Analysis, patience, playbook and objectivity make magic
Look at this from the Trading With Cody Chat Room: “Being a banker in Wall Street, I’ve tried every single strategy you can imagine in my over 25 years in banking. I’ve only made money consistently since I started to follow Cody’s strategy. And I say strategy because his real magic is not solely in stock picking but in investment strategy as well (money management included).”
As you’ll see below, I asked this subscriber how long he’s been reading my stuff. He wrote: “I discovered you from your articles in the Financial Times (was working in London at the time), so I would say 2007. I’ve read everything you wrote since then (Thestreet.com Marketwatch etc). Became one of your disciples in 2011. And now am a proud member for life of TWC4LIFE.”
I’m not sending those quotes to you to brag (really!). I’m sending them because they were part of a larger discussion about strategy and goals that will be valuable for all of us and I’m always amazed at the expertise and diversity of the Trading With Cody community. And man, I’m flattered and honored when I read feedback like that from someone who’s been on Wall Street for decades — and magic is what we’re trying to, I suppose, isn’t it?
Because as I’d noted a few weeks ago,”I’ve seen very few money managers (their names are Cody Willard and Warren Buffett — haha) outperform the markets over the 2.2 decades I’ve been on Wall Street.”
I’m going to use all this discussion about strategy and what not into a column for everybody and will try to give some sort of guidance if not actual answer to some of the questions. Because on many of these issues about how to avoid losses but keep all the upside are complicated at best.
Subscriber Frank: I am an older investor and as I have said, TWC is the best investment service I have owned, by far. But being older, I have a different investing policy, if you will, than most. When a stock, let’s say AAPL hits $225 per share, I decide would I pay $225 for this stock now! Not where it has been but where it is now? Better than that I assume I have paid $225 for AAPL and do I now think it is going higher or lower. It is now my money. No matter if the stock doubled, tripled, whatever. If I lose 10%, 20% whatever in a stock, I have now lost money that yesterday was in my account. It is real money! When people buy a stock at $10, and it goes to $20 and they sell half now saying I am playing with house money it drives me bonkers. No it is your money! What’s my point? I hate it when TWTR goes from $48 to $30. Or AXGN from $57 to $36. Or FB from $219 to $161. There is no good answer other than sell or take profits. But sometimes maybe we do get cavalier.
Subscriber Steve: I think it is a question of philosophy. We all presumably have a core of TWC stocks. The snapshot of where they are today simply doesn’t matter that much, depending on our investing horizon. For me, I intend to hold AAPL for a long time, and AXGN and TWTR until Cody decides to sell. The day to day or week to week ups and downs are somewhat irrelevant to me. As Cody says, you can’t make a living trying to game short term moves. But if you believe in a company long term, then you own it, not trade it.
Subscriber Frank: Thanks for your thoughts but I disagree. I am not talking about 5% moves. Stocks never just go up forever. And it does make a big difference if you are holding a long time. If you ride a $10 stock up 100% and sell it at $20 and it drops 50% and you buy it back at $10 and it returns to $20, In the non sell case you made $10. In the sell it case you made $20. That’s double your profit by not just sitting there and blindly holding forever. Timing sells is not easy but it can pay! We have 8 stocks down 20-40% off 52 week highs. If we believe in these stocks long term, should we not buy at least another tranche? If they drop more, should we not buy another tranche? Again do not misunderstand, I love TWC but 20-40% corrections are significant.
Cody: Ok, let’s get a little dose of reality into this discussion. How would I or anybody else possibly be able to pick the exact tops and bottoms and successfully sell every time a stock hits its all-time high and then know exactly how far and how long it will drop and then get back into those stocks? It’s just not realistic. That’s why I always preach trimming a little bit here and there when stocks go up big and then nibbling a little more here and there when stocks you like go down a bunch. How many times have has Apple gone down 20-50% in the 15+ years I’ve owned it? Probably dozens of times. Have I sold it every time right before it dropped and then bough it back at the bottom? No.
Furthermore, let’s walk through this strategy of buying at the exact bottom and selling at the exact top right before the stock drops 20-50% every time, but’s think longer-term. If I’d done exactly that with Apple over the last 17 years, do you think I’d ever have slept at night and more to the point, do you think I would I have 22,000% gains to show for it?
There’s a reason I do my long-term Revolution Investing core holdings, trading in tranches, using hedges, being cool and slow with my money — because that’s what gets us the outperformance!
