My timers went short last week and I proceeded to buy short ETF’s, namely HIX, PSQ and RWM. Thanks to great quarterly results from Goldman Sachs and others, the market made a sharp change in direction after I went short and marched higher for the rest of the week. I bought HIX at an average price of $15.31 and sold at $14.28 thus booking a 7.2% loss. The good part is that I invested less than half my cash in HIX so the overall damage to my Canadian portfolio isn’t that bad. Unfortunately, Covestor doesn’t track cash holdings for Canadian investors so my performance results on Covestor for this trade are much worse than I actually incurred.
I bought PSQ for an average price of $57.27 and sold for $54.70 thus logging a 4.5% loss. I bought RWM at $60.31 and sold for $55.16 thus logging a 9.3% loss.
Looking back at the trades for my Long/Short IWM and Long/Short QQQQ models, this was the fastest and deepest that a trade has gone against the models in nine years. However it is reality and I have spent many hours trying to determine if there was a way to prevent it. Any changes to my timers or the addition of rules that would have prevented the models from going short last week would have negatively affected the performance of the models as measured over the nine years. The only rule that I could add which would make a very minor difference is to set a stop loss of 6% when I first put on a trade. A smaller stop loss would have kicked me out of trades in the past which turned around and worked out well. That is, the models have had trades that lost 4% initially for example but then went on to book good profits.
Even with this latest trade (which is still open in the models), my Long/Short IWM model beat the Russell 2000 by 23.8% over the past year and 18.2% over the past nine years. Likewise, my Long/Short QQQQ model beat the Nasdaq by 54.5% over the past year and 18.2% over the past nine years.
In my opinion, a bad trade is a mistake if you don’t learn something from it. I plan to add the 6% stop loss to future trades.
Just a reminder to those of you following me – under the Securities Regulations I am not allowed to provide personal investment recommendations. I can tell you what I am doing and what I recommend investors in general do (these are the basis under which Covestor and Collective2 operate). Also, I invest my own money as per my models so I have a vested interest in getting them to work as well as possible.
FJP
