As we enjoy the high success rate of buying something today and see it rise in value tomorrow, we must always ask ourselves "what if"
What if market correct as it will, another 10-15 % or the price of your counter falls 10-15 % not be because there is something fundemental wrong but market decide to give it a yet lower valuation ? are u able to accumulate on weakness? What if everything goes well with the company u researched on but black swan events come and the tide suddenly went out for everyone? Do u have money to accumulate more on weakness?
I have three buckets of money for investment. Every year I will put aside some money into 2 baskets, 1 for regular investment anytime as and when I like. Second basket for accumulation when price of counter or market goes into correction mode. The third basket is the one that accumulate dividends and capital gains and can only be used when black swan resulting in at least more than 40 percent drop in market, ( confirmed bear market). Take care if the what if so that I sleep sound. But returns might not be anything near those who punt big and win big. But it works for me, as I just wanted a decent return. My 2 cents worth only.
Greenrookie - Don’t think there is a silver bullet for business or investment? Business is very complex, esp when going global. Without an experienced/dedicated mgt team, failure is very high. As for investment, just use common sense and whatever works. Some focus on physical properties, others in share market etc. Use experience and local knowledge as an edge. The proof of the pudding is how well we did since we started investing ?
I only started reading investment forums 3 yrs ago, and I am still intrigued by how retail investors react . ie why they don’t sell China Animal for 29 cts at PE 21 (Bloomberg ), but prefer to risk so long just to get the balance 1 ct ? I have said before that almost all those who play pennies or S-Chips will eventually lose. Though I do trade short term, I hold most of my stocks long and let time do the work. I am still happily holding stocks I bought more than a yr ago as I want to ride out the bull run. I don’t like stocks which do not have fairly predictable quarterly results, unless low PE or have promise.
What concerns me is the local property bubble which could derail our bull run ( which actually started last yr with STI up 20% ) prematurely. S’pore has abt 90% home ownership, the highest in the world. Imagine 200K new homes coming on stream by 2016 with slower population growth ? It’s a no brainer that home prices and rents will fall, but people were still rushing out to buy them last few mths. I blame the property blogs with vested interests and stupid reporting in the mass media. By the way, I’d not buy property stocks just because they have higher RNAV, which is based on present value.
I agreed with you, in a bull market, many red flags get brushed aside or are inconsequential. Take for example, I have been following Singpost for quite a while, I ask MIL to invest in it for dividends. After the investment, the margin of the logistic business keep dwindling and after 3 years there yet achieved any snergy in its acquisitions, yet the price keep going up and up. The recent quarter report is a lousy report, yet the price cheong!! mainly because of a research report by a bokerage firm. I ask my MIL to offload and buy LKH instead.
1 thing I have learned from my investment journey is really to keep learning and be humble. There are plenty of gurus out there who are willingly to share their expertise for free, ppl like u, sumer, macgyather, rock etc and the folks at valuebuddies. Everyday or so, I gain new insights by reading the comments made by these people, and everytime I find out new metrics to check out before I buy into a business.
"The proof of the pudding is how well we did since we started investing ?" I must be ashamed to say that since I start investing a decade ago, my records is rather dismal, while I am on a net gain (both realised and unrealised PL), my compounded growth rate is only 2% annually. But that i survived the euro crisis and s-chips implosion with relative no injury is already a learning lesson.
Not sure about property stocks, since some of them are at such low valuation that it makes one wonder if they have already priced in the interest rate hike, and tigthening of FTs. But if you look at the 6.9 million target (lets just call a spade a spade and not planning parameters), the over-surplus of units might not be that unmanaeagable, it could be a healthy correction of price of 10-20% instead of a crash. But I always advise my relative, friends and colleagues who are looking to buy a property for investment to think twice, I tell them all the risks involved, and ask them if they truly know what they are doing.
Greenrookie – What prompted me to respond to your posting is your remark “to keep learning and be humble”. I have been adopting this same approach for some time and have learned much in my own investment journey. There is a lot of truth in the sayings –
“LEARNING IS A LIFE LONG PROCESS” and
“PRIDE COMES BEFORE A FALL; HUMILITY COMES BEFORE WISDOM” – sounds deep in meaning?
