3SOF

I thought it might be good to have a dedicated thread where we can discuss the subject of long term vs. short term investing, especially because it is coming up in almost every thread where David is making analysis of the new picks.  So it might burden him less to have that discussion relegated more to an area where we can all focus on it better.

I personally am intrigued by the new approach, and understand the rationale behind it given that the great investors of history have tended to be more long term in approach (i.e. Warren Buffet et. al), but given that 3SOF was able at one point to get a 200% return in one year, personally I still have a great desire to understand under what conditions that type of return is possible.  As such, I am presently more on the side of "short term" until other arguments might convince me otherwise.

So, ladies and gentlemen, please start your engines and put in your opinion on the current raging debate on 3SOF!

David's enthusiasm for the longer term investment perspective lead me to pick up a book called "The Tao of Warren Buffett".  It is actually a very quick read, and has a lesson per page, 125 in total. 

Here is number 8 as an argument for the long term side:

No. 8
"You should invest like a Catholic marries - for life"

Warren knows that if you view an investment decision from the perspective that you will never be able to undo it, you'll be certain to do your homework before taking the plunge.  You wouldnt jump into a marriage without doing your research (dating) and discussing it with your advisers (your pals at the pub) and thinking long and hard about it... would you?  Nor should you jump into an investment without knowing a lot about the company and making sure you understand it.  But it is the life part that really makes the money.  Consider this:   In 1973 Warren invested $11 million in the Washington Post Company, and he remains married to this investment even to this day, and over the thirty-three years he has held on to it, it has grown to be worth $1.5 billion.  The conviction to stay the course can bring heavenly rewards, as long as you have chosen the right one to begin with.

QuoteThe conviction to stay the course can bring heavenly rewards, as long as you have chosen the right one to begin with.

This is what it's all about, pick the right ones! Unfortunately, I can't diversify my portfolio as big as 3SOF does, so I have to pick the right ones! But what if I pick the wrong ones, If I follow the current strategy, holding long term based on fundamentals, and the pick appears not to be working out , my investment will be for nothing, I even may take a loss after several months of holding ...

This problem doesn't exist when you trade more short term, picking good entry's near support, if it works out, fine, if it doesn't works out, take a small loss and move on! The history of 3SOF has proved that it works, I remember very well when we all bought VPHM, sold it and rebought it and sold again for very nice gains, David bottomfished it perfectly back than, I miss those times ...
Someone calculated that we made a lot more money by selling it and buying back later than if we would held on, I like it this way and I'm not convinced that we'll miss the big runups by using this strategy, on the contrary ...

All I'm trying to say is that it would be nice to diversify the strategy, some long term picks, but also some short term pure technical picks too, I'm pretty sure there would be a crowd for it and with David's experience, it can't go wrong imo, look at 3SOF's history... 

QuoteI personally am intrigued by the new approach, and understand the rationale behind it given that the great investors of history have tended to be more long term in approach (i.e. Warren Buffet et. al), but given that 3SOF was able at one point to get a 200% return in one year, personally I still have a great desire to understand under what conditions that type of return is possible.  As such, I am presently more on the side of "short term" until other arguments might convince me otherwise.

I guess I was lucky in 2005. It wasn't the first time that I did that in my trading career, I had years where I've done much more than 200% profit.

For example, once I started with a $3,000 futures account and run it up to $80,000 in about 6 months (that's a 2,500% return in 6 months). I felt like a king, bought a Porsche Boxster and an old country house.

On another occasion, I wanted to buy a house for my family, and I started with about $10,000 ... the house price was about $250,000 ... I went to $100,000 plus in a few months, but in the end I couldn't buy the house.

Do you know how gamblers have winning and losing streaks? Well, as an example of a losing streak, once, when my first child was born, in the week after, I lost all my money in just 7 days. Instead of being one of the happiest moments of my life, I felt quite sad

Not like I thought I was gambling, not at all. I studied all I could about short term trading and day trading. As I look into my shelfs, I count 40 books on the subject, some of them I've read several times, like "The Complete Day Trader I and II", "The Disciplined Trader", "Trading for a Living", "Electronic Day Trader's Secrets" and on, and on.

