Financial Education Gone Wrong: Portfolio Risk Lessons
Updated: Nov 3
Financial content can be useful while still encouraging weak decisions when confidence, promotion or selective results replace risk analysis. This article uses a public portfolio-loss discussion as a case study in concentration, valuation and accountability rather than as a personal attack.
Financial Education Gone Wrong: In This Guide
This guide examines financial education gone wrong, including the evidence, practical use, limitations and key risks.
Key ideas and practical calculations
The original Financial Wisdom guide and media
Important limitations and risk controls
Frequently asked questions
Related guides and authoritative sources
Key Takeaways
A persuasive presentation is not evidence of investment skill.
Portfolio concentration can dominate otherwise sound company analysis.
Performance should include losses, benchmarks, dates and cash flows.
Viewers should separate general education from regulated personal advice.
Original Financial Wisdom Guide
Background and Core Ideas
JEREMY LEFEBVRE DISCLOSES HIS PORTFOLIO LOSSES.
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.
Practical Checkpoint
Define the setup, entry and invalidation level before acting.
Compare the potential payoff with risk-reward planning.
Set the trade size using consistent position-sizing rules.
Rules and Practical Application
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.
Evidence Check
Is the sample broad enough to include difficult markets?
Do the results include spreads, fees, slippage and failed signals?
Could hindsight, survivorship or selective examples explain the result?
Evidence and Examples
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.
Risk and Limitations
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.
Summary of the Original Guide
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.
Access Our Group Here - https://www.financialwisdomtv.com/plans-pricing
Practical Limitations
Historical examples, book claims and indicator results are educational illustrations rather than forecasts. Outcomes depend on the market, timeframe, data, transaction costs, financing, taxes and execution assumptions. Test complete rules across varied conditions and define the maximum acceptable account risk before taking a position.
Put This Into Practice
The ideas in this guide become more useful when selection, entry, stop placement, position sizing and trade management form one repeatable process. The Financial Wisdom Trading Blueprint connects those decisions in a practical weekly framework.
Frequently Asked Questions
How should an online performance claim be assessed?
Look for complete time periods, realised and unrealised losses, deposits, withdrawals, benchmarks and independent verification.
What is the main risk of concentrated portfolios?
A small number of company-specific mistakes can cause a disproportionate loss that diversification might have reduced.
Further Reading
References and Further Reading
Educational information only. Trading and investing involve risk, including the possible loss of capital. Examples are illustrative, not guarantees of future performance, and nothing in this article is personalised financial advice.
About the Author
Written by Gareth, MBA
Gareth, founder of Financial Wisdom, has more than 30 years of personal trading experience. He competes in the United States Investing Championship, creates award-winning trading content and has been featured in Technical Analysis of Stocks & Commodities.
Thank you that was a very good video. Here's a new book out by Steve Burns. You reviewed one of his other books about beating buy and hold of the indexes. I was wondering if you will get around to reviewing this new one? Complete Guide to Price Action Trading https://www.amazon.com/dp/B09YX27KJL/ref=cm_sw_r_awdo_8YWM1P4GGGSP7KTHF6TD