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Sunday, 29 September 2013

Throw brick attract jade

Not the first time some readers have remarked reading the comments section is more interesting than reading my posts.

I agree too!

Some bloggers have goals on pageviews, or how much they have earned, etc; the happy side effect of blogging to me is the scintillating exchange of viewpoints and "challenges" to what I say.

Non is more evident than the comments to my previous post: We see what we want to see.

I let you be the judge.


Why I blog?

It started with me trying to express.

Now it's more to engage.

It's interesting to see this evolution in blogging. Coming close to 3 years now.


Blogging is like life. 

Some old readers have left; we have outgrown each other.

New readers have arrived; we've made new connections.

A few readers are still with me from the early days. Some prefer the in-my-face style of challenges and encouragements; while some now prefer to read quietly in the background.


Thank you to all for taking the time to engage with me in whatever way you feel comfortable.

 



Wednesday, 25 September 2013

We see what we want to see - Retiree flipping burgers at 77?


Remember this picture test below? 

If you have not done this test before, do you see a young woman or old day?

Who can see both?



Add caption


My blogger friend CW posted this article on the 77 year old retiree flipping burgers in his blog yesterday.

If you have the patience and curiosity (you're the kind of fundamental investor who drills down into the details and not just simply react to headline news), I would encourage you to watch the video and read the rather lengthy article at it's original source here:

At 77 He Prepares Burgers Earning In A Week His Former Hourly Wage

Once you have done so, what's your first takeaway?

Don't read further until you have done so. Don't let my opinions affect you.

Now let's compare notes and shoot the breeze together!

Like in the picture above, we see what we want to see. There's no wrong or right!







My own take

1.  What a handsome man! 

I wish I can look like him when I am 77! I'm sure ladies in their late 40s and early 50s would want to go out with him. Remember, in the video, Tom says he has a "social life". 


2.  I hope I can be as healthy as Tom when I'm his age! 

Look at the way he walks and carries himself. Can stand 8 hours all day in his 2 part-time jobs.


3.  Notice how we react on reading he has 2 part-time jobs? 

If I worked 40 hours a week, what the difference with working the same 40 hours in 5 different part-time jobs versus one full-time job? Benefits. OK, you win. There's more. Pity points?


4.  Contrary to what most of us do, Tom took the path less trodden. 

“I knew that anyone who got into that plant never got out,” he said. “You just got stuck because of the steady pay.


5.  Tom chose family over career.

"When Cooper relocated from New Jersey to California, Palome didn’t want to uproot his family. So in 1980, when he was 44, he started a consulting company, with Cooper as his main client." 


6.  Some readers reading the headlines may start to proselytize on the importance of savings... Tom not a saver?  

"Though he saved for his kids’ college and helped his elderly parents, retirement wasn’t on his radar."

Maybe Tom took care of others first?


7.  Attitude matters.

Instead of complaining on the cards we are dealt, we play the hand the best we can?

Tom lost his wife early. Raised his children himself. During lean years in his consulting business, Tom took a 2nd job running a restaurant where he learnt new skills. Investment got cut by half? Move on.

Tom's optimistic and realistic outlook on life started way before his retirement.


8.  Want to is different from has to.

"Palome, who said his jobs keep him active and learning new things, could survive without working. He receives $1,200 from Social Security and a $600 a month pension from his last corporate job. Still, his $1,400 in monthly wages allows him to bolster his savings and provides for some extras. He goes to the theater, pays for plane tickets to visit his children and grandsons and takes occasional vacations."




Earn more or save more?

You decide after reading this article. I have my bias; and you yours. I don't evangelize you; you don't proselytize me.

What was this article all about? You can't rely on the US social security to take care of you? Despite working hard, saving, and paying off your mortgage?

We living longer than planned to blame? (Kidding! But in a way right no? Mother nature never meant for us to live this long. That's a post for next time)



Beware of others taking advantage of our emotions.

If I am a financial adviser, I can turn this article into a fear emotional sell. See? That's what happens if you don't save... Once the hook has sunk in, a wholelife "savings" policy would be sold.

If I see the prey saves but is worried on the low yields today, I would turn this article into a greed emotional sell. Stressing how in the long term, equities grow 8% a year... A tugging of the line, an investment-linked policy would be sold.




Thursday, 19 September 2013

The 3 Ms Part 3 - Mind (The ring that rules them all)

The Mind simply means psychology.

Psychology can be split into market psychology and our personal psychology.


Market psychology

Very useful for macro top down investors and technical traders. Can be called market sentiments too.

But absolutely useless if you are a bottom up fundamental investor.

It's too broad a topic but suffice to state here that depending on your psychology and chosen Method, it's something you may want to explore. Especially when you discover you are not a bottom up fundamental investor!


