A Different Way of Measuring Performance

After a hiatus of a year from writing articles for anyone, I recently had the good fortune of getting re-acquainted with some long time readers of these pages.

A new reader was less than welcoming and had some serious questions about performance, which included the use of non-standard metrics, with a particular emphasis on the impact of tax rates.

I’m all about non-traditional, but I bristled a bit when considering the thought of being compared to a standard that no one else was using or to try and normalize individual considerations, such as trading in a tax deferred account versus a taxable account or using a discount brokerage versus a more costly one.

Over the years, I’ve been far more interested in the generation of a return in excess of what the market could offer and was always happy to pay taxes on any good fortune or to take advantage of existing tax laws and benefit from the use of strategic losses.

For me, having retired from a pretty lucrative profession at a relatively early age, “return” was a very tangible concept and not a paper construct.

I wanted and I needed cash. I also wanted and needed it in a reasonably reliable stream.

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Happiness With a Losing Trade

One’s definition of “loss” or “gain” may be a very personal one.

In business courses I had taken while in public health school, there was always an emphasis on “opportunity costs,” and some than 30 years later that concept constantly inserts itself as I look at and measure outcomes.

The “opportunity cost” is a simple concept. It basically asks the question “What did it cost you by not investing in an alternative?” Often, to standardize that question, the alternative investment is selected to represent something of low risk and high liquidity.

You generally don’t prove your point or disprove someone else’s point by selecting a non-standard, or little known alternative or an outlier.

Additionally, you don’t prove your point by selecting a specific or narrow period of time, which itself, may be an outlier.

What prompts my thoughts this week is a disagreement with a reader over a number of tenets of investing in which I believe, had incessantly practiced and had  expressed in  an article last week, “Re-Thinking Buy and Hold.”

But also, another reader had shared his own experiences with early assignment of “In The Money” call options just prior to the ex-dividend date and that prompted my response in general about dividends and early exercise, but then with specific details of a trade that same week in shares of General Motors (GM).

That purchase of General Motors turned out to be very timely for telling a story.

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Re-Thinking Buy and Hold

I had been a classical “Buy and Hold” investor for years.

Part of it had to do with what used to be the exorbitant costs of trading back in the days when either you listened to what E.F. Hutton had to say or you took the advice of one of his competitors.

You surely couldn’t do it on your own.

Needing to achieve a 10% price rise just to cover your round-trip trading costs made frequent trading basically impossible for most, especially early in their careers.

But I did listen to E.F. Hutton and I happened to have been one of the lucky ones who took a cold call from a young stockbroker, as they were called back then, who turned out to be a wonderful ally in support of my financial interests and those of my parents.

He was “Buy and Hold” all the way, even when it was an entirely commission based relationship. He traded more often when we went to a managed account and trading costs weren’t directly my costs.

Then he died.

I never micro-managed my accounts with him, but I always kept an eye on them from day to day and used to wonder why we didn’t trade more often, as noting the frequent ups and downs and all of the lost opportunities.

It was sort of like holding that perfect banana.

How long do you hold it before the rotting process kicks in?

Hindsight is great.

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Welcomed Back

It had been a full 14 months, give or take a few days, since I had published an article on Seeking Alpha.

Seeking Alpha was the vehicle that helped me get the old “Option to Profit” to go beyond just a handful of paying subscribers when it first got off the ground and I was looking for something to do with myself that wouldn’t result in the growth of hair on the palmar surface of my hands.

I had never really wanted to have a volume of subscribers, especially since I was sending real time text message and email alerts at the time and the model included lots of real time text message communication and hand holding with subscribers.

Pricing the service at $200/month was a good way to keep subscriber numbers down, as was the poor quality of the offering and amateurish website.

I don’t even recall who had told me about Seeking Alpha, as I never really prowled around looking to write anywhere other than on my own space and I certainly wasn’t interested in reading anything, especially if they were being written by “posers” like me. Continue reading “Welcomed Back”