments, but small enough that it doesn't impact the overall performance. I have some successes and some failures in it, but overall it is a +.