Boast / weep about your recent investment decisions HERE

Ray_Singh-Blue

I had a "weep" this week... but they are tears of joy for I have finally managed to ditch some Aluminium which has been dragging my portfolio down for years.

Figure it may be a story worth sharing so you can see how naive I was, and maybe avoid the same sort of thing. As well as showing how sticking to a plan can work out in the end.

In 2011 I had a good year at work and had £5k looking for a home. I had been playing with commodities ETFs for a couple of years and had some fair luck and a few close shaves speculating with £2K or £3K here and there, and selling after a short time. So I got cocky.

I noticed that this Aluminium ETF was trading at $4 when it had been trading at $8 a couple of years before. Based on little more than a hunch that what goes down must come up, I piled in with my hard earned £5K.

The price of Aluminium - or more specifically, the particular Aluminium futures index which this ETF tracks- kept dropping, and within a couple of weeks my £5K investment was worth £4k.

"An even better opportunity" I thought, and piled in with another £5K. Now I had £9K of Aluminium - which was about 15% of my total portfolio at that time. It was never my intention to hold that much Aluminium for a long time. I just wanted the price to rise a little, so I could sell it for a modest profit.

Well, it turned out this was simply the start of a multi-year slide in the value of Aluminium and of commodities generally. Over the next few months and years I watched as my £10K of invested cash became worth £8K, then £7K, finally reaching what turned out to be a low point of £6K in January 2016 - some five years after I first made the investment.

I have to admit that I nearly threw in the towel at that point. As I now know, there are all sorts of reasons why my initial assumption "what goes up must come down" can be wrong. These include technological advances making Aluminium easier and cheaper to extract; shifts global in demand as new materials take the place of Aluminium in certain industries. But worse that that, there is contango - the effective nibbling away of the value of an investment in futures contracts each time they are rolled over.

Two things stopped me from selling. Firstly, I could see that global commodity indices were behaving in the same way - it was not just some idiosyncracity of my Aluminium ETF. Secondly, I have a couple of investment rules which I stick to for my own protection. One of these is never to sell at a loss - to protect me from emotional over-reactions in situations just like this.

So I weathered the storm and over the course of 2016, this Aluminium ETF was one of the best performing holdings. This week I finally saw some profit on my original £10K investment and sold half of it for £5130. I'm going to hold on to the other half, it owes me.

A cautionary tale. I effectively tied up £10k doing nothing since 2011 and feel lucky to escape with my shirt. So there you go. I have never since "averaged down" - buying more of something when the price drops - "don't try to make it back the way you lost it" is the advice ringing in my ear. And I have become far more circumspect about niche investments and their place in my overall portfolio which is now dominated by index funds.

Sorry if that's a long story, it is simply a distillation of 6 years of avoidable self-flagellation & I hope maybe someone can take something from it :beer:

stringer_bell

bought £2k worth of an aim share in my portfolio, grew 40 percent in a week, sold, it then dropped 30 percent the day after

I could not of timed it better, unless I was a psychic

bowlhead99

Thanks for the update Racing Ray Singh - I remember the conversation a couple of years ago when you were well down:

bowlhead99 wrote: »

racing_blue wrote: »

My reasoning was that Aluminium and oil have become cheaper recently. Take aluminium: either Aluminium will stay cheaper forever, or there will be reversion to the mean. So I guess it was a punt (to use that term again) on there being reversion to the mean at some time in the future.

So far it is going rather badly but there is time.

World bauxite mines have around 28 billion tons of reserves but the true global resource is estimated to be 55-75 billion tons. 2014 production 280 million tons. There are a whole variety of places from which alumina can technically be recovered (clay, coal wastes etc) let alone recycling.

The USGS noted "Domestic resources of bauxite are inadequate to meet long-term U.S. demand, but the United States and most other major aluminum-producing countries have essentially inexhaustible subeconomic resources of aluminum in materials other than bauxite"
http://minerals.usgs.gov/minerals/pubs/commodity/bauxite/mcs-2015-bauxi.pdf

So, the fact that Jag are going to be using more aluminium in the next XF than they had in the old one, won't necessarily be raising the world price to where it was at the peak of a commodities boom.

Cheers for coming back and sharing the end result though, it's always good to hear these cautionary tales from people who did something loony on a whim without any research other than the direction of a chart, and then just about got away with it by the skin of their teeth in the end, but know that what they did was a bit silly and not to be copied, and they learned something from it.