My psychology

We are now in the realm of emotions, prejudices, and value systems.

Before going further, let's do a test.

If you have been working for a few years, see if you can spot a colleague that has 10 years of working experience, but his knowledge and competence is exhibiting 1st year working experience x 10? (I'm praying hard it's not you yourself)

In other words, someone fresh from school in their year 2 would be able to outperform this "experienced" colleague.

Why? 

Motivation.

Some of us have Kaizen in-built into our value system. Some just do the bare minimum to get by.


  


Have you noticed the same when it comes to our favourite sport or hobby?

Something that interests us we spend lots of time improving our game without even being aware of it?

Some call this Passion.

If you don't have Kaizen when it comes to investing, what's the point? Some newbie in their 2nd year of investing will outperform you hands down even if you have been in the market for ages...

No?

You think about it for a moment.



Once we are at peace with who we are, we will naturally flow to the "right" Method and Money Management tools that best suit us.

Of course that depends on how "honest" we want to be with ourselves.


A letter to yourself 

Here's one test you may want to try.

Write out your current Method, Money, and Mind tools and strategies you are using. Leave out Money and Mind if you are currently only aware of Method. And so on.

Seal this letter and open it only when your portfolio has suffered a massive 50% realised and/or unrealised loss. 

Now its our moment of truth.

Do we still want to DIY? Kaizen! Re-invent ourselves? Can the phoenix rise from the ashes?

Or do we admit we don't have the skill sets to be a profitable retail investor?

If we belong to the active management camp, we may want to give our remaining funds to a Hedge or Mutual fund manager to invest for us. But how to find the 25% quartile that outperforms the index?

If we are biased towards the passive management side, we can buy an ETF or passive index fund. The question now  is should we do it in one lump sum or do the dollar cost average way?

See? Even in capitulation, we must still exercise independent thinking!?

How about skipping equities and switching to property? Pay off your existing mortgage and get a 2nd rental property and you can collect rent for extra retirement income? Surely that is easier? (It's a gentle poke if you not aware. Don't be so serious!)


 


Monday, 16 September 2013

The 3 Ms Part 2 - Money (episode 2 of 2)

The previous episode 1 of 2 on Money Management is about minimizing losses.

This episode 2 is about protecting your profits.

Many retail investors have similar experiences on seeing their beautiful unrealised profits disappearing right before their very eyes during a pullback or market correction. 

If only unrealised losses can disappear as quickly!


Equities and cash

One of the easiest and simplest technique (does not mean easy though) to protecting profits is by taking some money off the table when we are ahead.

This technique has many names. Some call it scale in; scale out; some declare round 1, round 2, round 3; some advocate sell when high and buy later at lower price; some swear by cycle trading/investing; etc. 

If you visit forums like Valuebuddies.com, you may spot quite a few veterans doing it. (You may also notice the "newer" buddies are the ones who are more fervent buy-and-hold forever value "advocates" than the old bird veterans who have gone through a few market cycles)

It's basically similar to Trading Around A Core Position as explained by Jim Cramer.


Equities and bonds

Switching between equities and cash would  be the easiest and most popular.

Some like the Millionaire Teacher would switch between equities and bonds. (Warning! You may want to research the correlation between bonds and equities during the author's time and now. There was no QE distortion then. It's one example of not copying blindly. Jumping to bond funds now would be akin to jumping from the pot into the fire in my view...)


Portfolio Management

Another popular technique if you are into portfolio management would be to re-balance if your equities % share gets "too big" in relation to your other asset classes that are now underweight like precious metals, property, fixed income, cash, and so on. (OK, that's more for more mature retail investors in their 40s and above. Young investors starting out have less options due to smaller portfolio size. Another example of choosing a technique to fit your present context and perspective)


Hedging

Sometimes you don't want to or can't simply switch from equities to cash.

One example is when you are bearish on the market but to sell your cum dividend equity now would to forgo the juicy dividends... So you "hedge" by selling the Simsci futures or STI CFD. It's not a perfect hedge; but at least if the market corrects as you predicted, some of the unrealised profits that disappear ex-dividend in your equity holding can be offset by the "profit" in your short future or CFD hedge.

Another scenario could be you have painstakingly built up a sizable core position in a very illiquid counter. A good example is Vicom (not vested). Some may find it's more cost effective to hedge with CFD or Simsci than trading around a core position in this case.

Hedging does not always have to be with leveraged derivatives. You can do what I've learnt from my mistake:


I was so wrong on Hyflux preference shares 

You can also do hedging with other equities counters. For example, you are bullish on Oil and Gas plays. But what if Brent crude crashes to US$80 and below?

Some may want to add some equities that benefit from lower crude prices as a counter-balance. 

