What is the mindset needed to build and maintain a trend/momentum portfolio?

Episode 2: Building a trend/momentum portfolio

Fight Club on Paper

A few movies in the ’90s had some of the greatest film twists in history. The Sixth Sense. The Matrix. And especially Fight Club. Trend/Momentum investing reminds me of Fight Club. You had these two very distinct personalities going head to head in the movie. The conservative, timid narrator played by Edward Norton and the brash, flashy, and risk-taking Tyler Durden played by Brad Pitt (if you want to relive the 90s, check it out by clicking here).

The two characters battled it out in scene after scene until the big reveal at the end, which reminds me of trend/momentum investing. There is this flashy, risk-taking side. I am picking stocks with new highs, having already made a 30% move and hoping to catch a ride on the continued move up. This goes against every value investing book that I have ever read… Warren Buffet/Ben Graham and their cigarette butts… Peter Lynch and his buy things you know before other people begin to notice.

So every time a drop in the account occurs, my brain immediately flips to Edward Norton’s conservative/timid attitude. A ticker tape flashes across my mind’s screen stating “sell everything and just buy an index fund!” That battle rages on every week with the gains and losses, so I always need to step back and remember why I started in the first place. I need to remind myself of the process and steps I have put in place. I need to constantly remember the mentality needed to stay with my investments, even during challenging times.

Mentality Must Haves for Trend/Momentum:

  • In his book “One up on Wall Street“, Peter Lynch has the perfect summary of the mentality needed to own stocks. He states “the list of qualities ought to include patience, self-reliance, common sense, a tolerance for pain, open-mindedness, detachment, persistence, humility, flexibility, a willingness to do independent research, an equal willingness to admit to mistakes, and the ability to ignore general panic.” I couldn’t have said it better myself.
    • Patience – not everything will come immediately.
    • Self-reliance – do your own research and trust in your process.
    • Common sense – make sure 1+1 = 2.
    • A tolerance for pain – losing $500 in a week hurts. Get over it!
    • Open-mindedness – be willing to make changes when/if necessary.
    • Detachment – don’t look at your stocks 20 times a day, tracking every movement.
    • Persistence – keep at it!
    • Humility – you can’t always be right.
    • Flexibility – again, be willing to make changes.
    • A willingness to do independent research – read lots of books/articles and stay up to date on the latest news.
    • A equal willingness to admit mistakes – again, you can’t always be right.
    • The ability to ignore general panic – a broken clock is right twice a day.

Just last week my mentality was tested. I lost internet connection for three days, setting me back at work, in my investments, and with this weblog. It was frustrating, but I leaned on detachment, patience, and persistence to get me through and help me to remember that I am in this for the long haul. It also didn’t hurt to be rereading “One Up on Wall Street” and see that quote from Peter Lynch again.

Current Trend/Momentum Portfolio

I apologize but due to my lost internet connection last week, I won’t be able to update a screenshot of my current portfolio. I was able to track down my portfolio’s performance vs. the S&P 500, so I will add a screenshot of that shortly.

Stock Sales week of 8/14:

  • Hitting a “sell indicator” (There are four: (1) ATR Trailing Stop, (2) 5wks/Less than 5% gain, (3) 10wks/Less than 10% gain, and (4) 20wks/Less than 20% gain)
    • Stagnant Sells:
      • CYRX – Cryoport Inc. – After 5 weeks, CYRX was stagnant, not hitting the ATR Stop and not gaining at least 5%.
    • ATR Stop Sells:
      • JMIA – Jumia Technologies – What a wild ride. Up 25% on the first day. After 2 weeks, down 14%. Time to move on to another.
  • Increased Over 100% in Value (when this occurs we sell half and let the rest continue until it hits a “sell indicator”)
    • N/A
  • Biggest losers being replaced by new “buy indicator” stocks:
    • APD – Air Products
    • LRN – K12 Inc
    • NVAX – Novavax Inc
    • UCTT – Ultra Clean Holdings
    • INFY – Infosys Limited
    • AN – Autonation

Another week where the purchases dictate the sale of stocks. I have determined that if a stock has gained over 1% per week since its purchase, then I will not sell the stock. I also won’t sell a stock within one week of its purchase, letting it ride for a minimum of two weeks. This might put some pressure on my portfolio of 25 stocks coming up here shortly. Might need another market cap change or another tweak made to the process.

Stock Purchases week of 8/14:

  • EXPI – eXP World Holdings
  • FDX – FedEx Corporation
  • FLGT – Fulgent Genetics
  • RBA – Ritchie Bros. Auctioneers Inc
  • REGI – Renewable Energy Group
  • RVLV – Revolve Group
  • TDS – Telephone and Data Systems
  • UFS – Domtar Corporation

A full slate of stocks to purchase this week. A little healthcare, a little real estate, a little distribution, a little energy. Hmm… quite a unique mixture of stocks with no clear theme to the increases.

