Go through your recent trades and find the patterns that cost you the most.
Open your broker's transaction history or your contract notes and list your last fifteen buy and sell decisions. For each one, write down the date, the investment, whether you bought or sold, the price, the amount, and the reason you had at the time, as honestly as you can remember it. Once your records are open, the whole audit takes about half an hour.
Each earlier lesson in this module described one pattern on its own. In a real portfolio the patterns come mixed together, and you can't tell from memory which one costs you most. Most people come out of the audit with one surprise, because it puts a dollar figure on each pattern using your own records.
If you don't invest yet, you can run the same audit on a sample portfolio. You can also run it on a friend's records, with their permission, using exactly the same method.
Decisions not to act count if they were clear choices. Stopping a regular savings plan is one. Deciding not to sell a loser when you had planned to is another. Put these on your list alongside the trades.
If you have fewer than fifteen decisions, use what you have. It is also fine if reaching fifteen takes you back several years in your records.
Go down the list and tag each decision with any pattern that fits:
D, disposition: selling a winner early, or holding a loser to get back to even (lesson 6.1). O, overconfidence: a trade driven by feeling you knew better, often after reading something (lesson 6.2). H, herding: buying because others were (lesson 6.3). R, recency: buying after a run-up or selling after a fall because the trend felt certain (lesson 6.3). C, checking: acting because of what you saw on a frequent check, often during a fall (lesson 6.4).
A decision can carry two tags where both apply, and some will carry none. Make a note of the untagged decisions that followed your plan, because they show you what already works.
For each tagged decision, compare what you did with what would have happened, at today's prices, if you had held or if the money had stayed in your plan. The estimate does not need to be precise. You only need to know roughly whether a decision cost S$50 or S$1,500. Add the trading costs on each tagged trade, meaning the fee and the spread, which lesson 6.2 explains.
Be fair to yourself. Some tagged decisions will have worked out, such as a sale made for a bad reason that was then followed by a fall, and you should 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. Critical thinking and better decisions, lesson 8.1, "Good decisions can have bad outcomes", explains why.
Hui Min listed and tagged fifteen decisions, and they came down to five clear patterns. All the figures that follow are example prices, used to show how the sums work.
She sold 3,000 shares of her winner at S$1.40 to fund the venue deposit in lesson 6.1. She tagged the sale D. Those shares are now S$1.65, so selling them instead of the loser cost her about S$750 (3,000 x S$0.25).
She put S$3,000 of "house money" into the small company from the forum in lesson 3.2. It is now worth S$1,500. Her world ETF rose 6% over the same period in this example, so the same S$3,000 would now be S$3,180, a difference of S$1,680. She tagged it H and O, because the forum's excitement and her own sense of having spotted something both played a part.
During the fall in lesson 6.5, she stopped her S$500 monthly savings plan for four months, and she tagged that decision C and R. Because of the pause, S$2,000 never went in at the lower prices. Those units would now be worth about 12% more, a missed gain of about S$240.
Fees and spreads came to about S$35 each across her fifteen decisions, S$525 in total. Most of her untagged trades roughly broke even before costs. Her tagged decisions cost her about S$3,195 (S$750 + S$1,680 + S$240 + S$525). The forum stock, where herding and overconfidence worked together, was the biggest single item.
Her surprise was the disposition sale. She had not thought of selling the winner as a mistake at all until she put the two holdings side by side.
Write rules only for your two costliest patterns, one rule each. Phrase each one as an if-then plan, with a trigger specific enough that you know exactly when it applies. Lesson 8.1 shows how to phrase rules this way.
Hui Min's first rule covers raising cash. If she needs to raise cash from investments, she lists every holding with today's value and whether she would buy it today, then sells from the ones she wouldn't buy, before she looks at what she paid.
Her second rule covers tips. If she wants to buy something she first heard about in a group or forum, she writes down her reason, waits seven days, and limits the purchase to S$200 from her 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.
Finish the audit, then write your two rules and the trigger for each one.
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