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Friday, 21 October 2016

The Math of Averaging Down

Test your math.

What's the difference between a -80% loss and a -90% loss?


If the answer came to you immediately, you can stop reading.

In years gone by, you probably would have made good profits by spotting arbitrage opportunities!

But now, its a lot harder with high frequency trading and all...

Show me, show me!

For the rest of us mortals, let me illustrate:

1.  You bought a stock at $1.00

2.  At -80% loss, the market price is $0.20

3.  At -90% loss, the market price is $0.10

Still want to average down when price is at $0.20?

Price so low oredi, surely it can't go any lower?

Well, a "small" additional decline of $0.10 is now a 50% loss for your 2nd entry!!!

Now you know why people capitulate (sell) at crazy super low prices.

Especially to the "iron teeth" (stubborn) ones  who will continue to average down a third time at $0.10 price.

See what happens when price drop further to $0.05 cents?

Don't try this at home

Of course you were banking the reverse would happen when you averaged down.

a.  You invested $10,000 into stock XYZ at $1.00

b.  At market price of $0.10, you average down another $10,000

c.  When price "recovers" to $0.20, you sell both tranches with a big sigh of relief...

First tranche:                Entry at $1.00; exit at $0.20 = -$8,000 loss

Second tranche:           Entry at $0.10; exit at $0.20 = $10,000 profit

Hey! All in all, you've made a $2,000 profit!!!

Really? Risking all these money just to "break-even"?

Tip: Don't play Poker or Mahjong with real money - you lousy with risk/reward odds.


You still got the cheek to "advise" people not to gamble...

Be honest now

Which is the likelier scenario to play out?

How good is your entry skill?

You did buy at $1.00, remember?

What makes your such an expert market timer now so super sure $0.10 will be the turning point?

And more importantly, you did let a $1.00 position slide all the way to $0.10 - that's not saying much about your exit skill, does it?

Do you honestly believe you will exit everything when the price hits $0.20?

Or maybe you are the white-haired demon girl (白发魔女); you changed completely in one night.

If you can do so, I clap my palms before you. And bow.

Namaste (I salute the holiness in you)

Tuesday, 18 October 2016

Its not about the tracking and measurement silly!

The reason why its important to track and measure performance is not the actual measurement in itself - its to provide actionable information for us to improve our game.

Americans are the no.1 when it comes to statistics - just look at their sporting stats!

But why is it then some have been tracking and measuring their investing/trading performance for years yet there's little or no improvement?


The butterfly had a good post recently where he was upset with himself for not sticking with his stock entry plan.


If we deviate from our plans and we then lie to ourselves that its "OK", why track and measure again?

Where there's no problem; there's nothing to improve.

That's is why in group therapies dealing with alcohol abuse, compulsive gambling, anger management, etc; the first step is to admit we have a problem.


Once we have a reason to improve, the next natural thing to do is action.

That's easier said then done.

And we know this all too well...

We know what to improve, but we never seem to find the "time" to do anything about it.

No time?

Yup, its back to denial...

Common sense (or lack of)


You admit you have a problem, and you took action to rectify it! 

However, some have a bad habit of doing the same thing over and over again, and expecting a different result?

Action is good; but we need some common sense too.

No, we don't need a Phd to start investing or to do trading. But being an idiot does not help, does it?

One good example is averaging down on your loser of a stock. Each time you buy, that lemon stock goes even lower... 

You ask if don't average down how are you ever going to recover?

The fisherman has a very good quote and actionable strategy (with track record):

You win back not the same way you have lost.

No. I won't explain it. If you interested, go buy CW a drink and hear from the horse mouth yourself.

Hollywood only; no guts to make a decision

Have you noticed some colleagues or managers like to collect data and reports all the time?

But never making a decision?

Tracking and measurement are just tools.

Tools can't make the decisions for you.

How to tell you have decision making phobia?

You have been tracking and measuring your investing/trading performance for more than 5 years, but not once have you made any concrete actions for improvement...

What's the point of tracking and measurement again?


To look busy!

Friday, 14 October 2016

Who will like this SGX APAC Dividend Leaders REIT ETF?

Japan yield hunters

Top of my mind, I think Mr and Mrs Watanabe will like this ETF!

I mean Mrs Watanabe is famous for being conversant with forex trading as a side income. So foreign exchange risk is not an issue since they are not "bei kambings" (white little lambs).

With negative interest rates back home, Japanese insurers and pension funds have been piling into Australian bonds as they continue their search for yield.

Currently, the Australia 10 year bond yield is around 2.25%.

Those Japanese investors who are more "garang" (aggressive) may want to spread some love into this REIT ETF as they can get double the yield at 4.5%.

Nothing ventured; nothing gained!

Emerging Markets Hedgies

The next group of investors who may be interested could be our neighbouring investors from Thailand, Malaysia, Indonesia; etc.

I mean those investors with home currencies that fall super fast whenever there's a risk off environment.

No need to look far. Just look how their currencies tanked during beginning of this year, taper tantrum 2013, and fiscal cliff end 2011, 2008/09 Great Financial Crisis, and of course the mother of all currency crashes - the 1997 Asian Financial Crisis!

Notice this ETF is also listed in USD? Make a wild guess why is this so?

Normally you have to "pay" to put hedges on; but this REIT ETF vehicle pays you a dividend instead!

Good, better, best or what? 

Singaporeans not the main target group lah

First, competent retail investors won't bite. Not when we are already spoilt for choice with SGX listed REITs that yield more than 4.5%. Duh!

Secondly, those Panda and Koala bear Singapore stocks only "specialists" would lose their home-base advantage or edge.

I mean with 59% weighting in Australian REITs, unless you tell me you read the Australian press or economic news daily, tell me how you'll have an edge over that Australian investor who takes the opposite side of your position?

Who from Singapore will bite then?

Probably those Singaporean retail investors who salivate whenever they hear the word REITs. And when they hear ETF, they immediately associate it with "low cost".

Put both words REIT and ETF together, its "Buy!", "Buy!", "Buy!".

They can't help themselves. It's a Pavlovian response.

How to verify me

Come next week, when this SGX APAC Dividend Leaders REIT will start trading, look at the trading volume for both the USD and SGD tranches.

You can throw eggs at me if the SGD side has bigger trading volumes!

P.S  This post is labelled as "Advertorial" since the kind folks at Phillip Capital Management treated some of us bloggers to free dinner last night.

Just give me a drink and I'll sing like a canary for you!

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