Never Say ‘I’ve Missed It’ Again

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Should have, could have, would have…

These are the words of regret. They describe situations where we can imagine a better outcome.

But it turns out all regrets aren’t equal.

I read a fascinating piece of research recently. It was a study on regret by two US universities.

The researchers identified two types of regret — action regrets, based on something you did; and inaction regrets, which occur when you don’t do something, but later wish you had.

It turns out that inaction has a bigger impact. This type of regret lingers the longest — much longer than the regret of doing something that doesn’t work out.

There was another interesting takeaway from the research. The authors claim that inaction regrets can spur us on to future success. They say these regrets drive us to ensure we don’t miss out again.

The research rings true to me. When I think about my trading, it’s the inaction regrets I remember the most. Rarely will I dwell on the trades I take that end up failing.

Last week, I told you about my own inaction regret. It was a trade that got away…a trade that could have been one of the best of my career.

I’m going to share another trade with you in a moment. You’ll see how my inaction regret has led to a better future outcome. I’ll also tell you how I use regret to weigh up a situation.

But first, a quick recap from last week…

A lingering regret

This story begins near the end of the GFC selloff. I’d been patiently watching the market for a buying opportunity. I thought an important low was close at hand.

Stocks began to push higher during late 2008. This was the move I was waiting for. I bought two big parcels of shares in an index fund.

But my timing was wrong. The rally didn’t last, and I sold my position at a small loss.

Here’s one of the charts you saw last week…


Source: BigCharts
[Click to enlarge]

You can see my entry points, and my exit. I’d bought into strength, and cut my losses when the market began to fall back. But this isn’t my regret — some trades just don’t work out.

My regret is about what happened next.

The market made a final low a few weeks later. A sharp rally then took prices higher for six straight weeks. But I wasn’t on board. By the time I knew I should buy, I balked at paying the higher price.

A highly profitable trade was in my sights, but I didn’t take action. The rest is history. You know what happens next…


Source: BigCharts
[Click to enlarge]

It’s not the trade I took that I regret — it’s the one that I didn’t.

The funny thing is that I forgot all about the losing trade. I only saw it when I went back over my records for this story. Just as the research says, it’s my inaction that lingers long after the event.

Take two

But that’s not where this story ends.

Now let me tell you about a series of trades with a different outcome…

Some of the worst performing stocks in recent years are gold miners. After peaking in 2011, the sector has been in a tailspin. Share price declines of 80–90% are common.

I’ve been following the gold sector closely since mid-2013. Like the S&P 500 in 2008, I thought a major turning point was coming. It was a case of waiting for the right opportunity to buy.

Here’s a chart for Newcrest Mining [ASX:NCM]. This is the largest gold company on the ASX. It’s also one of my ‘go to’ stocks for gold exposure


Source: BigCharts
[Click to enlarge]

This is how I saw it at the end of 2013. The shares were down 84%, and trading near their lowest level in a decade. My view was that prices were reaching a bearish extreme.

I saw signs of a turnaround in January 2014. Globally, gold shares were edging higher, despite a drop in the bullion price. This was a sign of seller exhaustion — the path of least resistance was up.

NCM was trading about $1.00 above its 10-year low. This meant I was able to have a low risk speculation. I bought a stake and put my initial stop-loss under the recent low.

Have a look at this…


Source: BigCharts
[Click to enlarge]

My hunch was right. The shares put on a quick-fire 54% from my entry point.

But it was a false dawn. You can see my exit on the chart. I made a modest profit, although it was far from what I thought was possible.

This wasn’t my only attempt to trade a recovery in gold. I had several more over the next two years. Each time I would buy into strength. I’d then cut my position when the shares fell back.

Let me show you another chart. It covers the period up to February this year. I’ve marked my main entry and exits points from January 2014 onwards…


Source: BigCharts
[Click to enlarge]

I had four attempts at buying NCM. On each occasion, the shares would rally before pulling back.

Just so you know, these weren’t algorithmic trades. I was using my experience to make ‘buy and sell’ decisions. But the underlying strategy was the same — buy into strength, and sell into weakness.

Now, take a look at what happens after Exit 4. NCM breaks higher…and I do not re-enter. It was like 2009 all over again. I had the right idea, yet missed the trade. I couldn’t believe it.

Think what you’d do in this situation.

Do you pay up to get in, or do the words ‘I’ve missed it’ creep into your thinking?

I’ll tell you what I did. I weighed up my possible regrets.

On one hand was the regret I’d have if I bought in and the shares began to fall back. I’d end up with a bigger loss than if I’d gotten in early. This would be frustrating.

My alternative regret was about not buying. I could play it safe on the sidelines. But what if this was the start of a big move? How would I feel watching the shares spiral higher?

It was a lopsided comparison.

I knew the disappointment of a loss would quickly fade. My biggest regret — by far — would be missing an outstanding trade because I did nothing. The decision to buy was easy.

Here’s the final chart in the series…


Source: BigCharts
[Click to enlarge]

You can see where I got in. It wasn’t the perfect entry (ideally, I would have bought two months earlier), but it was an entry.

Here’s the thing. A trade can have many buying points. You don’t need to get in on the ground floor to do well. If an opportunity looks goods, the important thing is that you get in somewhere.

Missing the turning point in stocks during 2009 was tough. But it was a valuable lesson. It made me rethink my strategies for buying a runaway stock.

NCM is an example of how I now approach these situations. Even though I was slow to buy, the trade was quickly ahead by 50%. I also know I’ll have no lasting regret if the trade ultimately fails.

So don’t be too quick to walk away if you miss a buying opportunity. I know it can be mentally hard to buy at a higher level. But be open to the possibility. It can save you a lot of lingering regret.

Until next week,

Jason McIntosh,
Editor, Quant Trader

Editor’s Note: Each day the markets are open, Quant Trader scans practically every ASX stock for opportunities. There’s a good chance you haven’t heard of some of these ‘hidden’ stocks. And that’s understandable — the ASX has over 2,000 listings.

I’ll give you an example. Have you ever heard of Catapult Group [ASX:CAT]? It’s an athlete analytics company that makes wearable technology for elite sportspeople. Quant Trader gave a buy signal in February. The stock is already up 80%.

Anyone can get gains like these. It’s all about having the right strategies. You can learn more about these here.

PS: All charts are sourced by Quant Trader unless otherwise stated.

Jason McIntosh

Jason McIntosh

Jason 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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