Subscriber Golf: I agree Frank I do not ride these stocks to such a big loss and there are some that have not ever recovered. With you Cody and TWC is great and have made good money but for my style which we all should do whatever makes us sleeps better I take profits when stock seems to be trending down on bad news or whatever the reason. Can always buyback and yes its ok with me to pay a little more to protect my profits.
Subscriber Ric: Hi Steve, agree with you 100%, timing the market is too difficult, not for me. But I like the point of fknoll when he says: if we really believe in these stocks now down over 30%, shouldn’t we buy a bit more? Cody is very prompt in telling us when to trim a little bit (and I always follow him) a bit less when to nibble more (ex: we trimmed some AXGN over 50$, some buying at 35?)
Cody: I’m probably about to nibble back some of the AXGN we sold near its highs, but part of my hesitance in adding small tranches in our existing names right now is a function of how far the market has run in the last seven years. Stocks aren’t up just a little bit, they’re up huge and Axogen is still up like 800%+ from where we bought it. And it’s still not “cheap” again. So look, I have to stick to my guns and do what I think is right. I know, I know, I know my subscribers want more ideas, more tranches, more nibbles, more excitement. But I’m here to help you maximize your returns and minimize your risks for the next ten or twenty or thirty years. And that means I’m not going to make up new ideas, force new tranches and/or otherwise enable aggressive/fast money.
Subscriber Golf: I also agree with Steve but someone that is 35 vs. someone that is 65 there is different situations not all the same for everyone. Also no matter the age some have their own style of trading or investing using Cody`s picks.
Subscriber Ric: Being a banker in Wall Street, I’ve tried every single strategy you can imagine in my over 25 years in banking. I’ve only made money consistently since I started to follow Cody’s strategy. And I say strategy because his real magic is not solely in stock picking but in investment strategy as well (money management included)..
Cody: Notice Ric calls it “magic.” Because it’s not science. There’s no set algorithm that you can program your portfolio with. That’s what makes investing so hard and what makes great investors so far and few between.
Cody: Ric, may I ask how long you’ve been reading my stuff? I know you’ve been a TWC subscriber for seven years because I just had them check LOL. 🙂
Subscriber Ric: I discovered you from your articles in the Financial Times (was working in London at the time), so I would say 2007. I’ve read everything you wrote since then (Thestreet.com Marketwatch etc). Became one of your disciples in 2011. And now am a proud member for life of TWC4LIFE.
Cody: I’m honored and flattered. Sometimes these days, as my wife and I have children (one with all the time/effort/focus/love that goes into taking care of a medically-fragile child) and I live back in my hometown, where I work out of the same office I used to work in when I was a registered real estate appraiser during college (I mentioned a few weeks ago that I bought this office)…I mean, writing for the Financial Times, showing up at FT events late in jeans and a black Armani dress shirt and jacket, seeing Elliot Spitzer’s name tag on the table at the entrance and putting it on and making all those old fuddy duddies and heads of states/CEOs/etc in there laugh when I’d walk up to introduce myself…anyway, wow, thanks for reminding me of my FT days!
Subscriber Ric: Actually Cody, I’m missing your articles from the FT. Nice to read you daily here, being able to ask direct questions and chat with you but reading an article is different. Especially your articles on the FT, they were more macro, really interesting and your views were always fresh, clear and challenging. I know you still write articles, but any chance you would consider introducing a regular column for us here on TWC ?
A. Coincidentally, I found a couple more of my old FT articles framed up and brought them to hang up on my wall at my office as I continue to decorate it just yesterday. I was reading them as I hung them up and thought about the stylistic differences between those articles and what I do these days. I should indeed do some of those at least once every couple weeks for TWC subs like I used for the FT readers.
Subscriber Ric: Thanks Cody, I think your column would be really appreciated by everyone here, one at least surely will!
Ok folks, Cody back in real-time again here. And I’m here to keep making the magic. But part of making magic is being slow with our money. Being cool. Doing our homework, homework and phone calls that others won’t. Being objective in our political, economic and market analysis.
Analysis, patience, playbook and objectivity make magic? Who woulda thunk that. Flip it, as usual!
Here’s some Neil Young lyrics about what happens when you try too hard to be magic:
“Johnny Magic has a way with metal, has a way with machines
One day in a garage far away, he met destiny
In the form of a heavy metal Continental” – Johnny Magic by Neil Young
Learn more at http://tradingwithcody.com.