The following few paragraphs in your post do contain a theme that amused me though - my emphasis:

Ray_Singh-Blue wrote: »

Secondly, I have a couple of investment rules which I stick to for my own protection. One of these is never to sell at a loss - to protect me from emotional over-reactions in situations just like this.

So I weathered the storm and over the course of 2016, this Aluminium ETF was one of the best performing holdings. This week I finally saw some profit on my original £10K investment and sold half of it for £5130. I'm going to hold on to the other half, it owes me.

A cautionary tale. I effectively tied up £10k doing nothing since 2011 and feel lucky to escape with my shirt. So there you go. I have never since "averaged down" - buying more of something when the price drops - "don't try to make it back the way you lost it" is the advice ringing in my ear. And I have become far more circumspect about niche investments

So if I may paraphrase this logic, what you're saying above is that

- a key takeaway from a combination of the advice you've been given over the years, and what you have now figured out for yourself over the years, is that you shouldn't aim to make something the way you lost it, and have a delusional belief that when something went down it will definitely be going up next ;

- you will implement, or have implemented, rules to ensure you are protected from your emotions ;

- you are way more circumspect (adjective: wary or unwilling to take risks) about niche investments;

yet you are going to:

- hold this remaining £5k-worth of niche specialist investment
- because it went down a lot and should go up a lot next, and
- the emotional side of the brain is telling you it "owes you".

Excuse my French when I say "Jesus T**ty F****ng Christ does this kid never learn..."

Seriously buddy I would say enough is enough with this aluminium malarkey. We have had the conversation that there is more than enough accessible ore in the ground to cover the world's aluminium needs for centuries to come. You have seen the value of your investment double from being 50% down to being 0% down. Even if it becomes the next big thing, every other investment on the planet also has a chance of becoming the next big thing. Is it wise to buy or hold something that just doubled? Just because you suffered six lost years and are desperate for payback?

You say the remaining £5k investment 'owes you'. But does it? Is it the investment's fault that you suffered six lost years? The investment does what it wants and it will do that over the next six years too. It seems to me like it is the investor's own fault that he suffered six lost years and therefore the investment doesn't owe him a penny. If it does owe you something, it certainly doesn't know it.

So, where is the voice in your head saying, "don't give in to your emotions and make sub-optimal decisions because of them"? If he's on holiday at the moment, I'm happy to say it for him: Don't hold on to something for emotional reasons.

You mentioned at the top of your post that you originally bought in at $4 something. After averaging down when it fell 20%, your average cost would be lower than the $4 so you have been able to get out at a lower price and not lose money. However, at the moment the ETF price is not anywhere near $4 it is only $3. The reason you are back in the money at only $3 is that there has been a one off boost to the value of an aluminium futures contract to a UK investor due to the Brexit weakness of sterling, which has come along and saved your hide.

You bought in 2011 when the dollar rate started and ended the year about $1.55 to the pound but spent substantial time above $1.60. Now at $1.23 to the pound, $1.60 of assets is worth £1.30. So you have got a 30% boost for free, enabling you to now run for the exit and not get caught in the loss that you perhaps deserved.

If currencies were to 'revert to mean' as you are fond of believing that things do, then your aluminium emperor would be revealed as being naked again. Clearly the aluminium ETF price still hasn't recovered to its $4 or $8 commodities boom levels even with everyone being aware of Trumponomics creating a known demand for materials as he stimulates infrastructure investment and manufacturing businesses with tax breaks. So, you can hold on until there is some true boom in aluminium demand that is not already priced in, or you can do what your investing philosophy calls for, and stop holding niche assets for emotional reasons.

But the purpose of this thread isn't to criticise or berate people it is to allow people to criticise themselves (cautionary tales) or gloat about their performance (uplifting, unsubstantiated tales). So, don't take the above too harshly. But do consider taking the advice

seacaitch

I'd fully endorse bowlhead's post above.

The only reason to be holding a given investment is because your investment or trading plan says you should. There are, or at least should be, few people whose plans tells them they should ever be holding niche trading vehicles such as an aluminium futures ETCs.

It looks to me like Ray has formed an emotional attachment to this position.

I'd like to see Ray boasting about how he'd kissed goodbye to this entire holding since it had no part to play in his long term investing plan. And that he couldn't care less how it did after he sold it - would have no regret if it now soared or relief if it tanked - just as he couldn't care less about the price of all the other stuff he doesn't hold and has no intention of ever holding.

After all, few if any of us are probably weeping over our failure to have plonked down 10k on 'Just A Par' before yesterday's 2.05 at Newbury, despite it then coming in as the 14-1 winner. It was never part of our sound plans to make such punts, so we've absolutely no regret about 'missing out' on a possible 140k's winnings, only indifference.

