Looking Backward and Forward into Your Investment Decisions
Recently, I read a post at the wholesome Value and Opportunity blog titled Sold, Rejected but not Forgotten. The author takes a look at what he calls second and third level mistakes, i.e., stocks that outperform after you sold and stocks you analyzed thoroughly but didn’t buy. Just to get it out of the way, first level is buying stocks that do badly.
From what I’ve noticed, people do occasionally fantasize about the profits they would have made had they kept or bought that stock that just shot up 50%. But apart from Warren Buffett’s incidental discussion of mistakes of omission, as he calls them, and the rare bloggers that review their past write-ups, I have never seen someone consistently keep track of how sold and rejected ideas do over time. This is hardly surprising in view of the fact that a lot of people are reluctant to even stay current on the stocks they own.
While becoming preoccupied with tracking every investment idea you ever had would be terribly distracting, maintaining a simple watch list of all the sold and rejected stocks will provide a great overview of your investment process. Instead of vague feelings about what could have happened had you invested or held onto your shares, you will have an objective overview of your whole investment process at your disposal all the time. Knowing whether the investments you made did better than the ones you didn’t make will help you assess your stock picking skills. Looking at the performance of stocks you sold will tell you how good you are at selling. You will be constantly calibrating your investment process and hopefully the results won’t be late.
It has been over a year since I started this blog and I intend to review all the stock ideas I have discussed here as they become over a year old. I plan to make it a habit for all the stocks I bought or was close to buying.