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When to Cut & Run vs When to Double Down

edited August 2018 in Fund Discussions
Within my own portfolio I've done both. Linked below is an article that address the subject line in more detail.


  • I've done both before as well but in my mind this guy is dangerous. Other than the difference between a short-term trader and having a longer time horizon there wasn't much about how you decide when it might be appropriate to double down, just that it had worked out twice for him with one stock. It might be nice to share the reasons why general wisdom isn't to double down and somewhat irresponsible to use one or two winners justify the alternative. It seems he's trying to get a job with The Motley Fool and he's clearly qualified.
  • edited August 2018
    Hi @LLJB, Thanks so much for making comment. When I first read this article I thought to myself something is missing; but, after reading it again and thinking about it I came to the conclusion it was complete. And, I'll explain.

    Based upon your comment I'm thinking you were looking for a scientific approach and answer to the question "When to Cut and Run vs When to Double Down?" That type of thinking come from using the left side of the brain looking from some scientific rules based approach. However, investings goes beyon science and requires the use of art as well (creative thinking) which comes from the right side of the brain and in the above case uses intuition.

    The above dilemma can be better answered in that to engage this type of investment strategy requires the use of art (so to speak) which comes from a learned skill using the right side brain thinking.

    For me, unless you engage the use of art using the right side of the brain you will not find an answer to the above question and will still be looking for a scientific solution for which there is none.

    This leaves us again to ponder the question ... Is investing a science or an art? Again, I'm thinking it requires both and thus becomes a craft when you make a call.

    Perhaps, the answer to the above question can be better explained in reading the below link.
  • If I wanted to invest like this, I'd own FAIRX.

    Remember, Berkowitz is a professional, don't try this at home.
  • At 9:00 AM EST, it looks as though this might be a day when one could put the theory to the test. All arrows, here and broad, are way down or predicting way down.
  • edited August 2018
    LLJB hit it on the head. Since today’s investors mostly have the attention span and patience of a fruit fly, it’s probably never a good idea. Yep, I’ve done it. Some winners. Some losers. Sometimes a draw.

    Once you start “buying down” there’s no way to know when that asset will turn. You’re reasonably certain it will turn ... But no way to know when. Could be 20 days. Could be 20 years. Having good intuition helps. But still, it can be a long tough slog before you reap a reward.

    Generally, I’d say spread your assets around a bit and sit back and wait. A lot easier on the nerves if nothing else.
  • Whenever I've doubled down I've lost 100% of everything
    Whenever I've cut and run, I know exactly how much I lost or gained.

    The first is about alignment of the planets, tea leaves, etc.
    The second is about logic. Now of course, that wouldn't make sense to M*, but it's still logic.
  • Well, back in the early 70s I held IBM and it took a real dive. Figuring that if IBM went under so would half the rest of the country I doubled down. IBM sorted itself out, I recovered my bet, and got the hell out. But of course that's only one instance. Never tried that again.
  • edited August 2018
    The thing is no one has benefit of hindsight. If you don't sell it will go bankrupt. If you do sell, it will go up. I have a 100% record on this.

    Just to prove it to myself again I'm going to buy some penny stocks tomorrow. Not randomly. I will comb recommendations from over ANALysts and then buy. Haven't bought a stock since Inktomi (purchase price $10, high price $120, bought out buy Yahoo at $1.6).
  • "If you don't sell it will go bankrupt"

    Yeah, I have one of those, too.
  • Been that, done there, most recently with a 'reliable tip' stock I also recommended to someone in this group (and he bought some :( --- gah).
  • I doubled and tripled down on a bunch of financial stocks during the GFC (RDN and AXP mostly), made a lot of money and thought I was smart. Then I tried the same with a couple of energy and mining stocks a few years back. With one (BBL) I lost my guts and sold at pretty much the exact bottom (it's since recovered nicely) the other (TDW) I bravely held on all the way to bankruptcy.

    Adding the two experiences together I broke even, more or less. I consider myself lucky to have done no worse and will never try it again.
  • Only two? Impressive. It appears to take me a dozen bad experiences for my greed to be dope-slapped and become averse or at least avoidant.

    That said, I did hold some recent pharm bomb for years, yet another hindsight-terrible tip from some plutocrat friend, held it to his surprise, and ... it recently jumped up and I sold for a thin profit.

    Probably equaling a percent a year of the holding period.

    But I was made whole, so to speak. Many of those articles on idiot-investor psych apply to me.
  • I Agree With Every Comment Vintage Freak Made.
  • Hi @Old_Skeet, I totally agree with you that investing is both art and science, which I attribute to the science of using the past to help understand the likelihood of certain outcomes in an unpredictable future and then the art of choosing among various options not only based on how likely something is but also all the unquantifiable factors that influence your desired outcome.

