Trading vs. investing
22nd July 2021 |
I’m an investor.
I buy investments with a long-term view and strategy.
The reason for that is – thanks to my understanding of markets – I understand how companies grow, how they develop, how they innovate and how long it takes for them to achieve success.
Also in my experience and view, the best returns are those that come with a long-term investment strategy.
I am not a trader.
I don’t use complex charts to form a view of an investment.
I consider some trends around price and look at the direction of financials.
But I don’t bother with daily charts and trading strategies.
Basically, I’m not interested in trading. I’m not looking for daily swings of 5% or 10%.
I also don’t believe that day trading is more advantageous to the typical investor than a long-term strategy.
Day trading can work, and some people do make it work. But most people fail at it. And in my view the best investment strategy is to invest, not trade, and invest for the long term.
It’s why the name of this publication is Frontier Tech Investor, not Frontier Tech Trader.
With that said, we started implementing trading-style strategies over the last year.
Specifically, we decided to implement the use of trailing stop/losses to try and help protect profits should they come and avoid big losses in the event a stock doesn’t head where we want.
After reviewing this approach, I don’t feel as though it is fully appropriate for Frontier Tech Investor.
Most of our recommendations are high risk, that also makes them highly volatile, and swings in price can mean that we are unexpectedly and unnecessarily moved out of a position.
Also, from feedback from you, we know that these kinds of conditional orders simply aren’t available to most long-term investors using the major investment broking platforms.
Hence, it makes no sense for me to be telling you to use an instrument which you probably can’t use anyway.
My view is that I’m going to cease recommending the use of trailing stop/losses on positions.
If you understand them, if you can use them with your own broking platform, then you really should use them. But that’s a decision for you to make.
As an investor you should be prudently managing your own risks and have a strategy for your positions you invest in off the back of our recommendations.
While I’ll be ceasing the use of trailing stops on our positions, where appropriate I still will look at the use of hard stops. If you are unable to use hard stops with your broker, then at least you have a defined number where we think would be a position to cut those losses and move on.
That means nominating a price where if the stock were to fall to that level, to protect further pain and losses you should exit the stock, cut your losses and move to another opportunity.
The idea is to ensure that you’re not completely blown up on a recommendation that moves against us.
Inevitably some of our stocks will do this.
We’ve never had a 100% success track record over time.
No one has.
But our position remains that our winners will more than compensate for the ones that don’t perform over the long term.
That long-term window for our stocks to deliver that potential is around the two-to-three-year window.
In my experience, that’s the “sweet spot” with investing where with the kinds of risky stocks we’re putting out there you have a much clearer idea of if the stock is primed to boom, or simply isn’t delivering.
As it stands, right now, the oldest stock in our buy list is Meggitt (LSE:MGGT), having been recommended on 1 October 2019. It’s only just approaching that sweet spot of two years where it really needs to show some life or look to get culled from our list.
But for most other positions, we continue to keep track of the progress, understand where they’re heading, what they’re trying to achieve and importantly giving them time to achieve it.
Some will shoot the lights out, some won’t. We will look to protect the downside with hard stops where we think it’s needed, and for the upside we’ll look to clip profits at the right time.
But a reminder, we’re not portfolio managers. We’re not a fund. Your allocations, the stocks you invest in, the way in which you manage your entries and exits are decisions you need to make.
Our recommendations and advice provide you with the analysis and guidance to help make those decisions, but also to empower you to grasp your investments with your own two hands, to learn, grow and become a better investor too.
With that all said, there are some changes that need to be made around the stocks that still carry trailing stops. Some will move to hard stops; some will have the stop removed completely.
Changes to stop/loss positions
Trackwise Designs (LSE:TWD) – the current trailing stop on Trackwise is changing to a hard stop at 125Gbp. That means if the Trackwise share price hits 125Gbp, we will be automatically exiting the position and recording a loss of 41%.
AMTE Power (LSE:AMTE) – our existing trailing stop on AMTE was pushed up after the stock traded at 315GBp on 4 May 2021. That puts a 50% trail from there at 157.50GBp which we think is still a suitable hard stop to ensure further falls in the volatile stock. AMTE now has a hard stop at 157.5 GBp.
IQE (LSE:IQE) – I’ve decided to remove the trailing stop on IQE and won’t be implementing a hard stop on the stock. While the price is down from our recommendation, our long-term view for the company remains intact. The importance of semiconductors, semiconductor materials and the entire supply chain for semiconductors will benefit from increasing demand over the coming years. IQE remains an important part of that industry in the UK. While we expect some volatility, the stock should deliver for us over the long term.
Surface Transforms (LSE:SCE) – we are moving the trailing stop on Surface Transforms to a hard stop at 30GBp. If the share price hits 30Gbp, we will be automatically exiting the position and recording a loss of 49.5%.
Smartspace Software (LSE:SMRT) – Smartspace has been doing well for us and is showing a profit. As such at this point a smart move would be to remove the trailing stop and set a hard stop at our entry price of 108.5Gbp. That way if the stock moves against you from here, the worst-case scenario is exiting either up or down. But should it move for us higher, we will review the stop position as needed, or look to exit at the right time with a healthier profit.
Spirent Communications (LSE:SPT) – Spirent has not exactly shot the lights out, nor has it radically moved against us. On the upside, it’s been paying dividends. And where you can get income, you take it. Nonetheless, we’re removing the trailing stop on the stock and not implementing a hard stop. We will keep an eye on it, but the combination of income and ongoing long-term potential warrants this decision.
Corero Network Security (LSE:CNS) – Corero hit a high of 16.88GBp on 1 February 2021. That was a time when a lot of the market was buoyant. Sentiment and prices have fallen off since across the market and Corero has felt that too. Nonetheless it’s still showing a decent gain and we want to protect some of that but still remain in the position. We are removing the trailing stop and implementing a hard stop at 7.75GBp. In the worst case scenario, where volatility kicks into overdrive and we are stopped out, you’d still record a decent 20% gain from this position.
Marston’s (LSE:MARS) – showing a tidy gain of 122.4% is a good result so far. But with the hospitality industry still suffering from draconian restrictions, and even perhaps more to come, we remain in Marston’s. The long view is still very healthy in our view for hospitality stocks. But we don’t want to erode the good result completely if things really go bad for pub owners. As such, we’re removing the trailing stop and implementing a hard stop at 56.25GBp. That way worst case, we’re stopped out still for a 50% gain.
Again, just a reminder, the use of hard stops or any conditional order is up to you to use or not to use. We are making these changes to try and deliver a more robust publication to you and to help you with your investing.
If you can’t use them with your broker, then at least you’ve got a defined protection strategy in place with a firm number that will help guide you in managing your own investments.
Sam Volkering
Editor, Frontier Tech Investor
