An investor asked me recently whether our stock trading model was still working. Fair question. Some of our positions have had a rough couple of months.
Nobody enjoys watching their investments go backwards especially after several years of strong returns. You know a couple of bad months tell you very little about a model. Ours has been through several meaningful drawdowns before. Each time, it recovered. Good periods do not last forever. Neither do bad ones.
So what is going wrong? Our model ranks stocks on key factors from valuation to momentum. That combination has worked well over time. It does not work every month.
The factors do not all behave the same way in every market. Momentum is the moody one. When sentiment shifts, yesterday’s favourites can be dumped overnight even when the businesses and earnings outlook are still sound. We have seen it many times before.
Are we just sitting and waiting? No. We review our work all the time. If something is broken, we fix it. Any change has to come from proper research and testing. Changing course on frustration alone usually makes things worse.
No strategy goes up in a straight line. What matters is understanding why it is struggling and staying objective. Discipline is easy when you are winning. It only counts when you are not.