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Friday, 11 August 2017

Which one hurts more?


Sillyinvestor, CW, and I were bantering which one hurts more?

1.  Sell too early and missed out on outsized profits? 

2.  Sell too late and left too much money on the table?


Just to clarify. 

Letting a winning position turn into a loss is just plain dumb.


Scenario 1

We bought stock A at $1.00.

Sell at $1.40 for a 40% gain; only to see it go all the way to $2.00 and missing a 2 bagger.


Scenario 2

We bought stock A at $1.00.

See it go all the way to $2.00 didn't sell; only to see it drop back down to $1.40.



How?

Don't talk theory. From your experience, which one hurts more?

You don't bluff!








35 comments:

  1. Personally I'll be more tui with #2 coz it feels like an actual loss -- let Mr Market take back a big chunk of profits.

    Versus opportunity loss of "should have hung in longer, but never mind... still got next time". Kekeke ... behavioural & emotional biases hard to control!!

    Well over these few days of market sneezing, maybe will have plenty of people experiencing Scenario 2. Hohoho!!!

    For those who have sold a few months ago & sitting on sidelines watching stocks go up, they've already experienced Scenario 1. Now they feel happy ... hahaha!!!

    Actually best for investing is don't feel anything at all. Be a robot or a cold calculating bastard ... Good for investing returns, but bad for day-to-day living!! Dilemma!! Kekeke!!!

    ReplyDelete
    Replies
    1. Spur,

      You are one interesting character. You are the only one here who have 3 kinds of laughter:

      1) Hohoho!!!

      2) Hahaha!!!

      3) Kekeke!!!


      Yup, I ideally we should be the Samurai who just cuts into his opponent with NO MIND.


      Delete
  2. I've experienced both and I think scenario 2 is worst! With scenario 1 just think of it as slippage and a more of under estimation or rather don't want to wait anymore and rather put money in my pocket whereas for scenario 2 it's more of a greed or hope issue.

    ReplyDelete
    Replies
    1. Joyce,

      Thanks for sharing!

      Like you, I've experiend both and find scenario 1 "easier" for recovery.

      Once we realised we have sold too soon, we have the option to jump back in.

      Of course its not easy to re-enter into a stock at a higher price than you have just sold recently, but re-entering with a smaller position size and with realised profits in the pocket can make things a lot easier.


      As for scenario 2, "hoping" the price will recover to $2 again then sell is what prevented us from selling at $1.80 or $1.60. Somehow I don't think we'll sell at $1.40 :(

      Before we knew it, the price will drop below our $1 entry price!? Ouch!


      Hope is a no, no in investing/trading.

      Its better to make in decision and move on ;)




      Delete
  3. Hi SMOL,

    Time lost absent-mindedly hurts the most. Their regrets are palpable, stuck in a ruminative loop of "what could have been."

    Applies to investing as well, based on what people tell the bleeding heart.

    ReplyDelete
    Replies
    1. Unintelligent Nerd,

      I need to spend more time with you.

      My england vocab is wider than the average graduate, but I keep learning new words from you ;)


      Absent-mindedly, I'll be 50 end of this year.

      If we frantically try to catch stardust by grasping at air, time seems to slip from us.

      But if we stand still and let stardust fall on us, time is on our side.


      I realised this shit after it dawned on me monks who meditate and do "nothing" all their lives may live more fulfilling lives than us busy city folks who are never still...

      Delete
    2. Alamak! Think what I conveyed didn't turn out to be what I wanted to convey.

      I'm referring to those who, maybe at their late 30s or 40s, suddenly wake up and go "what the heck have I been doing all this while?"

      Very different from monks and the church fathers, who may appear to "do nothing" from a third person perspective, but are actually living an intentional (correct meaning?) and contemplative/reflective life.

      Delete
    3. Unintelligent Nerd,

      Relax.

      I merely offering another viewpoint on "absent-mindedness" :)

      人生难得糊涂!


      Sometimes we need to spend time in the "wilderness" to discover ourselves.

      I envy those who from primary school already knew what they wanted to be when they grow up.

      For the first 30 years of my life, my life pretty much looked like "loser". Can't study, can't stay in a job for long.

      I stumbled into IKEA at age 30 and stayed for the next 14 years.

      Who knew at age 44 can go back to a "loser" lifestyle again? Work 2 days rest 5 days ;)

      I'm a dreamer.


      Delete
  4. Ya lorr ... initially wanted to point out 2 other scenarios also quite tui one:

    Scenario 3 --- Didn't buy in the 1st place, watch all your friends & enemies getting rich. At least happy for friends lah!! Hahaha!!

    Scenario 4 --- Buy at $1. Now staring at $0.40 becoz didn't want to cut loss at $0.80 ... Slope of Hope!!!! Just joined the "never sell means just paper loss lah" club!!! Kekeke!!!

    Behavioural finance & psychology will tell you that #4 more painful than #3.

    Just like #2 more painful than #1. Heheheh!!!

    ReplyDelete
    Replies
    1. Spur,

      And that's why Warren Buffett reminded everyone the No.1 rule of investing is...

      Many can parrot Warren Buffett, but when it comes to their own portfolios, they console themselves they are in it for the LONG TERM.

      If we invest to breakeven one day, might as well voluntarily put money in CPF!

      Delete
  5. All of us if not most, experienced #1,2,3,4,5,.....

    i don't want to think about it any more.

    Anyway my habit is i tend to buy too early and sell too early one.

    So much so if i invest a bit more like CW8888, i just wonder whether i would have done better or worse.

    NVM.

    Make money ( even then, no baggers to boast) is O. K. for me in the long, long, road run in the Market.

    i think my worse performance so far is still 2008/2009.