    I don't have any problem with the idea that its worked out for this guy. I just think it doesn't work out that often for that many people. Just like we require ladder companies to warn everyone that you shouldn't put the ladder on ice when that's pretty obvious to most people, or we require McDonalds to warn people that their coffee is hot when most people don't really need that kind of warning, I thought the case was a lot more compelling than the ones I just mentioned that this author should have done a far better job warning his readers that he was advocating something that doesn't work for most people. Those who do get it right a couple times almost always discover the hard way that it was luck rather than skill, which is how I learned as the bubble burst.

    I made a lot of money during the frenzy buying and selling the volatility in semiconductor equipment stocks and I gave it all back because I didn't learn quick enough that my gains had nothing to do with skill. This guy knows that. He knows most people aren't qualified to make the judgments he's advocating and he might even know that a buyout offer 67% above the previous day's closing isn't about skill even if he recognized that it could be a possibility.
  • Hi Guys,

    When to cut and run? Never

    When to double down? Never

    These actions are far too extreme suggesting precise knowledge of market movement certainty that just does not exist. In the equity marketplace uncertainty rules the day. But what the historical returns data do show is that equity returns are positive and roughly double that of bonds, That's attractive enough for me to invest.

    Careful studies have consistently demonstrated that individual investors make poor entry/exit decisions. Hell, on average these investors underperform Index returns by substantial margins. Most investors are far too emotional and follow bad advice. These investors would increase their meager returns by simply ignoring the daily news and forget about expert recommendations. Staying fully invested for the long term might not maximize end returns, but they would approach that ideal much more closely than many of their current practices.

    No investor knows exactly when to cut and run or to double down. That wisdom belongs only to God, and I'm not even sure of that. Doing a little at a time might not be too bad a compromise strategy.

    The following reference which suggests that "Those who trade the most are hurt the most" might interest some of you:

    Best Wishes
  • @MJG
    You noted, "That wisdom belongs only to God".

    Whose God would that be, globally asking?

  • edited August 2018
    “Individuals make decisions every day with their emotions assisting their judgment. It is part of who we are as human beings. Unfortunately making emotional decisions can be a detriment in the investing world. Individual investors who let their emotions guide them have a much harder time investing than people who have found ways to master their emotional decision making. Some investors try to master their emotional involvement by using a rules-based system, others use computers to make the decisions for them, and still others invest in indexes through ETFs or mutual funds. There are many ways to remove the emotional component from investing, but most investors don’t realize that their emotions are the problem. You can read my post about fear and greed investing or investing is not gambling to learn more.”

    The link MJG posted is an advertisement for Investment Advisory Group. The writer’s name is Kirk Chisholm. He’s employed by Investment Advisory Group. I’ve noted the qualifications he provided at bottom. No accredited instructions or degrees are listed. No reference to specialized training in either finance or psychology is indicated.

    (1) Correlative statistics: The writer cites statistics showing a correlation between poor investment outcomes and frequency of trading (higher trading being associated with poorer performance). I dont think many would doubt that correlation. It’s pretty widely accepted.

    (2) Assumptions The writer makes numerous assumptions about the psychology of different investors which (presumably) led to some engaging in higher than average trading. What are the writer’s qualifications re human psychology? It’s a big leap to go from the correlation between trading frequency and performance to the particular psychology which led to that. At that point you’re likely delving into problems like compulsive personalities, low educational attainment, delusional thinking - and quite possibly substance abuse, gambling addiction and dysfunctional families. I don’t know what leads some investors to trade so frequently. I don’t think the author knows either. I’d suggest the he and his firm stick to dispensing investment advice.

    (3) Causal relationship - I don’t think he’s demonstrated that convincingly. It is equally possible that those who trade frequently are poor money managers to begin with and would still have found a way to lose money in the markets. Their heightened trading activity might be more a consequence of more serious underlying issues (including financial) rather than the cause of their predicament. So, was the frequent trading the cause of their problem or was it the result of other problems?

    Author: Kirk Chisholm is a Wealth Manager and Principal at Innovative Advisory Group (IAG). His roles at IAG are co-chair of the Investment Committee and Head of the Traditional Investment Risk Management Group. His background and areas of focus are portfolio management and investment analysis in both the traditional and non-traditional investment markets.

    I liked this thread in general. To me it does not appear to be about frequent trading. I suspect Old Skeet was more interested in that 2, 3 or 5% of an investor’s decisions based on strong conviction for / against a particular opportunity. “Doubling down” is a treacherous path to making money which nearly everyone has previously noted. “Cut and run” references selling a bad investment or fund. If you’ve invested for more than 50 years without ever making a bad investment (one you needed to sell) you are indeed fortunate.
  • HI Hank,

    Thanks for reading my post and contributing to this MFO thread. I think your edited version did improve on your original submittal. We all have second thoughts.