I don't have just my own experience, I've known hundreds of short term traders, because I used to run a very popular financial website prior to 3 Stocks. Every single one of those traders had this pattern of winning and losing streaks. Most of them have given up trading after 4 - 5 years trying. My experience is traders either evolve to being more long term oriented, or they quit.

Why is short term trading a gamble in my opinion? Because there's no economic base to it. It looks predictable, and it is, when your hand is hot. When it's cold, and it will be cold, you'll start buying when you should be selling and selling when you should be buying. It happens to all human beings (and machines too).

Being a successful investor is one of my most important goals in life. I don't want to earn a lot of money very fast coming from a low base, I've done that already, several times, and it's not worth it. It is a waste of time, because all that is made without an economic foundation (that is, by gambling) will be lost, perhaps plus more, in the future.

Read Livermore's story. He made millions of dollars several times, but he was broke in the end (although I believe that last failure had more to do with the 1930's depression and bankruptcy of banks than anything else, because he also evolved to long term trading after his first 10 years on the job).

You see that my experience is somewhat different from yours, since I went further on my short term trading techniques and traded futures instead of stocks. Futures have a lot more leverage and liquidity. They make more sense for very short term trading.

Trading a diversified portfolio of stocks for the short term, say, 5 different stocks, my guess is you won't make 2,500% in 6 months, but you won't lose it all in 7 days either. You will earn less and lose less. As years pass, you'll at best break even ... will make some money in a bull market, as it is easier, and will lose some (perhaps more) in a bear market. Years pass and you'll see you've gone nowhere. You won't be able to say, before you die, "I was a successful investor!"

And that, my friends, is what is in stake here. Time is a limited resource. The more time you waste doing the wrong thing, the less time you have to do the right thing.

Now you might say: "and what if I'm already old, say, I have 70 years old? I won't have time to get rich trading !"

I say: probably you won't, unless you live 90 or 100 years, but you still have a chance to say: "I've done the right thing, I was a successful investor!"

And that is a priceless realization.

You can see, from this post, that 3 Stocks is a very different service when compared to others. It is as honest as honest can be. What I've said here I probably wouldn't say to some of my "friends". I do this because some of you have the dream, as I do, of being a very successful investor, and I want to help in everything I can for you to accomplish that.

The debate is open, and if you would like me to discuss my short term trading techniques because you also want a Porsche (even though I say it's not worth it), I can do it. But I would prefer to study how a man that makes 30% a year will be a millionaire for sure.

Have a nice day

Se7en, here's what you should do: Earn $37,500 doing whatever you do for a living and start trading with that initial capital. Put $2,500 in each of the Stocks on Fire Portfolio stocks. You'll probably be a rich man 20 years from now.

Now here's what I should do, having knowledge of your and others problem: develop a smaller and shorter term portfolio. I may do it, but it will only be for 3 SOF's commercial reasons.

Have a nice day

Thx for the advice David!

I read this somewhere, thoughts?


Oil prices have totally collapsed to the point where everyone knows about it. My mom mentioned to me today, "Neil, oil prices have really dropped, haven't they?"
Everyone knows.

No one used to know these things until it was really talked about up in the $70 range. Then, even when the prices come down, it's still a big deal. It
was a big deal when Nortel was at $100 in 2000. Then, somehow, it was a also a big deal when Nortel dropped to $70, then $50, then $25, then $10,
then...
So remember, don't get hooked up on fundamentals. Technical indicators LEAD the fundamentals. That's why when reports come out that, "Hey guess what, the world needs a BIT less oil every day." Or even, "The growth rate of oil consumption is SLOWING, yet still GROWING"......

Oil prices have already tanked by the time those reports come out.

That's why fundamental analysts are NEWS REPORTERS, and that's why the market MAKES THE NEWS.

So, when you are a trader, you are a STRATEGIST. You're not an analyst. You are a forward thinker, not a news reporter. News reporters, or should I say analysts, are always last to know everything. Strategists are always first.

