The other day I wrote about how I had rediscovered the Investment Club I co-founded in college. That club has done much better than I have personally as an investor. The club has done better than the S&P 500. The fact that it only owns two stock, one of which is AAPL(Apple Computer), probably makes it a poor portfolio comparison. However as comparison it does highlight one my main shortcomings as an investor. Soon after I rediscovered my club, I was reading SuperSaver’s post on “Why Most People Get Returns Less than the Market.” and thought about how it applied to me. My actively managed stock portfolio is currently trailing the market (as defined by the S&P 500) by a 1.5%, it’s also displayed much less volatility so it’s not all bad. I’m not particularly disturbed by the fact that I’m under performing the market for the year. Since my bonus is not paid on January 1st, it cannot be expected that my portfolio would track the Jan 1st to date performance of any index.   I should calculate the performance of the index as timed with the additions made into my account.   Given that current short term performance is not my primary concern,  I’m not bothered by lagging the index in the current year as much as what I think is behavior that drags on my long term performance.

Reading SuperSaver’s article made me think harder about the investing mistake I’ve made and continue to make. Given that I was assessing my end of year goals, I’ve been actively thinking about how I invest and could do better. As I stated earlier, the main holding of the Investment club is AAPL. I also purchased shares of AAPL in 2002 (or around there) in my own personal brokerage account. AAPL shares are not to be found in my account today. Why? I brought AAPL at about $10, and sold it at $12.5, split adjusted. Pretty nice 25% gain for what I believe was a 6 month investment. Not so nice given that those shares are now worth about $130.

When it comes to investing, I think of myself as long term value investor. However I suffer from the 1st behavioral problem that SuperSaver outlines, loss aversion. I’m quick to sell winners and slow to sell losers. When it comes to losers, in my taxable accounts, I’m OK. It’s only in my tax deferred accounts that I really have a problem selling losers.  In my taxable accounts, I take solace in selling a loser with the ability to take a tax loss, something I can’t do in my tax deferred accounts.  Holding onto winners is a problem I have in both taxable and tax deferred account. If I’m truly a long term investor as I believe myself to be, there is really very little reason for me to sell. A traders takes his profits quickly, and investor builds a portfolio. I need start to behaving more like what I believe myself to be.

I haven’t been terrible. I’m far from an active trader, but there are definitely holdings I should’ve let run. Recently I’ve taken to selling option calls rather than trying to sell the shares outright. Still these sales have not worked out particularly well. While, I think I do an OK job identifying purchases, I need to have a more concrete plan of attack when it comes to sales. From the outset, I should define how much I want to hold onto company as permanent part of my portfolio, and constantly reevaluate what I consider to be an “irrational” price at which I would take profits. Currently I do not reevaluate enough. Given that I work in job that requires me to constantly do this, you would think I would be better at it.   While I have a framework to evaluate my investments overall, I don’t have a framework to evaluate specific stocks.   One of the goals I have with regards to the investment club is to have members create “stock reports” in a fixed format.  I believe this framework will make the job of reevaluation easier.