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Tuesday, 29 November 2016

Bernard Baruch - 10 Rules of Investing 



If you ask retail and professional traders alike, most will agree one of our all time favourite trading bible will be:

Reminisces of a Stock Operator by Edwin Lefèvre.


It's a thinly disguised biography of Jesse Livermore.

A lot of trading's popular adages came from that book. If you have not already read it, I would highly recommend it. It's not your typical trading book. I promise you that!


However, there's a fly in the ointment. Jesse Livermore blew his brains out...

A fitting reminder to all traders out there, I guess.


This post is not about Jesse Livermore.

I would like to introduce to the newer traders out there another one of the great traders during Jesse Livermore's time - Bernard Baruch.

Why?

Well, for one, he speculated himself into a great fortune before 30 (a bit like those young 20 somethings start-up millionaires of today).

Escaped the Great Depression.

Became advisor for economic matters to 2 US Presidents.

Lived to a ripe young age of 95.

Evidently he is more than just a speculator.... Wink.




Bernard Baruch's 10 rules of Investing 


“Being so skeptical about the usefulness of advice, I have been reluctant to lay down any ‘rules’ or guidelines on how to invest or speculate wisely. Still, there are a number of things I have learned from my own experience which might be worth listing for those who are able to muster the necessary self-discipline:”

1. Don’t speculate unless you can make it a full-time job.

2. Beware of barbers, beauticians, waiters — of anyone — bringing gifts of “inside” information or “tips.”

3. Before you buy a security, find out everything you can about the company, its management and competitors, its earnings and possibilities for growth.

4. Don’t try to buy at the bottom and sell at the top. This can’t be done — except by liars.

5. Learn how to take your losses quickly and cleanly. Don’t expect to be right all the time. If you have made a mistake, cut your losses as quickly as possible.

6. Don’t buy too many different securities. Better have only a few investments which can be watched.

7. Make a periodic reappraisal of all your investments to see whether changing developments have altered their prospects.

8. Study your tax position to know when you can sell to greatest advantage.

9. Always keep a good part of your capital in a cash reserve. Never invest all your funds.

10. Don’t try to be a jack of all investments. Stick to the field you know best.





OK, point no.8 is not applicable to us Singaporeans. What must we do? 1, 2, 3, ready?

Thank you Big Daddy!


Retail investors and traders just starting out, you'll probably read and shrug.

No worries, just remember to refer to Bernard Baruch again when you have several more years of track record, then you may appreciate the meanings better.

Especially when you blew your trading account or experienced a devastating meltdown in your investment portfolio....


Veteran retail traders and investors out there, how?

Whether you agree or not is the question right?

You and I will agree the secret sauce is:

"for those who are able to muster the necessary self-discipline.”


Wink.



Friday, 25 November 2016

Headless Chicken



In the world of trading, I've learnt from painful experience its better to take a quick and small realised loss than to suffer a conviction sapping and margin eroding unrealised loss.

Once I have cut loss; I feel relieved.

Money can lose; but presence of mind cannot.



Same goes for the investment side of my portfolio.

Not taking profit can mess with our minds too.

Take for example - M1, a stock I'm not vested in.

If you had bought in at $1.50 during 2009, you would be a most happy retail investor during March 2015 - M1 hit $3.94!

That happiness was short lived as by May 2015, it broke below $3.50.

Some of you wily old fox retail investors may have sold all or half your position here.

Any lingering doubts whether you have done the right thing are all cleared out during August 2015 when M1 broke below $3.00.

This was your last chance to protect your 2 bagger winnings.

Want to guess how the person who didn't sell at $3.00 is feeling now?

Would he join others in adding to M1 at below $2.00 since its "so cheap"? Or would he be more likely to "capitulate" and sell if M1 drops down to $1.80? Surely he is not going to let a winning position turn into a loss? Or?



All of us have our "uncle point".

Once we've reached that level, we become like headless chickens.







Its better not to let ourselves be in such situations.

 



Tuesday, 22 November 2016

That 2% Trading Rule



It's quite easy for us trading veterans to sniff out whether a blogger is writing from personal experience or just copy paste (more polite word for plagiarism) from some other official sources.

To a "bei kambing" or "white paper", since you know nothing, you'll just swallow hook, line, and sinker wholesale. That's until you have chalked up more experience points and now looking back, you'll just laugh it off.

It's part of the journey.



Never risk more than 2% of your trading capital per trade

Let's take the above risk management rule as example.

Can't go wrong with parroting this rule right? Wrong!

One, you reveal to the world you are NOT a trader. (I never understand such financial bloggers. Don't trade but like to write about trading stuffs!? For pageviews?)

Second, if you do actually trade part time, that will put you in the same basket with those people who say one thing; but do anything. Be honest now, do you employ that 2% rule in your own trading?



