When I mention a buy or a short on my diary, it is almost as important as how I manage the position as the actual performance of the stock.
Below are the two basic tenets that provide the foundation to good investment returns:
Let it ride. If I buy
Altisource Portfolio Solutions
(ASPS) at $17 a share in late 2009/early 2010 and let it run to over $100 a share, it has an outsized positive impact on my returns. But only if I let it run.
Stop your losses. If I buy
(AAPL - Get Report) at $625 a share and stop my loss at $605 and don't let the loss expand on the stock's way to $450 a share, this is also a win. I have exhibited discipline, and I have contained my losses.
Now let's try an exercise.Go over your profit and loss for your 2012 stock trades and investments. Now figure out an attribution of your returns by gains and losses. If your gains are large (no matter how few there are) and your losses (no matter how many there are) are small, you are successfully controlling your portfolio's risk and likely achieving good investment returns. Please consider this in the future when I discuss that I am buying a stock that fails to appreciate or short an equity that rises in my face. Position: None
Henry Schein Looks Tarnished
Originally published on Wednesday, Feb. 13 at 12:29 a.m. EST.
I am attempting to add to this short position today.