Our Focus On “Singles And Doubles” Worked Last Year. Here’s Why…
Before I begin, I want to say that I hope you all had a Merry Christmas and wish you a happy, healthy, and prosperous New Year.
2022 wasn’t pretty for investors, to say the least. But of course, we can’t move on to 2023 without first reviewing 2022.
A few days ago, sat down with my colleague Brad Briggs to discuss how we did over at my Capital Wealth Letter service. So today, I want to touch on my other service, Maximum Profit, and see what we can learn from our experience.
Let’s dive in…
The Big Picture
It might be hard to believe, but the S&P 500 was hitting new all-time highs at the beginning of 2022.
That’s right. The market peaked on January 3rd, 2022, when it closed at darn near 4,800. It closed today at 3,822 — a 19.8% decline.
As I’m writing this (which is a few days before you’ll be reading it), it would have taken some heroic efforts to prevent this from being the worst year for the S&P 500 since 2008, when it lost 38%.
It wasn’t just stocks that had a tough year, either. Every asset class (old and new) had a terrible year.
Stocks we just covered. Bonds are having their worst year… ever? I touched on this in my October, but it’s worth stating again. The U.S. Bond market is on pace for its worst year in history. It’s currently sitting at a year-to-date loss of around 12%.
For reference, its worst performing year prior to this year was back in 1994, when it lost just 2.9%.
So much for bonds being a safe place to hide.
The price of gold has fared the best. It’s currently flat on the year after being down around 10%.
Then we saw the new guys on the block — cryptocurrency — get absolutely obliterated.
The main cryptocurrency — Bitcoin — has lost 64% of its value this year. And that doesn’t even get into the major bankruptcies of cryptocurrency lender Celsius, crypto brokerage company Voyager, and the most recent bankruptcy (and massive fraud) of crypto exchange FTX.
How We Did In 2022
First, the disclosure… I only looked at trades we made this year, as in opening and closing in 2022. So, this doesn’t include some of the nice gains we booked earlier in the year from trades opened in 2021.
For instance, we booked a 40% gain from Perficient (PRFT) in January, but we opened that trade in 2021. We also booked a quick 20% gain from Vocera Communications (VCRA) between December 27, 2021 and January 6, 2022, that I didn’t include.
The main reason for this is because 2021 was a stellar year. 2022 not so much. I didn’t want gains from 2021 that we closed out in 2022 to skew my results. I wanted to see how we fared during a brutal bear market.
Smaller Losses
Last year I wasn’t satisfied with how we let some of our big gains slip away. In 2021, our average loser lost us 14.5%. That was much higher than I like to see — and above the historical average of Maximum Profit, which runs around -9%.
In January 2022, I said that I had lost faith in the market’s rally and thought it would be a tough year for stocks. So, I set a few hard stop-losses on specific trades in that issue to keep our losses small and not let gains slip away.
As the year went on, and it became more apparent that stocks were in trouble, I tightened up our trailing stop loss to 12% from 20%. Between tightening our trailing stop loss and setting the occasional hard stops on specific trades, we improved our average loss to -9.5% this year.
That’s back near the historical average and isn’t too bad considering the bear market we’ve been in all year.
Remember, it’s extremely difficult to recover from a big loss. A 50% loss requires a 100% return just to break even.
Singles And Doubles
Overall, I think we did okay this year. We quickly moved into energy stocks at the beginning of the year and captured some nice gains there:
- 19% from Texas Pacific Land Trust (TPL)
- 20% from Canadian Natural Resources (CNQ)
- 21% from Chevron (CVX)
- 23% from Teck Resources (TECK)
- 33% from Devon Energy (DVN)
Keep in mind that we generated these returns in a matter of months. Our longest holding period was less than four months. So, if we annualized these returns, which many publications do, they would look even better. But I’m just not a fan of annualized returns.
Our average winner was much smaller than normal this year. But I made it clear all year long that our focus would need to shift from looking for home runs to hitting singles and doubles. This is the key to surviving a bear market.
Final Thoughts — And Looking Ahead
In the end, what we’re left with is a mix of mostly small wins and losses. Not great, as no one wants to lose money, but not bad considering that the broader market tumbled nearly 20%.
But given the brutal market conditions, I think we can be proud of how we did. There will always be room for improvement, though. I will continue to test and refine my investing strategy. I’m always looking for better ways to pull the biggest gains out of the market while keeping our losses small.
Longtime readers know I am constantly pounding the table on risk management and keeping losses small. This year provided an excellent demonstration of why these tactics are vital to successful investing.
Looking ahead to 2023, we are still heavily allocated towards cash in our portfolio. The goal continues to be singles and doubles with our trades. We are still in a bear market, and trading in a bear market is like trying to swim upstream. So until anything changes, we must take our wins where we can get them and keep our losses small.
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Reports indicate that his latest project will usher in the beginning of a new era for the internet. And while the tech behind this secretive project is impressive… it’s an even better opportunity for your portfolio.