I look back with sadness how many of my friends were just unable to make money from their stock investments over their whole working career. They were good academically qualified individuals but just lacking investment wisdom. They all had one thing in common – they kept asking themselves the same questions after every major setback, “Why I never learned from my past mistakes? What went wrong this time? [After the event] - I should (or shouldn’t) have sold/bought, why didn’t I do it?”
Like many people, I also learned stock investment the hard way. During the first 10 years, I always made money in the bull market but only to lose them all in a bear market. With better risk management over the next 20-year period, I managed to build up profits sufficient to get myself a condo unit (of that time). Unfortunately, I lose all my accumulated profits plus a portion of my capital, when the Asian financial crisis set in. For months I was confronted with the question – would I ever be able to recoup what I lose? Any hope of recovering the big losses certainly looked to be an impossible task. Like others, I had certain investment strength and weaknesses and I decided to focus on my strength and spend the next 2 years doing research and study into how I could perform considerably better in my investments. Finally, I arrived at the following conclusion:
1. KNOWLEDGE IS POWER – It is a great advantage for a stock investor to have a good understanding (at least the basics) of market behaviour (including bull & bear market cycles), market participants’ behaviour, technical analysis, fundamental analysis as well as psychological analysis. Develop one’s investment strength and strive to overcome one’s investment weaknesses.
2. A POSITIVE MINDSET – Always examine all the probable (not necessary workable) ways to capitalize on opportunities. A negative mindset always leads to a dead end. Hence, get rid of all biasness especially against certain stocks like S-chips. Our biggest enemy in the market is really ourselves and not the remisers, analysts, SGX, manipulators, S-chip management or Lethman Brothers, etc. We can only blame ourselves when we lose money since we all have complete freedom of choice to buy or sell any stock at any time – very democratic.
3. FAVOURITE STOCKS – All stocks are there for any astute person to use his wisdom to make money. A good practical advice is still – “NEVER FALL IN LOVE WITH A STOCK & LET IT BECOME YOUR RELATIVE. FOR PARTING CAN COST YOU MUCH MONEY WHEN YOUR LOVE IS NO LONGER LOVEY HONEY”.
4. GOOD RISK MANAGEMENT – Look for what can be considered as good growth stocks having low downside risks but high potential capital gains – invariably such stocks have low public interests & PEs. An example of this is KREUZ that I had also posted in Nextinsight Forum in Nov 2012 when its share price was around 40 cts.
5. ESTABLISH CORE HOLDINGS – This is the key to making big profits from stocks; especially important for one aiming to build a base or to make a million in the market; when fortune comes, it is like having 100 winning tickets in first prize 4-D, instead of holding just one or two tickets. As the risk with core holdings are higher because of the bigger stake, it is important to heed point 4 above.
With a new investment strategy using the principles described above, I was able to recoup twice the amount that I lose in the Asian financial crisis, during the bull market run from 2002 to 2007.
It is for each individual to formulate his or her own investment plan taking into account his/her own resources, knowledge and experience, and risk appetite. I hope some of the things I shared here could be helpful as to give you some useful ideas to formulate your own investment plan. If your present plan is not giving the results that you desire, then it is obvious that you would need to upgrade to a better one. May you have a profitable year ahead.
Thank you for your sharing, it's insightful. I have some questions regarding your fifth point, building core holdings. I understand it can be like 100 winning tickets when fortune comes. But did u also have a core holdings before the AFC, won't that be also like a 100 summonses ? I ask this in sincerity and is not trying to be rude. Does it means u always have reserve ammo to load up of these core earnings if its a low tide ??
Greenrookie – I did not have a proper investment plan before the Asian financial crisis (AFC). I had rather large exposure in warrants and Malaysian stocks where the potential risks and gains were very high. Had I been using the “core holding concept”, I believe I would not have been hit so badly because the principle behind this concept is to hold only good growth stocks with LOW DOWNSIDE RISKS. Risk of capital loss, if any, is mainly confined to the early “gestation” period should the stock fail to perform to expectation (rarely) and needs to be divested. Once the stock performs to expectation, it is then more a case of cutting profits rather than losses (in the event of a stock market slump when all stocks would be affected with fundamentally sound stocks being less affected).
In the current market condition, I also hold good dividend yielding stocks like Sabana reit, Starhub, M1 and others. These can never give the big returns that I am looking for but serve as useful reserve ammo to load up (matter of switching over) on any new core holding that I want to build. I built up my current core in Kreuz this way.