Remember!!! Hedging limits losses; it also limits profits (no free lunch) . 



It's all you - Mind

What I've shown above are merely some of the techniques we can employ if we want to "protect" our unrealised profits. They are merely a tip of the ice-berg. There are many more techniques out there. Have fun exploring! 

To improve, we need motivation.

If we are satisfied with our performance, then there's no motivation. 

There's nothing wrong with that. If it ain't broken; don't change it!

Ah! How I wish I can be in that comfort zone...

Stay tuned for the 3rd and concluding post on the 3 Ms - Mind.





Friday, 13 September 2013

The 3 Ms Part 2 - Money (episode 1 of 2)

Money is for money management.

Most investing books don't talk a lot about protecting your profits and minimizing your losses. 

I think retail investors can learn a lot from traders in this regard. Not to become traders; but improve on their money management skills. 

For example, if you have bought Singapore REITs during the end of 2012, you could be sitting on 40% unrealised gain by May 2013.

Now in September 2013? The unrealised gains have either vapourised or turned into a loss...

I know.

During the height of the dot com craze in 2000, I was up 50%, and I watch it turned into a 50% loss... I was like the deer frozen by the headlights of the on-coming car. The aftermath ain't pretty! (My first crash what! Now I know hope is not a strategy. LOL!)


Method is more about entering a position. Let's assume you don't do short selling. Method is mostly about buying.

Money in a way is about selling.  

Selling to minimise losses; selling to protect profits.

In this episode 1, I'll discuss about selling to minimise losses. In episode 2, it will be selling to protect profits. (Like that also can? Boo! What!? I happy or you happy? I can speak pia kia too)


Sometimes I read in forums that someone "cut-loss" at 50% loss... That's not cut-loss. That's capitulation.

Most retail investors are very cavalier on their unrealised losses than their trading counterparts. 

Why?

Hard core traders normally trade leveraged products like CFDs, futures, spot forex, etc. The transaction costs are much lesser than equities trading. Traders know very well that to trade, they need chips. Once their account is busted, no chips, no trades.

Retail investors? Especially if you are still working, there's less sense of urgency. If your $50,000 position gets a 50% hair-cut and is now worth $25,000, it's not really a problem if you have $25,000 yearly reinforcements from your savings devoted to "investing".

Average down and once reversion-to-mean happens, you can even brag about your 2 bagger win on that reinforcement segment!

Of course that's provided the stock you picked is not a lemon.

Even if so, next year another $25,000 is coming! Hope springs eternal!


Why use stop-loss?

It's insurance against big losses. Like disability and hospital insurances. The premiums are gone forever if you don't make a claim. You want to "save" on the premiums by not buying these insurances? Right... That's until you got unlucky and that's when you realise the yearly "loss" in premiums are small potatoes compared to your hospital bills and loss in income...

A good example is the recent China Minzhong incident. If you had a 20% stop-loss with your broker, you would have been stopped-out with a 20% loss.

I know later events unfolded to make this 20% loss a bit "stupid". 

You have to ask yourself this: 25 other S-chips have gone to zero. This CMZ is 1 out of 26 to have recovered. Were you smarter or luckier than investors in the other 25 fallen S-chips? Was this 20% loss premium worth the mental gymnastics you had to endure? Your stomach, you decide.

If you are interested to buy "insurance" to prevent big losses in your positions, feel free to explore and start your own journey in this area. (By now you know my style - I sing song only; I don't have lofty goals to educate others. That I leave to the bleeding hearts.)

The most commonly asked question is where to put my stop-loss? I can only say the usual range for equities is from 5% to 20% - depending on your Method and Mind. (Be mindful trading books usually meant leveraged products when they say don't risk more than 1-2% of your capital)

Don't worry. Experiment! It's like tuning a radio station. Move the knob left, move right, then ah! Just right!

Why 50% loss cannot be a stop-loss point? Eh... To recover from a 50% loss, you need to double your money. How often have you done so? Remember, to recover from a 20% loss, you need to have a 25% win - and that's more achievable and realistic.

The next commonly asked question will be: "Alamak! My trading platform does not provide stop-loss orders!"

Now you know how brokerages treat retail equities investors as compared to retail traders for leveraged products. You pay more in commissions but you get less? What gives!?

Well, there's such a thing called broker-assisted trades. Yes, your dealer or remisier can do the stop-loss setting point for you, and yes it will cost more than DIY internet trades. Unless of course you are a big time retail investor where you can always negotiate for discount. (Is this your best price?)

Another way is to upgrade your trading platform to something like Phillips Protrader - you get access to more advanced order types. The first few months is free as a trial, but after the trial period you have to pay on a monthly basis.

As in life, you get what you pay for. 


Don't use stop-loss also can!