Stock Sales this week, 8/21:

  • Hitting a “sell indicator” (There are four: (1) ATR Trailing Stop, (2) 5wks/Less than 5% gain, (3) 10wks/Less than 10% gain, and (4) 20wks/Less than 20% gain)
    • Stagnant Sells:
      • N/A
    • ATR Stop Sells:
      • GSX – GSX Techedu Inc – Another high flying Chinese tech stock caught up in the macro challenges between the two superpowers.
  • Increased Over 100% in Value (when this occurs we sell half and let the rest continue until it hits a “sell indicator”)
    • N/A
  • Biggest losers being replaced by new “buy indicator” stocks:
    • N/A
  • Unusual Activity Sell:
    • SRNE – Sorrento Therapeutics – In the middle of the week, Sorrento terminated their CFO. As soon as that news was released, I sold the stock. It might rebound and do fine in the coming weeks, but one of my biggest red flags is sudden/inexplicable/shady changes in management.

It was a pretty light week in sales. The stocks as a whole performed well, increasing my overall portfolio by more than $560 and putting me back ahead of the S&P 500 for the year.

Stock Purchases this week, 8/21:

  • PACB – Pacific Biosciences

I wonder if this low amount of buy indicator stocks means that the market is becoming stagnant or on the decline. I did see volatility between my growth and dividend stock portfolios. One would be up and the other down, then the roles would reverse the next day. I love having those two rock solid portfolios that I just keep investing in. And I love having this trend portfolio that is based solely on the numbers and the process.

Overview of the Trend/Momentum Portfolio:

What a set of weeks! I experienced a range of emotions watching this portfolio. Glad my wife did not record my reactions like those YouTube videos of fans reacting to last minute losses (my screens are still intact). This is the world of investing. There are wild fluctuations in the market. But stick to your system. After losing <$484> for the week while the S&P 500 rose on the Tesla and Apple stock splits, I was questioning everything. Crazy to think how quickly your emotions can turn. I reined those emotions in, and had a strong second week, out pacing the S&P 500 easily and regaining my lead over the S&P 500. I went from -1.73% versus the S&P 500 two weeks ago to a 1.31% gain over the S&P 500 last week.

Warren buffet on systems

Benjamin Graham stated “the market is a voting machine in the short term and a weighing machine in the long term.” I need to remember that I am picking up stocks that have been voted on positively in the short term, and through my process over the years, they will be weighed. Cannot deviate from the system.

You can at least get started by opening an investment or brokerage account. My favorite starter account is Robinhood. Simple interface, easy to use, and beginner friendly. You can open up an account in minutes and they will give you a free stock. Plus, if you use my link below, then Robinhood will give me one free stock too.

Click here to start an investing account!

Stick to your system!!!

Disclaimer: These are my own personal thoughts and opinions on investing and finance. I may own companies discussed in this post, and I may have recommendations for or against any stocks mentioned, so don’t buy or sell anything based solely on what you read here. Please make sure to do your own research prior to investing any of your money.

What is trend/momentum investing?

Episode 1: Building a trend/momentum portfolio

Back at this Blogging Thing again!

Whelp! I am back at it again. Haha. I believe this is attempt number ten at starting a blog. I am the Thomas Edison of blogging. Fail enough until you succeed… right? At least in Edison’s case it took one thousand times before the light bulb succeeded in emitting light. So I have a few more tries to go before I get to his level.

Luckily each failed attempt teaches me something… make the blog for yourself, don’t pigeonhole yourself into one small category, create value for those taking the time out of their day to read your posts, and make it personal. Not only that, but I feel like this blog can also be an accountability partner for myself and my amazing and badass wife, Lizette.

About four months ago, I estimated that we could potentially hit a net worth that would allow us to retire comfortably in eight years (more on these calculations to come). Yeah, we were a bit surprised too. And therein lies the challenge we have set out for ourselves…retire in eight years or less.

But we have to make sure that we continue to have fun and live a rich life while we do it. She and I have worked to minimize our expenses and continue to push each other professionally in order to maximize our incoming revenue. And since any talks longer than 15 minutes with my wife on our finances/investing are not advised in our relationship, then the true test is on my shoulders.

The question I ask myself is simply, can I maximize the returns from our savings with different investment vehicles?

Love me some Calvin and Hobbes. Calvin, the quintessential hustler! Goals!
Get his entire works by clicking here!

Our investment vehicles currently consist of the following:

  1. Our house -> Average housing prices rise 5% per year
  2. Index Fund Portfolio -> The total stock market index has risen 11% per year for 40 years.
  3. Trend/Momentum Portfolio -> 7.65% gains after starting it at the beginning of July.
  4. Dividend Portfolio -> Producing $651 per year in dividends as of 8/7/20.
  5. Growth Portfolio -> Outpacing the S&P 500 by 27% since November 2019
  6. High Interest Savings Account -> Earning 0.8% interest per year at the moment (was 2.1% prior to Covid)

By diversifying into different avenues, I am lowering our overall risk while still betting on the US economy over the long term. I heard you, Warren Buffett, loud and clear. Your billions don’t have to tell me twice. Thank you to JL Collins as well! And Peter Lynch!

The Trend/Momentum Portfolio is updated every week, the Dividend Portfolio every two weeks, and the Growth Portfolio every month, so I will share updates here. Our house, the Index Fund Portfolio, and the High Interest Savings Account are set-it-and-forget-it investment vehicles, so they will be included in a bi-monthly update on our net worth.

