LM portfolio as at 04/06/2021:
| Code | Sector | Date Bought | Cost | Value | Gain/Loss |
|---|---|---|---|---|---|
| LM026 LM026-2 |
ETF | 14/10/2020 09/12/2020 |
£2160 | £2580 | 19.42% |
| LM028 | 'No specific industry' | 16/11/2020 | £1010 | £1130 | 11.65% |
| LM029 | ETC | 23/11/2020 | £1030 | £1310 | 27.14% |
| LM030 LM030-2 LM030-3 |
ETC | 23/11/2020 13/01/2021 08/03/2021 |
£3050 | £3890 | 27.84% |
| LM031 | Mining | 30/11/2020 | £1020 | £1250 | 22.61% |
| LM032 LM032-2 |
Industrial Transportation | 07/12/2020 20/01/2021 |
£2070 | £3300 | 59.86% |
| LM033 | Health Care Equipment & Services | 04/01/2021 | £1050 | £1190 | 13.12% |
| LM034 | Food & Drug Retailers | 18/01/2021 | £1020 | £1120 | 9.17% |
| LM035 | Food Producers | 19/01/2021 | £1040 | £1100 | 5.42% |
| LM037 | Life Insurance | 03/03/2021 | £1020 | £1160 | 13.43% |
| LM038 | Banks | 10/03/2021 | £1020 | £1100 | 7.44% |
| LM039 | Pharmaceuticals & Biotechnology | 30/03/2021 | £1030 | £1030 | 8.19% |
| LM040 | General Financial | 27/04/2021 | £1020 | £1190 | 16.05% |
Many moons ago I read about a trading system someone was using and it always stuck with me.
Now I remember who the person was (an internet marketer) and what he said, but I don't remember where he said it.
Could've been on a forum or a blog post or maybe in an email to his subscriber list (aka the list of email addresses he would send pitch emails to).
In short, I didn't dream this up. It definitely did happen.
And although I can't find it now - it probably got deleted years ago - it always stuck with me as a simple yet highly flawed trading system.
Here's the basic idea:
Mr X would buy technology shares. Not just any technology shares but penny shares in the technology sector.
He'd typically invest £1,000 per share.
Then he'd wait until the share doubled and at that point he would sell half his shares and keep the remainder... presumably forever.
Sounds like a decent plan; you buy shares and then when they double you sell half to get your initial money back then keep the remaining "free" shares.
But, in my opinion, there are two massive, glaring issues with this investment strategy. Can you spot them?
Allow me to reveal what I think are the main problems with Mr X's stock market plan.
Problem number 1: He is selling winning shares too soon.
If I owned a share and it doubled then the last thing I would do is automatically sell half purely because it doubled in value. "You can never go broke by taking a profit" you may say but I'm afraid I don't agree. You can massively limit your profit by cutting trades short prematurely.
A share that has doubled in price is obviously performing well so rather than sell it, it might be a better idea to buy more. The share price is trending upwards so it's probably not a bad idea to follow the trend and invest more.
Problem number 2: His strategy has no exit plan if the share doesn't go up.
Not all shares double in value. Not all shares that you buy will even rise in value.
If your technique is to buy and then wait for a share to be worth twice as much then you could be waiting a long time.
With penny shares they can fall very fast so it isn't out of the question to find that the £1,000 you invest in a tech share become £500 within a couple of weeks.
When do you sell to stop the loss?
In this marketer's case the answer was never.
He had no stop loss in place and so sometime after he revealed his trading strategy to the public he mentioned in passing that he had lots of shares in his portfolio which were at a huge loss. He admitted that he and his wife could only laugh when they checked their online account. The alternative was to dwell on it and get depressed.
Whether at this point he remembered he had previously revealed his strategy or not I couldn't tell you. But I would hope that holding a series of shares worth a fraction of the initial cost would have put him off this trading system for life.
The LM Portfolio
As you can see from the above table all of the trades are in profit. There are no new positions and nothing has been sold since LM027, which was covered last time out.