JEREMY LEFEBVRE DISCLOSES HIS PORTFOLIO LOSSES.
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In this video we look at the devastating losses incurred by Jeremy Lefebvre, face of the Youtube channel Financial Education.
In his recent video Jeremy discloses his buy and hold losses, totalling in excess of one million dollars over the last 6 months, largely due to a general market decline, and with over 700,000 subscribers I’m sure there are some unhappy followers.
We look at his individual positions and demonstrate how much of his loss could have been avoided.
At the time of his posting Jeremy held onto the following stocks, and we can see he was somewhat diversified, although with a heavy weighting towards technology and consumer cyclicals. With a buy and hold approach I would have expected to see maybe healthcare, industrials, and energy, nonetheless this is not the main focus for our video.
Using the six months quoted by Jeremy we use our starting point for analysis as the first of November 2021.
These were the prices quoted on that date for each stock.
Now let’s fast forward 6 months to today’s date, the first of May 2022.
We can see here the change in price for each position, each of the positions saw a significant loss, with Voyager Digital suffering the most with a 77% fall.
The problem with such losses is not just the Net effect on a portfolio, but the percentage gains required to return to a breakeven figure. This 77% loss for example would require a near 400% gain to get back to its original price, and these losses of over 50% would each require a gain in excess of 100% to recover.
The question has to be, why would anyone let their losses continue to grow in such a way?….. There is in fact a very simple method to avoid such scenarios, members of my group will know….. It’s the mack dee indicator and the 20-week moving average. I use the indicators on the weekly charts for all my positions, let’s look at some of Jeremy’s stocks using the weekly chart to see the difference in return.
Starting with the biggest loss of 77% Voyager Digital, a mid-cap crypto broker.
We look at the weekly chart and draw the start point 6 months prior at the first of November, we can see at this point that the blue mack dee line is above the signal line, and price is above the 20-week moving average, we therefore assume we have a position. Next we look for the mack dee line to cross below the signal line, which we see here on the 2nd of January 2022.
For the purposes of this exercise, we simply close the position at the close of the candle in that week. We close at a price of 13.45, a loss of 27.4% but considerably better than 77%, which could drop even further. There really is no need for Jeremy to stay in such a declining position, why not just wait for the mack dee to cross back up with price moving above the 20-week moving average and then initiate a long position.
Next up we have a mid-cap company Corsair Gaming, a supplier of equipment for gamers and content creators. We can see its decline over the past year but let’s look at the chart in more detail.
We can see that the mack dee has stayed below the signal line for some time and price stayed consistently below the 20 week moving average, however we are only measuring the last six months, so we again draw the starting point from November 1st.
From this point the mack dee is still below the signal line, therefore we don’t take a position, instead we await the cross back up which we see here in February, however the closing price did not make it past the 20-week moving average, we therefore sit tight. In this position we would have returned zero percent whereas Jeremy lost 39.5% in the last six months alone.
Just to point out, I look for numerous other parameters including a breakout, not just the mack dee and moving average, but this exercise demonstrates the improvement and simplicity of trading with momentum.
Let’s look at one more of Jeremy’s positions before summarising all the results.
This time we have the small-cap company Plant 13 Holdings, a provider of cannabis products. Unfortunately the stock did not grow like the plant, consistently falling over the past year.
In this chart its clear to see that price has stayed below the 20-week moving average for a long time, ever since its break downwards last July, an obvious sell signal if you were in a position at that time. Nonetheless we are only measuring the last 6 months from November last year.
We can see that as of November the mack dee was below the signal line and the price has remained below the 20-week moving average throughout the period, we therefore again did not take a position, or we would have at least exited before.
We returned 0% whereas Jeremy lost 54.4% in the last 6 months, and no doubt nearer 80% if he was holding the position 12 months ago. Again, why would anyone want to continue to hold a position, its clearly in distribution, just wait for accumulation and then take a position.
By taking the same approach on all of Jeremy’s positions we get the following results over the last 6 months.
If we do the maths, we can calculate that Jeremy lost an average of 43.6% across his portfolio since November, he puts this figure at over 1 million dollars, we can therefore assume his initial portfolio value was approximately 2.2 million in November.
Now, using our method of combining the 20-week moving average and mack dee, we take the average loss across all of the same stocks to just 5.6%, meaning if Jeremy had followed the same set of rules he would have saved almost $900,000 meaning that his account would still be worth over 2 million.
The end result over 6 months is this, Jeremy’s buy and hold account dropped from approximately 2.2 million dollars to just over 1 million dollars in six months. Our simplified approach would have seen the same 2.2 million drop to just over 2 million.
Of course we don’t know how Jeremy balanced his equity across the portfolio, but is shows the performance of a typical, equally balanced buy and hold approach used by his followers.
Jeremy is not alone when it comes to holding on to losing positions, but we must ask the question why. There are so many drawbacks of such an approach.
One would be Opportunity cost, where your capital would be tied up rather than invested into an asset with upward momentum.
Another would be the inability to apply leverage, you can’t really apply leverage to positions that could lose 77% or more, that is a sure-fire way to blow up your account.
The psychological impact of such drawdown can be devastating.
Lack of liquidity, thereby the inability to take advantage of a market crash bottom.
And not forgetting that losses working exponentially against us, a common 50% loss needs a 100% gain.
Next, we ask why anyone would hold their losing positions regardless.
Quite often ego is at play, not wanting to be wrong and marking a position as a loss is a common trait.
Mutual funds needing to accumulate management fees, why would anyone pay a fund manager without any stocks…
The size of a fund could play a factor, someone like Warren Buffet with billions in a stock does not have the benefit of being nimble like a retail trader, often having to average out of a position over a longer period.
And finally, a large social media following, perhaps you simply want to maintain a portfolio, after all who would want to follow someone without any positions to follow…..
The simple fact is that retail traders willing to spend an hour or so on the weekend can far outperform buy and hold, despite what many would have you believe.
Agree or disagree it would be great to hear your thoughts in the comments below.
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