Institutional trading not the same as retail trading

That 2% rule is meant for institutional or proprietary traders.

Depending on the institutions, some may argue 2% is too risky! Some have a more conservative 1% or 0.5% limit on their trading positions.

For a bank forex trader, if you employ a 2% limit on your $10 million position, you are risking $200K per trade!

If you are his boss and this trader is inconsistent, would you allow him the full 2% limit?


And if you have friends who are trading their own money full time, go ask what limit they use when they first started out

I guarantee you the majority of them would have used a limit greater than 2%!

Don't just believe what I say, verify for yourself. Wink.



Ownself check ownself

If you are already trading part time for sometime, no need to ask others.

Yup, that's the reason why the majority of retail traders blow up their trading accounts.

But if we had stuck with the 2% trading rule, we would be "eating grass" when we win... And that's not what we have signed up for... Didn't we?



Intermediate to Advance trader

How to know your have improved as a trader?

Most people may think of trading account size. Yes, its a factor. But not the most important yardstick.

Its this fuzzy, grey, and vague thing called Wisdom.

I know, the left-brained precision people will raise you arms in despair! You can't put a SMART goal to wisdom!

LOL! (Its not that I don't set goals or make plans; I just set them different. Wink)

Wisdom comes from experience. Knowing when to bend the rules, when to break them. When to verify and dig deeper, when to disregard "noise" or "falsehoods".

And that's different from Knowledge.

Any studious trading newbie can "out knowledge" a trading veteran. What's the definition of this and that; who said this and that; parrot, parrot, parrot. Sure score distinctions in a trading theory test!



Me?

When I started out trading full time 4 years ago, I employed a 5% limit on my trading positions. Now that my trading account has grown by quite a bit, my trading limit is now closer to the 2% limit.  



Wednesday, 16 November 2016

Peer to Peer lending at 240% interest per annum?


Can.

But now illegal.

Still can. Just don't get caught!

Remember what they said during our National Service time? Can do anything we want, just don't...





The highest interest a fellow blogger got from his peer-to-peer lending "investments" is 18% interest per annum.

Already a sizable "discount" from the 25% that credit card companies charge for unsecured "loans" from individuals...

But if we compare against high yielding junk bonds, 18% is a lot better than the 6.5% yield Swiber bond holders got.

Well, so much for accredited investor "status"...

Some learnt the hard way that seeking out a vehicle yourself that you bought into is not the same as the one you were sold to.



Bond traders were once upon a time known as Masters of the Universe.

I personally think they still are.

There is a reason why there are so few retail bond investors/traders out there.

OK, I'll concede the minimum $250K a lot is one deterrent. But we have the retail friendly Singapore Savings Bonds. Why the lack of retail interest?

I think we know the answer intuitively.



To be in the usury business, we need to be smart. Not just smart; but brilliant smart! And be really great with numbers!

What's the similarity and difference between bond traders and illegal money lenders?

Both know how to price risk; the difference is that one got education at the right schools, the other just happen to have little schooling despite having a high IQ.




New readers may want to read this 2011 post of mine: Can you lend me some money?





Monday, 14 November 2016

Life is Better when you can say No



To continue the dialogue at LP's Choose Yourself post, I would like to share my story why if you can say no, life is a lot "freer".

You are speaking from a position of strength.


When I was 24 and working at Robinsons, I was invited to the management trainee program.

Its the equivalent of a non-commissioned officer being sent to Officer Cadet School.

If I had gone on to university and did 2 years of NS, that will be the same age 24 that I'll be joining the management trainee as an undergraduate candidate.

My alternative route of leaving school at 16 had ended me at the same starting point with my "can study" peers once again. Who knew?


In the retail industry, the "glamour" position was the Buyer's job.

Can wear "plain clothes", work office hours, and best of all - overseas buying trips!


The management trainee program was 12 months long, but they were already going to give me the Stationery Buyer's position 7 months into the program.

But I said no and left Robinsons. HR was furious!


By then, I had found an even better opportunity!

I decided to join Melandas to sell sofas at the newly opened IMM building in Jurong East. I'm the pioneering sales there.

A few years later, again I said "No" and accepted a big pay-cut to be a Hardlines Purchaser with Montgomery Ward Buying Office. 

LOL!


Have you had the experience where you wanted something very badly and when you are about to get it or once you have it, you don't care for it any more?

Yes, the you of today is no longer the same you of yesterday.

You are probably stronger, taller, wiser, more aware of who you are, what you like - less following the path of others.


You know why some people are always unhappy despite the "success" in their lives?

They were sent to the Science stream when in their hearts they prefer Arts subjects...

Got promoted to a position or department they don't like...

Married a person they "settled for"...


