Hey everyone, and welcome new subscribers!
The “Improving Trading Skill” posts are projects from the book Managing Equity Portfolios by Michael A. Ervolini. For new people, you can find Part 1 and Part 2 in our archive or use the hyperlinks. These posts aim to provide our followers with homework so they can extract alpha from the markets like a pro.
Today, I’m writing about Project 2 of 7.
Project 2: Maintaining a Diary
Summary: Conventional portfolio management tools like accounting, performance measurement, and risk management provide feedback about outcomes but say nothing about the decisions that produce the results. To improve, managers should maintain an investment diary.
Action Plan:
Start maintaining an investment diary.
Write down the decision-making process for each trade or investment.
Record the reasons for buying, selling, or holding a security, including research and analysis.
Include thoughts and emotions during the decision-making process.
Review the diary regularly to identify patterns and areas for improvement.
Post-analysis of trading records is an essential and challenging assignment. Our monkey brains are lazy, and when it comes to record-keeping, we view this task as menial. We overcomplicate the process of maintaining a diary.
I have personally struggled with this particular project. My mind could be more detail-oriented, and data entry overwhelms me. Discovering a way to accomplish the task personally is so important. Here are some ways to keep records.
Write a big-picture research thesis on all assets you trade and review it monthly. Download trades from your broker statement and compare the trades to the theory.
Print out the chart of the asset you made a trade on. Write on the printout, and print out a new chart anytime you take an action. Keep all copies in a binder.
Use 3rd party software like Edgewonk or Tradersync.
Use Onenote or Evernote to write to yourself about your portfolio.
Fortunately, brokers keep good transaction history records, and I am less concerned with trade data. The crucial details about your trading are your transactions and your decision-making process. Only when you break your process for decision-making down will patterns and triggers that drive your trading appear. Analyzing the tactics of your trading can improve your results. Developing a better decision-making plan will level you up!
I understand the difficulty of this task, and it is an area where I am trying to improve myself. If anyone has any specific questions, please reach out.