David,

Thanks and applaud for your post, it was a real eye opener for me.  I dont have a family, but I cant imagine how it might feel to lose all my money in 7 days with a newborn child as well!   Reminds me of one of those stock market wizard books I read, there was a story similar to that, the guy borrowed money from his father and lost it all, he couldnt even bring himself to tell his wife they were broke... Anyway, I would rather learn from that kind of perspective than ever have to experience it for myself, so again, thanks for sharing that!

I guess my question now is just how long term is "long term" for you.  Like would you have held through the correction last May?  Or do you mean long term as long as the market is clearly acting bullish? 

Speaking of that, the short term trader in me won this morning and I liquidated all of my stocks except BFLY and SKNN, and I might just sell those soon too.  I just dont like seeing 2 distribution days in a row on the Nasdaq with stocks this high, at this time of the year. 

I wouldnt necessarily say I am bearish, but I decided that at some point I actually have to learn the discipline of going to 100% cash as I have never done that since I started trading.  I think I need to feel what it might be like to be free of the market, as it does become somewhat of an addiction for me. 

And since I dont like the technicals and behavior of the Nasdaq and potential pin action that can bring to the entire market, I may just go to all cash here soon.  If so, I will use that time off from trading daily to study more about how to short stocks properly and about long term investing and fundamental analysis, and to keep reading and learning from this excellent site!   

QuoteI guess my question now is just how long term is "long term" for you.  Like would you have held through the correction last May?  Or do you mean long term as long as the market is clearly acting bullish?

You have to understand investing from a business perspective to know what my long term is (or intends to be).

Stocks are part of a business and a business is not to be bought or sold whenever the S&P500 goes up or down.

Anyway, I understand you and others concerns, and long term investing isn't commercial enough, so although I'll maintain the fundamental/long term strategy on the main Portfolio, we're about to launch a new and super fast technical/fundamental portfolio.

It will be fun, just 3 stocks, $15,000 as starting capital, intraday decisions, all the ingredients many folks like. To be noticed I guess I need to make more noise for a bigger audience lol

We'll see how it works, perhaps I'll be surprised and even make some money 

Quote from: David Randolph on January 18, 2007, 07:22:59 PM

QuoteI guess my question now is just how long term is "long term" for you.  Like would you have held through the correction last May?  Or do you mean long term as long as the market is clearly acting bullish?

You have to understand investing from a business perspective to know what my long term is (or intends to be).

Stocks are part of a business and a business is not to be bought or sold whenever the S&P500 goes up or down.

Anyway, I understand you and others concerns, and long term investing isn't commercial enough, so although I'll maintain the fundamental/long term strategy on the main Portfolio, we're about to launch a new and super fast technical/fundamental portfolio.

It will be fun, just 3 stocks, $15,000 as starting capital, intraday decisions, all the ingredients many folks like. To be noticed I guess I need to make more noise for a bigger audience lol

We'll see how it works, perhaps I'll be surprised and even make some money 

Awesome, the best of all possible worlds as Voltaire would say!  Great solution to the debate, I really look forward to that portfolio as well!  Man, I learn so much from this site, and it just keeps getting better and better    Together with your new video analysis and I feel that my learning rate is going into overdrive 

QuoteAnyway, I understand you and others concerns, and long term investing isn't commercial enough, so although I'll maintain the fundamental/long term strategy on the main Portfolio, we're about to launch a new and super fast technical/fundamental portfolio.

It will be fun, just 3 stocks, $15,000 as starting capital, intraday decisions, all the ingredients many folks like. To be noticed I guess I need to make more noise for a bigger audience lol

We'll see how it works, perhaps I'll be surprised and even make some money 

Great news, thx David! 

I too am super excited about the new portfolio.  David, while I share your outlook and agree completely on the proper strategy for investing should have a long term outlook, there's that little  in me, and most of us I assume, that craves a little more risk/reward. 

Also, as per the discussion that was started in the money management thread, some of us just don't have the same working capital that is in the main portfolio, and we become spread pretty thin trying to hold up to 15 positions.  This 3 Stocks portfolio seems more tangible, from my perspective, and I look forward to holding a mixture of the two portfolios.   

I think 3SoF needs this portfolio, and it immediately feels like a perfect match for the site and the members of the community.  We all really appreciate all your hard work and efforts to make this a really great place to hang out.

