July 26, 2015

In building a stock portfolio, the account size alone will more likely dictate the trading/investment management style, its constraints, and conditions.

Also, it will depend on other things such as return objectives, acquired market knowledge, acceptable risks, available time, and temperament. I would say: "Ultimately, the portfolio manager will be the focal point, the only decision maker whatever approach one might want to use" be it automated or discretionary.

One gains insight and experience as a byproduct of trying to manage, under uncertainty, a growing account size over long-term objectives. As if the acquired knowledge of the "game" itself was teaching one how to play.

Strategy design and investment philosophy also play a major role. But this will largely depend on: are you doing it for yourself and/or for others? One just won't play the same "game" when the main objective is to first protect and then enhance a client's capital. The outlook for accepting market risks tends to change.

One needs to design trading/investing strategies that can last for more than just a few months, or need to be continuously rebalanced, or with parameters needing recalibration every so often; all signs of poor strategy design. A stock trading strategy should be built to survive for 20, 30 even 50 years.

It's by making sure that your strategies can survive over extensive periods of time that you can gain the confidence needed to effectively implement them.

If you can't convince yourself that building a stock portfolio is a long-term commitment, then who will?

But this doesn't give the motivation to do it yourself when the task can be so easily delegated. Any active portfolio management is time-consuming and before undertaking such a quest one should ask the simplest of questions. Will it be worth it? How much time and capital should I put into this? What are the risks involved? Do I really want to win the game?

Some "play" the "game" as if it was really just a game, for the fun of it. They are not there with a long-term commitment but for the immediate thrills, the excitement. They will accept that most short-term players will lose; they don't have a problem with that. It's just that they feel they are better than most, and because of this, they are sure they will not fail whatever the odds against them may be. Somehow, they think they will show the market who's boss.

No one will stop anyone from playing the market for the entertainment. It can be captivating to watch all those charts and numbers blinking and changing value all the time, especially if you have a stake on the table.

But participating in the game is not the same as winning.

The game appears so simple, but in reality, it is designed for those having the time and resources to play it from a positive stance; meaning those that have found long-term edges; that it be by exploiting market anomalies, behavioral patterns, or statistical edges.

One can't say that all he/she has to do is follow a moving average crossover system to outperform playing their game. Not so, they won't. Just as I can't say: I'll buy a $3,000 course on the Turtles trading method and I'll be set. No, I certainly won't. Test that method yourself over the long term at a portfolio level and you'll probably come to the same conclusion I did. At least, I've done those long-term tests and the Turtles methodology did not outperform.

You need to look at the problem of trading and investing with a notion of where it all leads to. The why you want to do this in the first place. And these reasons are most often quite simple. I resume them in just a few equations.

It's "my" task, and responsibility, to design winning trading strategies to meet my objectives, even under uncertainty.

Created... July 26, 2015,    © Guy R. Fleury. All rights reserved.