The Art Of Execution
A game changing technique that has greatly improved my investing.
Successful outcomes in life (excluding lucky breaks) often boil down to:
- Having a correct idea AND executing it effectively.
That’s all you need, see you next time…
Just kidding.
In this publication, along with the ROI channel I share my valuation process which addresses the first part of this equation.
Today’s post shares simple rules of execution which I’ve found have dramatically improved the execution aspect of the above equation.
There’s nothing more frustrating than correctly identifying an opportunity with massive upside and then fumbling the execution, leading to a mediocre outcome.
Believe me, I am WAYYY too familiar with this feeling. In my short career as an investor and entrepreneur I’ve correctly identified literally dozens of multi-baggers, both public and private and yet I’ve only enjoyed multi-bagger returns in less than 10 thanks to a lack of maturity and understanding of today’s topic ‘ The art of execution’.
So let’s assume we’ve already found an opportunity which takes our fancy. How then do we structure a reliable approach to buying at a really good AVERAGE entry point and selling at a great AVERAGE exit point taking advantage of market price fluctuations rather than being taken advantage of?
Let’s dig in..
First off, nailing the optimal entry and exits is impossible so forget it.
However, here are some tips I’ve learned that have greatly improved my performance, many of which have been borrowed from this book which I highly recommend.
Enter and exit in tranches (layers).
I like to enter a position in 1% increments until I reach my maximum desired allocation.
i.e if I like stock A at $10 because I think it’s worth $20, I might take a starting position of 1% at $10 and monitor it, adding on price and momentum weakness until the position hits my max allocation (say 5%).
So how do I know when to add?
Price changes.
Assuming no fundamental change to the thesis/valuation, I use price changes as a guide.
My heuristics: I can tolerate a MAXIMUM drawdown of 30% before I MUST make a binary decision: buy more and lower my ave entry or cut the position.
No negotiation.
The following chart illustrates the reasoning.
*Now every rule has its exceptions, such as VAL 0.00%↑ in my case where I have a hard measure of replacement value of over $200 per share along with myriad other factors that lead me to ‘front end load’ my investment with one massive tranche. However cyclical, highly asymmetric plays like that are likely to be very few and far between.*
RSI (Relative Strength Index)
A more ‘technical’ indicator would be to look at times when the RSI is in the 30s as a good time to add to a high conviction play. This simply tells us when selling pressure is likely to abate and form a near-term bottom in price.
*Intelligently* using options.
This is my “secret sauce” and is surprisingly unpopular amongst my peers.
Most use options like a bunch of degenerates as speculative instruments for capital gains on the buy side. My bent has always been to sell options on positions I like and either profit from the premium earned and/or gain entry to a stock at an even better entry price than was on offer at time of reference. Basically I sell insurance on stocks I like at rates of return that are acceptable to me. This model is extremely profitable and is why I refer to myself as a ‘ One man insurance Co.’ on X.
You’ll learn all about that in this publication so if you haven’t already, subscribe!
Summary
In reality I use a blend of the above tactics because, as the title suggests, execution really is an art. An opportunity that I deem worthy of 5-7.5% weighting might have a typical entry strategy consisting of my buying a straight equity position 1-2%, selling OTM puts for 1-2% and adding on drawdowns on ave entry price and/or RSI indicators.
This philosophy has improved my performance by getting access to investments at better entry prices than I otherwise would have and, as Lee writes in his book, get it wrong and still make money.
All the best,
Benjamin.
Disclaimer: This publication is intended solely for documenting my personal journey with trading and investments for income and travel purposes. I am not a certified financial advisor nor am I a financial professional and none of the content provided should be construed as investment advice. It is essential to conduct your own thorough research and consult a registered financial service provider for appropriate guidance. I cannot guarantee the accuracy or completeness of the information presented. Any actions taken based on the information shared in any of my work are done at your own risk and discretion.