What is Trend/Momentum Investing?

The Trend/Momentum Portfolio is something I have pieced together over the last year and finally put into place at the beginning of July 2020. It gets rid of all of the noise of the stock market and focuses on some key indicators (will be explained in future posts) that identify an upward trajectory of a stock’s price. The indicators also work for my personality and investing temperament. In my research and reading, a trend/momentum stock is like lassoing a rocket that has just taken off. The price movements of the stock will let me know if it is doing well or if I need to sell the stock and move to another.

Keys to our Trend/Momentum Portfolio:

  • The portfolio is housed in a tax advantaged retirement account, meaning that the capital gains (any profit we make on the sale of the stock) are not taxed year in and year out. This allows me to buy and sell stocks while not worrying about the potential tax implications.
  • An initial screening system was created to identify the stocks to buy each week, along with a system to track how the stocks perform and if I need to sell any stocks.
  • I stick to the system as best as I can. I have only deviated slightly as I get more experience working with the system and try to make small adjustments to manage the portfolio. I am looking to lock in all of my steps in the coming months and then continue that process moving forward.
  • I recalculate everything on Friday, submit the stocks for sale and purchase on Monday morning, and then I have fun tracking their ups and downs on an excel sheet and with Finviz throughout the week.
  • I have currently set the max number of stocks to purchase in the portfolio at 25.

Our current Trend/Momentum Portfolio

Stock sales this past week:

  • Hitting a “sell indicator” (There are four: (1) ATR Trailing Stop, (2) 5wks/Less than 5% gain, (3) 10wks/Less than 10% gain, and (4) 20wks/Less than 20% gain)
    • N/A
  • Under $1B or Over $100B in Market Capitalization (a tweak to the rules explained further down):
    • TSLA – Tesla Inc
    • TSM – Taiwan Semiconductor
    • NFLX – Netflix Inc
    • WRTC – Wrap Technologies
    • ICLK – iClick Interactive
    • RVP – Retractable Technologies
  • Increased Over 100% in Value (when this occurs we sell half and let the rest continue until it hits a “sell indicator”)
    • OSTK – Overstock.com – Currently up 111% since I purchased it on 7/13
  • Biggest losers being replaced by new “buy indicator” stocks:
    • OCFT – OneConnect Financial Technologies
    • SOHU – Sohu.com
    • NIO – Nio Inc.

Many of the stocks (ICLK, OCFT, SOHU, and NIO) being replaced this week hail from China. With the uncertainty over the China/US relations and the conflict brought about by Microsoft’s potential TikTok purchase, the Chinese stocks owned in this portfolio have seen a downward trend in their price. This is one of the reasons I like this style of portfolio. When the downward trend starts occurring, I start selling. If relations improve, then I will see those stock prices moving upward and begin to purchase them for the portfolio.

Purchases this past week:

  • AES – AES Corp
  • APPS – Digital Turbine Inc
  • CELH – Celsius Holdings
  • GSX – GSX Techedu
  • HOME – At Home Group
  • MOS – Mosaic Group
  • PBI – Pitney Bowes Inc
  • SRNE – Sorrento Therapeutics
  • SYNA – Synaptics Inc

The portfolio was tweaked slightly this past week to accommodate for the stocks that passed the initial screen test to purchase. With nine companies passing, this more than maxed out the stock portfolio limit of 25 total stocks. So for our Trend/Momentum Portfolio, I will no longer purchase stocks of companies that have a market capitalization (the dollar value of all the stocks of the company) under $1B or above $100B. This will help me manage the portfolio better over the long run.

Overview of the Trend/Momentum Portfolio:

The ultimate goal of this portfolio is to out pace the S&P 500 year in and year out. Since inception (which by no means proves anything as of yet), the Trend/Momentum Portfolio has outperformed the S&P 500 by 2.31%.

Getting Started Investing:

With terms like trend/momentum, growth, dividend, market capitalization, portfolio, high interest savings account, tax advantaged retirement account, and more, I’m sure it is a lot to absorb if you are new to investing. My goal is to make these posts a 15-minute or less read (see the note about finance/investing conversations with my wife above). So these terms and more will be covered on future posts as I continue over the years, but if you have any initial questions, then leave them down below in the comments section and I will do my best to answer them for you.

At the least, you can get started by opening an investment or brokerage account. My favorite starter account is Robinhood. You can open up an account in minutes and they will give you a free stock. Plus, if you use my link below, then Robinhood will give me one free stock too.

Click here to start an investing account!

And if you choose to get started investing right away, then take a moment to listen to the Motley Fools Investing Dos and Don’ts, or you can read the transcript. Building a Trend/Momentum Portfolio takes some time and understanding, so I would start with the simple initial steps of buying a stock or index fund.

Disclaimer: These are my own personal thoughts and opinions on investing and finance. I may own companies discussed in this post, and I may have recommendations for or against any stocks mentioned, so don’t buy or sell anything based solely on what you read here. Please make sure to do your own research prior to investing any of your money.