Thursday, October 13, 2016

Bunched Buying & Sporadic Selling

My previous post outlining three recent buys triggered a sense of deja vu as I recalled writing a similarly titled post describing three buys in August. To investigate further, I examined a year of trade confirmation emails to determine the frequency with which I conduct transactions in my portfolio. In particular, I wondered if I bought and sold in condensed periods of time or if my transactions were spread evenly throughout the year. In order to eliminate the noise from my data, I removed all "short-term trades" (positions closed within a month). Here are the results:

The above results seem to indicate that I buy in bunches and sell sporadically. The four sales that were spread pretty evenly over the course of the year came as no surprise to me. Three sales related to re-balancing my portfolio to be more tax efficient, while the fourth was getting rid of half of my Corus position when I lost faith in the controlling owners (the Shaw family) after they conducted a transaction that was in their best interest, instead of that of the shareholders. The discovery of buying in bunches was eye-opening and caused me to contemplate why I might make series of buys together. Here are a couple of my theories:

1. Trying to Time the Market

Although it gets a horrible wrap from indexers and even dividend growth investors, I freely admit that I try to buy when prices are relatively low. For example, when the markets were weak in January 2016, I thought it was a great time to buy, but only had enough cash to make two purchases. More recently, as the US REIT market has pulled back, I took the opportunity to add shares in three US REITs.  If the US federal reserve bank finally raises interest rates in December, I'll likely take advantage of the opportunity to pick up a couple of great US companies that will be on sale. Taking advantage of market uncertainty to buy shares in companies I intend to hold is part of my plan to becoming a successful investor.

2. The Adrenaline Rush of Buying

Have you ever noticed how amazing you feel when you invest your cash into a great company that you have thoroughly researched. For me, purchasing a stock provides an adrenaline rush, and I find myself looking to replicate that feeling. Although I'm fully aware that part of being a successful investor is controlling your emotions and acting in a rational manner, putting that knowledge into practice is a continuous struggle for me. When I have more data points to review, it will be interesting to look at the returns generated from a series of 2-4 stocks bought in close proximity. My bet is that the first security purchased will likely be the best performer.

3. Trying to Meet Performance Objectives

When reviewing my transactions, I was somewhat relieved see the lack of transactions in December 2015 and March 2016 as I measure my investment performance against a series of metrics each quarter. However, I think the absence of transactions in December 2015 were likely due to a lack of cash after the six buys in November 2015. Even now, as we enter the last quarter of 2016, I seem to be making a concerted effort to purchase shares in companies with higher dividend growth rates in order to move closer to my 5% dollar-weighted dividend growth target at year end 2016. Clearly, striving to achieve self-determined performance objectives should play a lesser role in my investment decisions.

Next year, one of my goals will be to make purchases at more regular intervals throughout the year in order to avoid bunched buying. Clearly, I have my work cut out for me in better managing my emotions when making purchases and avoiding letting my performance objectives impact my buying decisions.

What insights would you expect to learn from reviewing your investment transactions?

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