Of course can! Well read retail investors may counter that Peter Lynch don't use stop-loss.

Peter Lynch averages 29% annually for the 13 years he was managing his Fidelity Megallen Fund. (How I wish I can find a star mutual fund manager like him for my CPF investment funds!)

If you are good at picking winners (superior Method), the only Money part you care about is protecting your profits. And rightly so! (See? I never say are you Peter Lynch? My EQ high or what? I know, I know, I kenna sai)


Portfolio management

If you practice this technique of not allowing a single stock position taking more than 5% of your total portfolio, you don't need to use stop-loss too. 

You already have your own risk management in place the moment you enter into a new stock position.

50% loss of a stock position? That's only 2.5% scratch at portfolio level. Even a 100% loss is at max a 5% paper cut at portfolio level. 

But please hor! Having 20 REITs in your portfolio is not portfolio management OK!?


Big War Chest (people E cup you B cup; don't compare!)

I have alluded to it in the beginning. Let's say you can contribute $25,000 annually to investing - that forms part of your war chest.

Compare this to someone else who is able to add $100,000 from passive income, and another $100,000 from active income into his war chest annually.

Who do you think can better put out the fires in their portfolio?

Flat war chest? See first signs of fire you stomp on it immediately like a rhinoceros in Africa (I got watch the Gods Must Be Crazy - remember this movie from the 80s?); you don't go "Hmm... I think something is burning..."


I better stop here. There are many more money management techniques out there besides using stop-loss. Have fun searching!

Stay tuned for episode 2 - protecting profits. Coming soon. (Eh! You don't so hum sup can?)






Wednesday, 11 September 2013

Mind, Money, and Method - Part 1

Once upon a time, when I was in the monkey see; monkey do mode of trading (come on, we all start out that way!), I noticed a funny thing.

I own similar stocks as the person I am mimicking, but the results are not the same. Why?

One day, I chanced upon this excellent book by Alexander Elder: Trading for a living.

Ah! It's the 3 Ms:

Mind

Money
 
Method


For those who have watched the movie Crouching Tiger, Hidden Dragon (卧虎藏龙), you may recall the shock and anguish the Emerald-eyed fox had when she discovered she has only copied the strokes of the Wudang swordplay manual (due to her illiteracy) while her disciple has learnt the breathing techniques (心法).

Most beginners in investing also fall into this trap. Focusing only on finding the "right" method. Often having intellectual debates for the sake of it. 

Fundamental investing is better! 

No! Income investing better! 

You both wrong! Technical charting is the  way to go!

Wrong wrong wrong! Passive dollar cost average works best!

Blah, blah, blah...


Method is important. You don't want to bring a knife to a gun fight!

But it's still merely a tool. A bit like debating whether bows and arrows are more superior than swords and sabres. It depends on whether you prefer ranged (long term) or melee (short term) combat.

I'll not talk about method. There are lots of resources and literature out there. You choose your own poison.

Sharing my own poison won't help either. You are you; you are not me. And I not you.

In the next 2 posts, I will discuss more on Money and Mind.


Before throwing rocks at me for wasting your time on this post, you may want to spend sometime reflecting how you "stumbled" or "chose" your existing method?

Was it something you actively experimented and found, or was it more a case of monkey see; monkey do?


 


Monday, 9 September 2013

Where's the rain?

This morning at around 11 am, looking out the kitchen window, I saw dark clouds looming.

Brought in the laundry.

Less than 5 minutes later, it rained.

Feeling smug. 

15 minutes later, the skies turned bright.

Hey! Where's the rain?




 What transpired can be a good analogy of how sheepish I feel right now in the markets.





 
 

Saturday, 7 September 2013

Would someone please acknowledge me?

First of all, thanks to LP, Patty, and Ronian for introducing me to zenpencils.com in Facebook.


Here's an interesting comic strip that may hit a chord (or nerve). You decide.

The social media generation


After this post, I'll be going to work soon in 1.5 hours' time.

Now you know why I am working weekends. 
 
LOL!

Tuesday, 3 September 2013

We need more short sellers to help build up our muscles?

You know what?

After watching the short selling saga of both Olam and China Minzhong, I have a thought (I know, I shocked myself too!).

Imagine if these 2 short-sellers had stress-tested our SGX stocks a few years earlier? Before the blow-up of the long string of questionable and fraudulent S-chips AND Singapore born and listed companies (ACCS, Citiraya, Informatics...)?

Perhaps less retail investors will be hurt?


 

How do we build up our strength?

It's by subjecting our muscles to stress and strain.

Muscles wear; muscles tear.

It's through the process of healing and over compensating that our rebuilt muscles get stronger.

Now we are ready for the next level of stress and pain.


We don't get stronger by asking our maids to do the heavy lifting for us. 


 
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