Derek

Quote from: realcoolhead on January 19, 2007, 10:06:56 AM
David, I know I am in minority, but I am against the idea of opening a new short-term oriented portfolio.

realcoolhead,

Well, there are at least two of us. 

I not only agree with you 100%, and I am very impressed with your "cool head," and with the concern that you've shown for David.

Ultimately, this will be your decsion, David, and I know that all of us will respect that, but this idea makes life much more stressful for you.

Quote
You have already spent considerable time managing the main portfolio. At least more than three times you expressed that "you are not feeling well" or "you are tired". I feel this new portfolio (naturally much more intense) will add further strain on your time and energy, hinder your judgments and eventually burn you out (again).

It's almost like needing two heads at once.    

All of the hours that you have put into the main portolio already, and then watching the market all day, and responding to requests for short-term plays...

I get a headache, just thinking about it (we need a face on the toolbar that is getting hammered in the head). 

Quote
A lot of people want you to repeat the performance in 2005. That will certainly be very nice of course. Yet as you said "you are lucky in 2005", and if you take off that "AMRE.OB" which returned more than 1200%, the result will be much less spectacular albeit still very decent. (I did some analysis last May before I joined 3SOF: the average return on all picks by then was 10.27%, but if you take AMRE.OB away, the average drops to 4.73%. If you do a very unscientific extrapolation, the total return to date would be 112% instead of 242%, which is still more than 40% annual return!) My point is that people have to be realistic and keep their expectation in check. Even if we "only" grow 30% every year (somewhere I saw that figure in one of your message on your long-term oriented approach), you can make almost 200-fold on you money in 20 years!

That AMRE trade almost was unfortunate, from the standpoint that it set the "expectation bar" much to high, and unrealistically so.  Not to take anything away from the great trade, but it would be next to impossible to duplicate that gain in a portfolio of any size.  You probably wouldn't be able to put enough money to work.

But, still, as you point out, realcoolhead, even a gain of 112% would be outstanding for the less than two years!  Analysts in Wall Street would kill for that kind of great performance.

Quote
Instead of opening a volatile portfolio, I actually suggest that you expand the main portfolio to include 25 stocks and make each pick 4% of the portfolio. Yesterday when NASDAQ dropped 36 points, many sectors actually gained (when I look at my 401K account, I actually saw marginal gain yesterday). By increasing the number of stocks to 25, you can diversify a little bit more. And by paying attention to include stocks from more different sectors, you can reduce the volatility of the portfolio. Someone might think it is going to be like an uninteresting mutual fund, but a 25-stock portfolio is still a very narrow portfolio and a 30% annual return is still not medioc at all!

That sounds much more like what David has been wanting to focus on these last weeks which, again, would be awfully difficult to accomplish if he's also focused on the very short-term. 

Tough, tough job! 

Quote
Anyway, I'd like to see you stick to the gun, "stay the course" (sounds like Mr. Bush ... ) and don't get discouraged by short-term setback.

Right.  I was wondering why the sudden turnabout, from a long-term perspective, to a very short-term focus.

Yesterday was a tough day.  We're all human, and we sometimes have a bad reaction to days like that (I think David said that it was one of the worst down days in 3SOF).

Sometimes, those experiences can throw us off our focus.

Quote
I also like to see you more relaxed, maybe spend more time away from the market (you really don't have to update every pick every day, especially for those you don't have much to say on that day).

I agree with that one 1,000%.  Life is much to short.  Enjoy it.  If there's nothing new to add about a pick, skip it.  Or, say, "Nothing new.  HOLD."

Quote
As I said before, the quality of your buy/sell decision depends on the freshness of you mind. Come to think about it, I am like 10-year older than you, if I am not hurry, why you?

Yes, it's very easy to burn out, and not be as sharp in one's mind, when one works the kind of hours that David has.

David, this is entirely your decision, of course, and we'll all respect it, but maybe give this some more thought.

Maybe focus on stocks that have fundamentals that you like, that also look decent, technically, in terms of the trend.  Not to far extended on the upside.  Or, having a pullback to support, after a big gain.

Example: XING

You, Frederick, Michael and Aussie all have done a very nice job on it.