Once upon a time, there was one student at the end of Secondary 2 who asked for transfer to sub-science stream so he can drop Additional Math in exchange for taking 2 Science and 2 Arts subjects - hybrid between Arts and Science.

He has no clue how he ended up in the Science stream as his Secondary 2 exam results must be a fluke!

That student was used as an example by the Vice-Principal to encourage other students to choose what they like; not what others expected of them. Nope. No takers.

That student was me.







Thursday, 10 November 2016

Bet you never saw it coming! (Wrong but make money)



Neither did I!

Let's not talk theory about Trump's win yesterday.

There's enough pontifications and red-faces out there. We know who got it right; who got It wrong...



Boy, was I wrong!!!

Like the majority of the market, I had a small skin in the game that's positioned for a Clinton victory - long USD/SGD.

Nearly spilled my coffee when I saw Trump leading Hillary early in the morning.

Markets went bonkers and it was Brexit deja vu all over again.

USD dived; equities markets in Asia bled big time. S&P futures went limit down 5%, and gold went ballistic!



I was so close to closing my position - to protect my profit - before I noticed something interesting in the price action.

Each time Trump won a state, the USD/SGD pair will bounce up a bit; and the reverse is true when Hillary won? All these happened in a broad and general USD downshift. 

That's not how its "supposed" to be??? Isn't USD "supposed" to weaken if Trump won?



The advantage of trading fulltime and watching the price action "live" is spotting these little tell-tale signs that someone is building a counter-trend position against the general market.

I removed my finger from my mouse as I watch in suspended animation when the markets start to reverse in the afternoon.

Simsci was off the lows of the day, so was USD/JYP, and gold has lost its upward momentum.

I finally closed my long USD/SGD position at a profit of 511 pips in the evening at around 5:20 pm.

Before you get any wrong ideas, I had this position since August - no, it wasn't an intraday trade. I'm not an intraday trader; I suck at that!



There you go! This is another one of those examples where I was wrong; but I made money.

Its better to be lucky than smart!

I was so glad I'm not in the long USD/JYP pair for I surely would have been profit-stopped out and missed the reversal in the USD...



No, this is not a bragging post.

Guess what? At 10:00 pm last night, I knew I had sold too early. USD/SGD went up another 40 pips.

And this morning at 8:00 am? If I held my position one more night, I would have made an extra 80 pips.

See? After so many years, I still leave so much money on the table... How's that for my exit skills? Much work remains to be done...



I think I shouldn't be so hard on myself. I was wrongly positioned and when market gave me an opportunity out, I should take it!

For those who don't trade forex, did you expect the STI to gap up today after the sell-off yesterday?

No right?

And if you panicked sell yesterday, don't be too hard on yourself too.

Remember beginning of this year? Those who panicked sell on the first day were glad they did so;  especially when seeing STI continue to bleed towards 2500 in the coming days...



Whether you are an investor or trader, once you in this arena for a few years, you'll soon discover there's only 2 things you can control:

Your entries; and your exits.



Humbling right?







Sunday, 6 November 2016

My Braless Literature Teacher



This is the last post as part of the trilogy of posts looking back on my school days.

For a change, its not about me.


Its about the young and vivacious Literature teacher that taught us in Sec 1 at an all boys school (it was co-ed for Pre-U classes).

She did her degree in UK and from the way she dressed and talks, you can tell she is "different". She got that bohemian air about her...

And when she taught in class, she was not teaching us robotically so we could pass Literature exams... No, she was clearly in love with the written word.

It was only years later I realised what she tried to imbue in us...

Feel! Don't think too much!

Embrace! Immerse! And dive in!


Imagine my delight one fine day, for 3 days in a row, she walked into class braless!?

You know, when she walked, its ding-a-ling-ding-ding!

I never paid more attention in class ever. I learnt something during those torrid few days - focus.

LOL!


Sadly, she put her bra back on soon after. And I noticed she never recovered her usual energy and effervescence... Some idiot must have talked to her about her dressing...

I wasn't surprised before the year ended, she left.

I've no clue what became of her. 

Interesting how some people just leave a deep impression in our memories even though the encounter was brief? 



Yes, not only students can be "different"; teachers can be "different" too.

And our struggles are similar - whether it be in school or in the corporate world - how to fit in when the majority just love to beat us into their one mould fits all...



There are 2 paths for minorities like us:

Job hopping - That's the path I took. Like migratory birds, I just hopped from one environment to another until through pure dumb luck, I found an eco-system with inhabitants that not only accepted me as part of diversity, but encouraged me to thrive and spread my wings to be myself! (I stayed 14 years in that wonderful company)

Be your own boss - Some just can't work for other people under other people's house rules. So these minorities - like the beaver - will create their own eco-systems and hire people they want to work with. The entrepreneurs.