    Chisholm received a BA in Economics from Trinity College. He did his college work from 1996 to 1999 so he has been in the investment business for just short of 2 decades. That's enough time to learn the business.

    I too liked his article without some of the reservations that you had. It is quick to read and contains solid investment advice. MFOers will benefit from the article; that's why I Linked to it. MFOers time is indeed valuable so brevity is important.

    Best Wishes
  • edited August 2018
    Hello all,

    I want to thank all that made comment in this thread. Again, if you came to it lookin for a scientific answer ... well, you are probally still looking.

    I'm going to share a recent happening within my own portfolio that took place over the past couple of years. I am sure most remember when engery stocks tanked and the sector pulled back. For me, this was a no brainer in essence I doubbled down since I felt the sector was oversold and increased my allocation in engery. Over the past couple of years, thus far, this has been very rewarding. This action came more from art and my right side brain thinking than from science. Wisdom gained through investing forumlates on the right side of the brain to recgonize patterns. And, through the years I have at times bought the laggard sectors when I felt they were oversold figuring they would rebound. Would I completely cut and run form a sector "never." But, I sure would reduce a sectors weighting within my own portfolio should if feel it was overbought under the axiom "Buy low ... Sell high." Currently, I am underweight technology and discretionary because I'm thinking they are overbought. Again, right side brain thinking.

    So, yes ... I have to a certain extent done both ... "Double Down" and Cut and Run."

    Thanks again to those that made comment (the wizzards) and also to those that just stopped by to read. I hope you were able to gain some knowledge from the boards wizzards. We don't all think alike but that is what makes investing so great for those that can master it.

    Want to become a master investor (wizzard) click on the below link. Enjoy the reading.

  • edited August 2018
    @MJG - Thanks,

    Yep - My original post mentioned not being able to identify the author. Later I did learn his name and position with IAG and so corrected that. There were some redundancies I weeded out as well. Apologize for throwing you a knuckle ball. You handled it like an expert.

    So Mr. Chisholm graduated from college in ‘99 with an economics degree ...
    These young ones - still in college at the height of the 90s boom - really don’t have the same perspective as you, me and some others here who’ve been investing and following the trends for 50+ years since the ‘60s. The inflation of the 70s & 80s, seeing gold soar from $35-$500, the Volcker years, the tech bubble & wreck, and October 19, 1987 all influenced my perspective. Mr. Chisholm did live through the ‘08-‘09 collapse. But I fear the unusually strong and rapid recovery may well have taught him and many the wrong lesson.

    A degree in economics is nice. I’d be more impressed with a CFP and a bit more experience out in the field. I probably should not have referenced your source as an advertisement. While it does have some promotional attributes (plugging for his firm) I think the content was well intended. I continue to be a bit agitated when anyone tosses out that corellation between trading frequency and poor performance. While that’s a part of the picture, it’s not the whole picture.

    Great biking day here in northern Michigan.

    Wishing you good investing.

  • With all due respect that sounds more like common sense rebalancing rather than doubling or eliminating an investment. In my mind there is a large difference between the two.

    Using your same example I have done the same when certain sectors have fallen in or out of favor. However, when I held a single equity in the energy sector my reaction was quite different. Using KMI (Kinder Morgan) as an example, it got slaughtered when management cut the dividend a few years back. While I understand the reasons why they did it the fact was they lied to investors about that decision. It would have been a great time to double down on one's investment if you felt like they would never do that again but I ran instead.
  • edited August 2018
    Hi @Mark, I have to say my above example was borderline. But ... Just as Duke Energy "lied" to the North Carolina Utility Commission in their merger with Progress Energy and just hours after the merger they fired the new CEO who was Bill Johnson & CEO from Progress Energy. Mr. Johnson was suppose to run the new company under an agreement with the commission. They replaced him with Lynn Good ... I cut and ran. What a hood wink! And, they got heavily fined. He received a nice termination package and, in time, became the CEO of TVA. I owned shares in both companies. Again, what a hood wink job on the commission. Today, this still lingers in the minds of many folks. Myself being one of them and I think their action back then still impacts their relationship with the commission.

    I'd also have to say being light technology by about 9% (I'm @14%) from its S&P 500 Index weighting (it is @ about 23%) is more than a rebalance. In addition, I'm light consumer discretionary, industrials, and healthcare. I'm overweight materials, real estate, consumer staples, energy, utilities and communication services. I'm about equal weight in financials with the Index.

    A normal sector weighting for me in a major sector is 9% with no major being greater than 15% or so. For a minor sector a normal weighting for me is 5% with no minor being greater than 8%, or so. This means that there is a sizeable amount (about 17%) that can be spread to overweight sectors from my normal weightings.

    Anyway, this is how I roll when it comes to my sector weightings.

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