Ray_Singh-Blue

Bowlhead your French is inexcusably bad. What you meant to say was "Ce gosse ne jamais apprendre? Je me rends! Je me rends!". But what you said in English seems sensible as usual, and also challenging (= helpful) so thanks.

But what is the logical extrapolation of your line of argument.? Stripping out all the emotion, all the speculation, all the predicting which geographies, sectors, fund managers or companies might out perform. All the "punts"- some call them "decisions"- in fact. I think someone doing that will end up with a wholly passive portfolio.

Now a passive portfolio might be a mighty fine thing. Certainly there are a whole load of people posting on bogleheads.org who believe so. I tend to agree, but my conviction level is not 100%. So what do I do?

The rather messy answer, for me, involves a core of index funds around which I make a series of satellite investments. The decision to buy a second tranche of Aluminium in 2011 WAS undoubtedly a bad decision. That's the decision which I have just reversed - 6 long years later.

I still don't know if buying that first £5K of Aluminium in 2011 was a bad decision. It might have been, or it might yet turn out to have been a good call. After all, as you point out, Aluminium is trading at a lower price in USD now than it was several years ago. The London Metal Exchange lists a price of $1900 per tonne. In 2011 it was $2500 per tonne and in 2008 it was over $3000 per tonne. In between it has dropped as low as $1200 per tonne. So I am seeing a commodity with a volatile price, which might fall again or might continue to rise. Having weighed the chances, I have decided to stick with that initial investment for a while longer. Believe me, it is not an emotional attachment. I sodding hate the shiny stuff now. I can't even look at a saucepan without breaking into a sweat. But that's the sort of decision an investor has to make now and again, unless they have the conviction, humility and wisdom to accept a wholly passive portfolio. Which I clearly don't.

One other thing I have taken from hovering around on these boards, is the idea that you do not always need to choose between doing A and doing B. You can do both. So - you can overpay your mortgage while also investing in an ISA. You can hold Vanguard's World Equity ETF while also holding shares in Tesla. You can sell some b*****d aluminium, while also keeping hold of some of the thrice-cursed stuff.

But yes of course, Aluminium owes me nothing. That was a stupid thing to say.

coyrls

Ray_Singh-Blue wrote: »

Believe me, it is not an emotional attachment. I sodding hate the shiny stuff now. I can't even look at a saucepan without breaking into a sweat.

Not an attachment maybe but emotional certainly.

Thrugelmir

Ray_Singh-Blue wrote: »

I noticed that this Aluminium ETF was trading at $4 when it had been trading at $8 a couple of years before. Based on little more than a hunch that what goes down must come up, I piled in with my hard earned £5K.

Same applies to the logic applied by many in simply chasing yield. Rather than understanding the fundamentals of the actual business. Why does the share offer such a good apparent return. If it were that attractive then someone would have already bought up a sizeable holding.

ChesterDog

Reminds me of when - not too long ago - my brother and I inherited a house.

It needed refurbishment, but we recieved an offer (as it was) of £485k.

We declined the offer and spent about £30k doing much to the house by way of refurb.

My brother then became fixated on the notion that "it owes us" and we must now sell for "at least £515k" in order to "make a profit, because we don't want to sell it at a loss".

In the end (thankfully), we sold it for - yes, you've guessed it - £485k.

He still feels he is "out of pocket" as a result.

BrockStoker

I can see where you're coming from Ray, but at the same time I agree with others here that your logic is flawed.

What happens if someone develops a way to extract aluminum at half the cost of what it costs now?

I guess the same could apply to virtually any commodity (including oil which I hold, although strictly speaking I hold companies involved in oil/energy production which s not exactly the same as a physical commodity).

It seems to me, why take the risk if you can instead invest in companies/sectors which can have just as much upside without the inherent risks of commodities?

That said, I suppose my own strategy of over-weighting high alpha sectors like biotech is somewhat risky, but it has been paying off recently (right now all my investments are in the black). The problem I have is, how do I tell if it's just luck, or am I actually good at investing at the right things at the right time?

I'd like to think it's the latter, but if it's not then I'm probably setting a considerably dangerous precedent for myself.

Thrugelmir

BrockStoker wrote: »

The problem I have is, how do I tell if it's just luck, or am I actually good at investing at the right things at the right time?

Could be simply that buyers are outweighing sellers currently. Causing the price to rise. When the news is negative or sentiment changes. Will you top up with further purchases or exit the stocks entirely.