You will audit your recent trades to find which patterns cost you most.
The lessons in this module each described one pattern. In a real portfolio they arrive mixed together, and you can't tell from memory which of them costs you most. This audit goes through your recent investing decisions one at a time, tags each with the pattern behind it, and puts a rough dollar figure on what it cost compared with doing nothing. It takes about half an hour once your records are open, and most people come out of it with one surprise.
If you don't invest yet, you can do this audit on a sample portfolio, or on a friend's records with their permission, using exactly the same method.
Open your broker's transaction history or your contract notes and list your last fifteen buy and sell decisions. For each, write the date, the investment, buy or sell, the price, the amount and, as honestly as you can, the reason you had at the time.
Include decisions not to act, if they were clear choices. Stopping a regular savings plan counts. So does deciding not to sell a loser when you'd planned to. If fifteen takes you back several years, that's fine. If you have fewer than fifteen, use what you have.
Next to each decision, write any pattern from this module that seems to fit. Use short tags:
D for disposition: selling a winner early or holding a loser to get back to even (lesson 6.1) O for overconfidence: a trade driven by feeling you knew better, often after reading something (lesson 6.2) H for herding: buying because others were (lesson 6.3) R for recency: buying after a run-up or selling after a fall because the trend felt certain (lesson 6.3) C for checking: acting because of what you saw on a frequent check, often during a fall (lesson 6.4)
A decision can carry two tags, and some will carry none. Untagged decisions that followed your plan are worth noting, because they show what already works.
For each tagged decision, compare what you did with what would have happened, at today's prices, if you'd held or if the money had stayed in your plan. You don't need precision. You want to know whether a decision cost S$50 or S$1,500.
Add trading costs too: the fee and spread on each tagged trade, from lesson 6.2.
Be fair to yourself. Some tagged decisions will have worked out, and a sale that came from a bad reason might still have been followed by a fall, so record those honestly as gains. The audit is about which patterns cost you over time, and a lucky result from a bad process still counts as a bad process, as Critical thinking and better decisions, lesson 8.1, Good decisions can have bad outcomes, explains.
Her fifteen decisions came to five clear patterns. Here are the tagged ones, with example prices.
She sold 3,000 shares of her winner at S$1.40 to fund the venue deposit in lesson 6.1. They're now S$1.65, so selling them instead of the loser cost about S$750. Tagged D.
She put S$3,000 of "house money" into the small company from the forum in lesson 3.2. It's now worth S$1,500. If the money had stayed in her world ETF, which rose 6% over the same period in this example, it would be worth S$3,180, so the difference is S$1,680. She tagged it H and O, since the forum's excitement and her own sense of having spotted something both played a part.
She stopped her S$500 monthly savings plan for four months during the fall in lesson 6.5, so S$2,000 never went in at the lower prices. Those units would now be worth about 12% more, so she missed about S$240. Tagged C and R.
Fees and spreads on her fifteen decisions, at about S$35 each, came to S$525. Most of the untagged trades roughly broke even before costs.
In total, the tagged decisions cost about S$3,195. The forum stock, where herding and overconfidence worked together, was the biggest single item. The surprise was the disposition sale: she hadn't thought of selling the winner as a mistake at all until she put the two holdings side by side.
Look at the two costliest patterns and write one rule for each, with a clear trigger. Lesson 8.1 shows how to phrase them as if-then plans. They should be specific enough that you'd know exactly when they apply.
Hui Min's first rule: "If I need to raise cash from investments, I list every holding with today's value and whether I'd buy it today, and I sell from the ones I wouldn't buy, before I look at what I paid." Her second: "If I want to buy something I first heard about in a group or forum, I write my reason, wait seven days, and limit it to S$200 from my fun budget."
Your audit will look different. Fill in all fifteen rows before you write any rules, so the rules come from the evidence rather than from the pattern you expected to find.
Complete the audit and write your two rules with the trigger for each.
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