Meet Peter: A “falling knife” stock taught a (potentially) brutal lesson

On the one hand, 37-year-old Peter’s adherence to investing truisms has helped mature his investment strategy – a lesson learned after he doubled down (twice) on a local packaging firm when its stock price fell.

But he’s also worked hard to train himself against the investing approach – buy and hold – championed by many of the world’s most successful investors, including Warren Buffett.

“It took me a long time to build the confidence to disagree with this widely accepted norm. Since then, I haven't averaged down on a stock again,” says Peter.

Peter’s investing journey is one to which many of us can relate – as a parent to three young children, he’s aiming to help his family get ahead. But simplicity is crucial – we’re all time-poor – which is why he’s structured his portfolio in the ways described below.

In the following article, you’ll learn about:

• How he deploys stop-losses, to powerful effect.
• His “barbell” investing approach
• Other investing tools and services he’s deployed (and not just Livewire)
• His focus on selling, not just buying.

Investor profile

• Name: Peter
• Age: 37
• Employment status: Full time
• Years investing: 11
• Investment goals: 9-14% pa through both trading accounts (Superannuation and Personal)
• Biggest portfolio holding: Audinate (ASX: AD8)

How old are you and how long have you been investing?

37 years old, 11 years investing

What is your investment objective?

• To continue earning 9-14% pa through both trading accounts (Superannuation and Personal).
• Keep investing outside of my superannuation account until I have paid off my current principal place of residence.

What products do you use to execute your strategy?

• MetaStock (screening),
• Stake (broker),
• CommSec (alerts),
• Sharesight (tax management) and
• TradingView (charts).

How would you describe your strategy?

Outside of superannuation, my strategy is a strict mechanical method that is purely chart-based and quite active (one to two trades per week). I use chart-based indicators which I plug into MetaStock to screen the market for stocks that have met my criteria at the end of the trading day.

I use an average directional index indicator, along with moving averages, to select those stocks. I purchase them when the market opens the next day and set alerts on the CommSec app for a stop-loss price. If the stock closes below my stop loss price that day, I sell at the market open the following day.

I have three young boys and a full-time job, so I have purposely built this strategy to require very little time.

For superannuation, I use a modified barbell strategy with Choiceplus Hostplus, which allows direct investment into ASX 300 stocks.

Can you please share your top five stock holdings (in percentage terms) and some insights on why you hold each of them?

Note: Peter divided these into two separate categories. His largest direct stock holdings are mentioned first, followed by his holdings inside his superannuation fund’s “self-managed” portion.

Technology One (ASX: TNE) – 8% It was triggered by my technical scan, so I bought a set position size (which is based on the volatility of the stock).

AGL Energy (ASX: AGL) – 12% My reasoning for this is the same as above. I know very little about both companies, beyond the obvious.

Inside superannuation

Audinate (ASX: AD8) – 14% I purchased this during the COVID crash. It forms the higher volatility portion of my portfolio (measured via daily trading range) of my superannuation barbell strategy.

Tabcorp Holding (ASX: TAH) – 9% Similar to AD8, I purchased a large holding during the COVID crash and it forms the low volatility "blue chip" part of the barbell.

Cash – 38% I like having a high portion of my super in cash because my stop losses are wider in this account. It also helps balance out the high volatility part of the barbell and lets me sleep at night.

What was your worst investment? What did you learn from this?

I averaged down on Pact Group Holdings (ASX: PGH) twice until I was sitting on a 35% loss. I was a “buy and hold” investor at the time and sold because I didn't like a loser sitting in my portfolio for over a year.

I learnt that I wanted to have an exit strategy for stocks that wasn't just "hold forever". It took me a long time to build the confidence to disagree with this widely accepted norm. Since then, I haven't averaged down on a stock again.

I believe it is just too risky to purchase more of a stock that is falling.

Do you have a favourite contributor you recommend other investors follow?

When I started investing, I was a big fan of fundamental value investing and tried to research companies through broker reports and using online investment subscription services. I used the barefoot investor service and two stock screeners to "value" what a company should be worth. Over the course of a few years, I either went sideways or made a small loss so I started to look for new ways to improve my strategy.

I found another service that is now called Motion Trader run by Jason Mcintosh. He was my first exposure to technical investing and his strategy of "cut losses, let winners run" appealed to me. As the market really favoured growth stocks at the time, between 2016 and 2020, this strategy did very well and I grew my account size tremendously.

Not long after the COVID crash occurred, I signed up to Marcus Today and liked Marcus Padley's style of investing, which wasn't a buy-and-hold style. Chris Conway (formerly of Marcus Today, now Livewire’s managing editor) started my journey into technical investing.

