Following on from yesterday’s post I thought I would comment on some things that I feel are very important to include in any trading journal or diary. The obvious ones are the date when you purchased the stock and the price you paid, but some other ones worth considering include:
· A summary of the reasons why you purchased the stock. For a fundamental investor I would be looking to detail why you think the company will be able to increase their operations (e.g. one a new mine) , why the underlying commodity may increase in price (e.g. increased investment demand gold) or if there is the potential for the stock to re-rate and become more closely aligned with its peers (e.g. P/E ratios or in ground valuation of gold, etc). For traders I would include information on what technical indicators or metrics led to your decision to buy or sell a particular stock.
· A detailed list of future expectations based on your research. For the fundamental investor this would include things like the company achieving a certain rate of growth or establishment of new mines or operations and what that would mean for the share price. It is important that this information considers the facts and is not just some fantasy dream that you hope will occur. For the trader this will be solely priced based, but it is also important to note the expected timeframe for each of these items. You could also comment on how much volatility you expect while holding the position as this can have an effect on your frame of mind and ability to hold during down days.
· Your exit rules. This is probably the hardest thing for a fundamental investor as we usually ignore the short term noise associated with a stocks share price. I would however suggest that the failure of the company to meet a certain objective, the poor performance of management over a period of time or deterioration in the underlying commodity price would be some of the reasons which you could include here. For traders the exit rules can either be price bases (i.e. set your stop loss at a certain pre-determined level) or time based (i.e. if the stock does not start moving in line with my expectations by x date then I will reconsider the position and/or sell).
· Information on managing the position for trades or investments that go in your favour. For example will you exit 100% of the position in one go or will you scale out of the position over time to ensure you do not sell at the highest nor lowest point. For my investments I plan to scale out of each position because it is simply too risky to take all the money off the table in one go (for positions that are going your way) as there is always the potential for another announcement or the strong buying to continue. This will obviously average out your potential gain/loss but I believe it is an important tool well worth considering.
· Your thoughts on the riskiness of the position. All of mine investments are typically “high risk”, however I think it is important to detail this in writing as it will remind you of the pitfalls associated with each investment and remind you that even if the price is currently green there are still risks associated with each position. I would also be looking at detailing what risks you foresee in the share price and the company’s operations. This can also be linked in to your exit rules.
I am sure there are many others that I cannot think of off the top of my head so please feel free to comment below and share you thoughts.
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