My Most Regrettable Trading Decision

Do these next two lines sound familiar?

Regrets, I’ve had a few…

But then again, too few to mention…

I’m betting you know them. They come from Frank Sinatra’s signature tune My Way.

My Way was Frank’s biggest hit. UK music authority, Official Charts, says the song has sold 989,000 copies. By comparison, sales for his #5 hit New York, New York come in at 301,000.

For all its success, Sinatra came to hate the song. His daughter said the legendary crooner thought it was self-serving and indulgent. But My Way stuck; Frank could never shake it.

Regret is a powerful emotion. It’s something we all experience from time to time. The anguish of a bad decision can linger for many years to follow.

In a minute, I’m going talk about regret in the stock market. You’ll see how I missed a highly profitable trade. It’s a situation you may find familiar.

But let me start with a short story. This is what got me thinking about regret.

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 Your biggest regrets are not what you do, but what you don’t do

Some of my best childhood memories are from around the age of 10.

You see, Dad was a publican, and he’d just bought a pub on Sydney’s outskirts. There was just one problem: it was a long way from home. This meant a tortuous daily commute.

It’s easy to forget the difference expressways make. In those days, getting across town was a long winding drive. So it was decided to move the family to Sydney’s North West.

Today, the region is a fast growing ‘middle ring’ area. But in the late 1970s, it was semi-rural. Acreages and small farms dotted the landscape. The suburban sprawl was still a decade away.

Our new place was set on two and a half acres. I had a homemade cricket pitch down the side. There was also a big back paddock with a couple of horses. It was a youngster’s dream.

We left the district when I began high school. But I still drive past the old house when I’m nearby. It brings back fun memories. My kids also enjoy seeing where I was at their age.

But I have a regret…

We were standing by the back paddock not long ago. I thought of knocking on the front door. It was a chance to give the kids a closer look. But I held back. I didn’t want to disturb the owners.

So, why’s this a regret?

Well, I drove by the property a few months later…

As I looked to my side, a cold flush went through my body. There was nothing left standing. My old house had made way for an 86-dwelling construction site.

They say your biggest regrets are not what you do, but what you don’t do.

And do you know what? I agree.

It’s the opportunities I let go that linger longest in my mind.

The best way to head off regret

I believe the best way to head off regret is to act.

You see, the pain of a loss often fades quickly from memory. That’s why I’d rather have a go at something and fail. It’s doing nothing that bugs me the most.

Take the stock market for instance…

Do you ever hesitate to buy after a quick share price rise?

Many people do. You’ll hear them say ‘I’ve missed it’. They then watch as the shares spiral to dizzying heights, all the while kicking themselves for not buying.

Don’t worry if you’ve done this. I have too — many times.

In fact, it’s still an area I occasionally need to work on.

You see, I’ve always been good at buying a breakout. This is when a stock busts higher after a period of trading quietly. Many big trends start this way.

My problem was buying if I missed the initial move. I’d start worrying about a pullback instead of trusting the trend. It was a case of getting in on the ground floor, or not at all.

An example was near the end of the GFC sell-off. I’d been following the market closely. I thought a major turning point was coming, and I was ready to buy.

Have a look at this chart of the S&P 500:


Money Morning

Source: BigCharts

[Click to open in a new window]

This is how I saw it at the time…

The market fell to a new low in November 2008. But the selling didn’t continue, and prices quickly began to rebound. This was a sign the tide was turning. It was time to make a move.

I bought two big parcels of shares in an index fund — one on 9 December 2008, and the other on 6 January 2009. You can see my entry points on the chart.

But I was too early. I cut my position shortly after, as the market took a turn lower.

Here’s what happened next:


Money Morning

Source: BigCharts

[Click to open in a new window]

The market made a final low on 6 March. It then began a sharp move higher. The S&P 500 rallied for six straight weeks, and put on close to 30%. This was one of the strongest rallies in history.

But I wasn’t on board…

You see, I hadn’t seen a clear point to get back in. There wasn’t a breakout (which I was good at buying), just a fast move higher. By the time I knew I should buy, I balked at the higher price.

Here’s the final chart in the series:


Money Morning

Source: BigCharts

[Click to open in a new window]

It still bugs me to think about. I had the right idea. All I had to do was re-enter the trade.

But I didn’t act. Regrets, I’ve had a few.

Thankfully, it’s not all bad. Regret also has a positive side. For me, regret is the incentive not to repeat a mistake. This has made a real difference to the way I trade.

I use regret to weigh up a situation. This has had a big impact on how I enter a runaway trade. And I think you’ll be able to use this tactic yourself.

Until next week,

Jason McIntosh,
Editor, Quant Trader

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Jason McIntosh is a professional quantitative analyst. Before he graduated in 1991 he joined Bankers Trust — a Wall Street investment bank — to be a trader. After Bankers Trust was taken over in 1999, Jason, already financially independent, co-founded a stock market advisory and funds management business called Fat Prophets. At 37 he sold his part of that business and retired. These days, he’s a private trader and system developer. In 2014 he launched the wildly successful trading service: Quant Trader.


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