Buy it, and maybe sell 50% of it at "some number" that you think is a nice gain.  Hold the rest for as long as you like the fundamentals, and you can afford to ride out some deep pullbacks.

You have it back in the Main Portfolio now.  It just had a DOUBLE breakout at 13.20,  and at 13.41.

Sell half when it gets to one of the targets that are IN PLAY.  Let the rest ride, and take the half you sold and add it to your war chest,  to build a portfolio of your 16,  or 20, 24 stocks, like realcoolhead suggested.

Something like that.

Remember that I said, "Do what YOU want to do, David."  Do what makes YOU happy.  But, I think that realcoolhead and I are saying that you might want to reconsider whether or not working as hard as you will need to work will make you happy.

Go and have some fun with your family this weekend, and see if you want "less" of that, because that's what you'll have. 

Good luck, and I support whatever decision that you make.

Hey David - How about putting Melf Elf in charge of the short term portfolio??   

He's right, if the stress is too much - which I'm sure it is/could be - then it's not worth it for you.   You have to be fully engaged in it to make this work - if you can, great.  If not, well like Melf said, don't let it burn you out.

However, with your experience and technical and fundamental knowledge I think you can make some great picks for the 3SoF portfolio...just don't let it get the best of you.

Derek

Melf, I guess David is too "hot" to listen to this right now, as EXCS.OB is riding high  

What you have suggested makes a lot of sense to me. I wish many of your opinions can be incorporated into David's decision making. For examples, your calls on NVLS and HAUP proved to be precisely right.

My fear right now is that, as David devotes a lot of time and energy to the new portfolio, his attention (along with the performance) to the main portfolio will ultimately decrease, especially if the new portfolio is red hot. And eventually the main portfolio gets the same fate as 3SOV. (sounds like a big circle...)

So now we have a $340K main portfolio and a $15K 3SOF portfolio, to match the same profit of main portfolio returning a "mere" 30%, one requires the 3SOF to return almost 700%! I hope David can see which one is more important.

Well, it may make some sense to have a fast and sexy portfolio from marketing's standpoint, though.  But this can be a double-edged sword.

Quote from: Melf Elf on January 19, 2007, 01:11:10 PM

Maybe focus on stocks that have fundamentals that you like, that also look decent, technically, in terms of the trend.  Not to far extended on the upside.  Or, having a pullback to support, after a big gain.

Example: XING

You, Frederick, Michael and Aussie all have done a very nice job on it.

Buy it, and maybe sell 50% of it at "some number" that you think is a nice gain.  Hold the rest for as long as you like the fundamentals, and you can afford to ride out some deep pullbacks.

You have it back in the Main Portfolio now.  It just had a DOUBLE breakout at 13.20,  and at 13.41.

Sell half when it gets to one of the targets that are IN PLAY.  Let the rest ride, and take the half you sold and add it to your war chest,  to build a portfolio of your 16,  or 20, 24 stocks, like realcoolhead suggested.

Something like that.

Remember that I said, "Do what YOU want to do, David."  Do what makes YOU happy.  But, I think that realcoolhead and I are saying that you might want to reconsider whether or not working as hard as you will need to work will make you happy.

Go and have some fun with your family this weekend, and see if you want "less" of that, because that's what you'll have. 

Good luck, and I support whatever decision that you make.

I think David will do okay as long as he eliminate the 3 minute video...
The Main Portfolio only consists of maximum of 15 stocks for Long-term, added 3 more stocks for 3SOF on fire for short-term technicals & a total of 18 stocks... that is nothing you know, only 3 stocks added.

I also think that David will not be watching all day the holdings for " 3 Stocks on fire" there is no reason for that, because the "3 stocks on fire portfolio" is for short-term trading, not day trading!

I think again that David brought back this short-term trading because this is what most subscribers like, they like fast trading, fast money & all the ingredients many folks like he said.... David here is running a business, if the majority of people wants chocolate lollipops he's not gonna sell strawberry flavor because that will not make any sense, you know.

I want to applaud David multiple times because he's doing a great job.

See, I found a hot chick who likes chocolate lollipop.
http://embed.break.com/MTk2MzEy