There was something that sat right with my investing personality with the way that Chris described technical investing showing people's emotions on the chart. I learnt plenty and did two of Stuart McPhee's investment courses through Marcus Today. This is where I learnt about setting up a program around your life, not setting up your life around the program.

I'm much more focused on risk and keeping what I have earned compared to when I started investing and I am at the stage now where I am comfortable with both strategies.

Other content I follow, but for “financial chat” rather than specific investment approach information, includes:

• Money Cafe from Alan Kohler
• Money Puzzle from James Kirby
• nabtrade's Your Wealth
• The Australian Investors Podcast
• Equity Mates

Is there a lesson you’ve learned as an investor that could potentially help others?

Have a plan that you can consistently make money from without your emotions interfering. To control your emotions, you need to be confident with your plan and discover your investing personality. This is the number one driver of your emotional control on investing and dictates your thoughts on different investment types, products, markets, risk appetite and investment style (fundamental, technical, or sentimental). 

All of these will be made by factors you have very little control over, so you need to identify a way of investing that works for you. This is rarely the same as what works on a spreadsheet and can’t be underestimated. 

There are thousands of investors making money in the world right now all with differing opinions on how to do so- that's because they all have had different experiences, goals, time horizons and emotions.

To discover your investing personality, you need to devour as much financial information as possible to make an informed choice. This includes podcasts, books, audiobooks, articles and newsletters on all types of investing, especially from authors that you find have a similar investment style to yourself. 

Next, objectively assess and build your plan around your lifestyle and personal circumstances. If you have a full-time job, you won't be able to day trade. If you are bearish on a certain investment class you don't need to have a high exposure or any exposure if you aren't comfortable with it (yes, this can mean equities entirely).

And as a final point about finding your investing personality, here are a few examples of how different these can be:

Investor 1 - Trades ASX 50 shares once every few months on the weekly chart and has a 20-year time frame. Holds over 50% cash in their account. They keep their emotions in check knowing they have enough cash to survive a market crash and stop losses in place on the weekly chart to avoid a downturn. They believe that over the long term stocks trading positively week after week are more likely to rise than other stocks in the ASX 50. The only thing he cares about is the price on a weekly chart and doesn't read any financial news.

Investor 2 - They trade based on fundamentals and research a handful of their favourite companies. When trading at a lower valuation than what they believe is the long-term value of the company, they purchase stock. They keep their emotions in check knowing they are planning on selling in 10 years or so when the market decides to trade at closer to her valuation price, so they don't need to think about selling at all.

Investor 3 - They work part-time and use a moving average crossover system on a four-hour chart. They work this around when their partner is home and able to mind their two young children. They sleep well knowing that they have live stop losses set with their broker and that they are making small profits based on short-term momentum trades every day. They keep emotions in check by letting a set of rules dictate their purchase, sale, and size of trades each day.

Even though they differ in their investing personality type, each investor has a plan, is consistent and keeps their emotions in check. When you have discovered your investing personality type, you must write a trading plan and be consistent. Your trading plan will dictate when you enter a trade, how much you commit to a trade and when you exit a trade. This will eliminate the guesswork and stop your emotions from keeping you profitable.

The value of a stop-loss

In early 2020 the CommSec app pinged me six times for stop losses that were triggered, which was just under half of my portfolio. This was very unusual as my stops weren't very tight. I still remember the pain of all six small losses happening at the same time. I remember thinking that I wanted to purchase the stock again, believing the drop to be temporary.

The next day the rest of my portfolio was triggered, including my super account and I was in 100% cash. I was pretty devastated and questioned my strategy. Setting emotion aside, logic told me that the stop losses were there for a reason in case the stock fell further - but I ignored this because most of them bounced back a little that week.

Just over a week later, the COVID crash started happening and I was a very happy trader because I was sitting in 100% cash. Now I was faced with the question of whether to stick with my buying growth strategy that had served me so well or to buy the dip. I told myself this was a very rare opportunity to have the market trading at such low levels - some companies more than halved in a few weeks and the prevailing narrative went from euphoric to apocalyptic. 

I read an article by Marcus Padley on Livewire at the time titled Chickens don't make money in which he told people that he had started purchasing shares. I decided to use the barbell strategy, making big purchases inside super and sitting in cash outside super, which has obviously worked very well.

What’s a personal passion or ambition you have for your future?

I am very passionate about our superannuation system and would love to teach young people more about the topic. Too many young Australians don't even know how to login to their superannuation account, and I really think they are doing their future selves a disservice.

I want to continue working for my entire life, but be able to choose a job that I want in this area and not make the decision based on its income.

I am very passionate about physical, mental and financial health and helping people achieve all three.

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Can we feature you in our Meet the Investor series?

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