Please don't say no choice. There's always a choice. Unless you are slave or live in North Korea or something.

If we think too much, we won't hop or dive in...


Feel! Embrace! Immerse!





P.S.  It's harder, but see if you can relate it to your investing/trading journey.



Friday, 4 November 2016

I'm not making Tools; I'm making Art



You know what?

I missed out Technical Studies completely from my previous post!?

Did I study so many subjects during Sec 1 and 2? Now that's what I call a broad education!


Subconsciously, it probably showed how much I hated Technical Studies....

I'm a klutz when it comes to DIY. So how did I ended with a DIY company!?

Yes, I'm the kind of "dainty" Singaporean male who will pay for someone to assemble the furniture...

LOL!




My Gan Eng Seng School (Anson Road) did not have a workshop. So we had our Technical lessons at Bukit Merah Secondary School.

I'm terrible with woodwork. Can't saw straight. Cannot hammer the nails in straight. I think I have a talent for veering off tangent!

Metal work slightly better. I enjoyed this thing we do with the metal file to get a rounded corner on a metal plate. And remember countersunk? That's the fun part where we widen a hole to fit a screw or bolt to make it flush.
  
Guess what?

I often failed. Lots!

Why? I never adhere to the instructions when it comes to measurements. When it says 5 cm, I'll produce something like 4.98 cm or 5.3 cm... I'm more a "agar agar du hor" (estimate can oredi) kind of person...

Don't ever hire me as your renovation contractor! No matter how cheap I quoted you!




As for my woodworking instructor, he "sees" me as transparent. So I shan't talk about him.

Now this metalwork instructor couldn't take it anymore one fine day. He called me out during break time and threw the handheld garden shovel tool I've submitted back to me on his desk.

"Why did you countersunk on the reverse side?"

"They looked pretty...The 2 silver rings."

"Do you know how to use a ruler?" You can almost hear the exasperation in his voice...

I can't say I don't care about precision; sure get scolding. Till this day, I don't know what transpired me to reply in Mandarin...

"我不是打造工具,我是创造艺术品。"   (I'm not making tools; I'm making art.)


He was surprised by my answer; and he stared at me through his glasses for quite a while. Then he waved me off saying never mind...

From that day onwards, I never got into any trouble with the metalwork instructor. He still fails me; but now he will speak to me in Mandarin whenever he passes my workstation. Curious to see what product adaptations I'll be making next!




Years later, when reviewing my Jedi skills (EQ), I realised I had intuitively replied in Mandarin as I knew the metalwork instructor was Chinese educated from his English accent.

I showed him respect and created a closer bond by speaking in the language of his heart.

I do this too during my weekend sales gig by speaking in broken Malay to my Malay customers. They laughed; I laughed. Rapport created.

As a Chinese educated instructor in a English educated world, he definitely has a hole in his heart.

I'm purely guessing here, but I think for that instant, he realised what I am going through was similar to his hole in the heart... A broad brush stroke trapped in a CNC (computer numerical control) precision world...

He cannot pass me like my Art teachers - this is after all still a Technical class - but by seeing me in a different light, he wasn't angry or exasperated with me anymore. Phew!




This is why I can poke and debate vigorously with bloggers holding complete opposite views, and we still can have coffee together. Wink.

I don't need to stick only with my "own kind".

As for the woodworking instructor?

Well, it shows my "bawu" (Jedi mind trick) will not work on everyone.

And this is very true as they would prefer to see me as "transparent". 

Especially if your worldview is based on - either if you are with me; or you are against me.

So serious!?






Thursday, 3 November 2016

I never failed in Art classes



I'm not sure about school nowadays, but during my Secondary 1 and 2 (1980-1981), we had to take 10 subjects.

Looking back, it was the best of times since I had to learn everything - English, Chinese, Math, Biology, Chemistry, Physics, Geography, History, Literature, and Art.


I think that's a great approach if one is starting out on their nascent investing/trading journeys.

Start broad and specialise when we know our interests and aptitude.

Lawyers and doctors follow a similar path.


But that's not how most retail investors/traders approach investing/trading...



I think most students (and KPI centric educators) are glad they don't have to take Art for their O' levels.

If Literature is hard to score distinctions, what more about Art?

I on the other hand love Art classes; I never failed.



Don't get the wrong impression. I could not paint or draw even if my life depended on it.

And the funny thing is, some of my poster paintings have been held up by my Art teachers to the class as "creative" and very "interesting"!

That's the beauty of Art! Its all about interpretations!


Now looking back, I understood what my Art teachers tried to convey - there are no  such thing as rules, boundaries, or conventions in Art.

There are only expressions.

How can anyone fail me when I am merely expressing my interpretations?



No, I'm not saying Art is "easy" either.



Yes, you may want to view the markets as "Art" instead of treating them as "Science".





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