Hi David

How very prescient you were about biotechs!  On the 13th March [Email of the day 4] you wrote about looking out for an upside tail on the weekly chart, and said "You could ride out the next mean reversion as a long-term investor but do not be surprised if it comes back to 100."

And what happened? The very next week there was an upside tail. That top was subsequently taken out, but now we ARE below 100!  Which indeed is much lower than I expected at the time.

I took the first course, riding out the mean reversion (and more) and am now holding on. Trusting that your long-term assessment - "I do not doubt for a second that biotechnology has a terrific long-term future" - is as correct as your short-term one was!  In my decision to do this I was definitely influenced by the knowledge that that is what you habitually do with your long-term positions, even in critical situations like 2008, and that it has paid off for you in the long term. And that in my own trading I have always - through decades - made money on shares and lost on the trading.  So now I have only long-term positions, finally having seen the light.

Once again thanks to you and Eoin for being such marvellous guides to this choppy universe. 

David Fuller's view

Thank you for your kind words and for raising, once again, such an interesting topic.  You are playing to your strengths, which makes sense for every investor.

Leveraged trading is exhilarating when successful but also traumatic when it goes wrong, as it inevitably does from time to time.  It is also much more difficult than unleveraged investing, because 10 to 1 gearing clearly involves short-term money control challenges.  Therefore sensible people either keep leveraged trades very small relative to their capital, or build-up positions on a Baby Steps basis, protected with in-the-money trailing stops.  However, this latter tactic needs the luck of significant and orderly trends to be profitable.  They are often the exception rather than the rule, so disciplined traders will often find that they are frequently stopped out with small profits or losses, even if they have anticipated the overall direction of the trend.

As for riding out your unleveraged FTB position, it is near $100 today but it briefly fell much lower on the August 24^th temporary meltdown, probably due to high-frequency trading, although I have no confirmation of this having been on holiday at the time.  I hope you were similarly distracted from the markets on that day, because it would have been traumatic for many people.  For this reason I am repeating the tactical paragraph from my reply to your email posted on 13^th March, for dealing with positions where the trend has accelerated in your favour:

You may not get a similar signal this time but you already know that mean reversion is certain to occur an quite possibly in the near term.  You have lots of choices.  You could ride out the next mean reversion as a long-term investor but do not be surprised if it comes back to 100.  You could anticipate this by lightening your position on further strength, ahead of the eventual downward dynamic which will send other nervous holders scuttling to the exit door.  You know the adage: ‘If you are going to panic, panic early.’  I could go on but you get the point.  Select the strategy that you feel most comfortable with. 

Basically, I think good tactics are better in the long term than backing my opinion or anyone else’s, not least because this policy leaves you in charge.  Interestingly, my longer-term optimism in biotechnology is influenced by Dr David Brown, who is a popular speaker at Markets Now, in addition to many other activities.  He is a hands-on specialist in biotechnology.  Nevertheless, I remember some very experienced investors at Markets Now – it must have been around March, who said they could not possibly invest in publicly quoted biotechnology shares while the main Index was accelerating higher.  I agreed and said we should wait until a significant correction had occurred.  This opportunity is presenting itself for those who are interested in the sector.