    Hope to do better the next round (Provided God permits).

    ReplyDelete
    Replies
    1. temperament,

      Our own paths; own pace.

      You and I are the same.

      We see the world as glass half-full ;)


      The point is not to lament, but to see where we can improve and act on it!

      I am more specific and practical by focuing on improving my entries and exits. Contrast it with those with "SMART" investing/trading goals on a consequence they can't control ;)

      Shh...

      Delete
  6. Since you specialised on "Entries and Exits",

    let me shares with you this little gems:-

    ////
    2) Assets allocation & Purchase price entry level

    There’s nothing you can do better to control Risks and generate Profit by proper Allocation of Assets and buying those assets at the Right Price.

    Right Price

    “When” is more important than “What”.
    In most cases, when you buy is more important than what you buy. You can make money on the most marginal company if you buy it at the right time; you can lose money in the bluest of blue chips if you buy it at the wrong time.

    The right time is when a stock is selling reasonably near the low end of its trading range or at a historically low price/earnings multiple, or when any trustworthy guideline indicates a sharp reduction in risk. This low entry level provides a safety net dangerously missing at higher prices.
    The wrong time to buy for a long-term investor is when a stock is selling near the high end of its trading range. Everything depends on the price you pay, regardless how gilt-edge the stock.

    3) When to Sell

    Perhaps the most difficult of market skill is to know when to sell. There is no one definitive answer, no formula that applies in all situations. To sell within a reasonable distance of the high is probably the best we can hope for, and even that is easier said than done. Since we already know that, invariably, stocks go higher after we sell, it makes sense not to sell all our shares at once. It doesn’t always work and it takes longer, but the odds favour a higher average price if sales are spread out. The most common mistake is selling winners too soon and holding on to losers too long.

    KNN @#$%*&
    i am guilty often of the last sentence.

    4 Ks ma!

    ReplyDelete
    Replies
    1. temperament,

      Again I am impressed with your memory and cut-and-paste skill!

      After I realised I must improve on my entries and exits, my study of hedge fund managers and pro traders led me to the same technique - scale-in; scale-out ;)

      The entry method for passive indexing is similar to scaling-in. Dollar cost average?

      The problem with passive indexing is after 20-30 years of zero practice in selling, that implies the exit, if any at all, is based on pure dumb luck?

      100% all-in entries and 100% all-in exits are the height of arrogance!

      Unless one has super high convictions!

      I'm sure you have read the story of that US investor who decided to sell EVERTHING when he noticed his shoeshine boy was giving him stock tips!?

      That investor famously escaped the Great Depression ;)

      Buy-and-hold? Yeah right!

      Delete
  7. Hi SMOL,

    In my opinion, both don't hurt. I am in dividend investing. I don't sell after being vested.

    My two cents' worth of opinion.

    Ben

    ReplyDelete
    Replies
    1. Panadol remedy can ease all sort of pain

      Delete
    2. i like Spur reply to B&H or panadol to ease all sort of pain at CW8888's blog

      Delete
    3. B&H is only O. K. if you can escape or minimise the danger of Sequence of Returns.

      At the end of the day, you may have to liquidate some stocks when you have no more HC.

      Unless your portfolio is so large you can live on the dividends alone during your NO HC days.

      Delete
    4. temperament, CW, and Ben,

      There are strategies and tactics we use as part-time retail "investors", especially when we have the excuse of a fulltime career to look after.

      Imagine you give money to a professional money manager to invest, and he lost money for you. Will you accept the professional manager's excuse that since got panadol, what's the problem of investing to breakeven one day?


      Ahem. I am doing the craft of investing/trading fulltime now.

      Why would I still adopt the same strategies and tactics from when I were doing it part-time?

      I need to let go of my shell and staff ;)

      Can I give the excuse I got no time to monitor the market?

      Is there such a thing called fulltime "passive" investor?

      Delete
  8. If you are a trend player, the first scenario hurts. If you are a mean-reversion player, the second scenario hurts. If you are both, then nothing hurts lol.

    ReplyDelete
    Replies
    1. Macroanalyst,

      A few simple sentences and it shows you are several divisions ahead of us ;)

      I hope more advanced readers will visit and banter with you at your blog.

      I'll rather be a midget in big ocean than be the giant in a tiny pond ;)


      For scenario 1, its perfectly OK for a value investor buying at a discount to fair value and letting go when the price reaches fair value. But it sucks big time if one is a growth investor :(

      For scenario 2, its super painful if one is a swing trader; but if one is a buy-and-forever hold retail "investor", what's the problem?

      Especially if the holding is part of the legacy to our children, grandchildren, great grandchildren...

      If the magic of compounding is so powerful for 30 years, imagine what will happen in 90 years over 3 generations!?

      LOL!


      Delete
  9. stick to your plan and there should be no pain!

    if there is pain means you should be out of the market immediately, in this case apply to your 2 examples.

    ReplyDelete
    Replies
    1. but again i think people just enjoy the joy and pain they get from the market place. the more they got happinese, the more they suffer when they lost.

      Delete
    2. so how you get rid of pain when losing, simple (but not easy)!

      don't feel happy when you win and got carry away.

      Delete
    3. coconut,

      You in the Premier League!


      2017 is turinout to be a difficult year for me.

      Thrusday night I shorted the Simsci at 268 as hedge. Friday it closed at 263.7 - weekend slept better in case North Korean unleased armageddon.

      This morning at the morning got profit-stopped out at 267.7 :(

      Never let a winning trade turn into a loss ;)


      Now Simsci is hovering around 267.

      I tell you, markets exist to make a fool out of me :(

      LOL!


      Delete
    4. you are not the only one losing money my friend.

      i lost a big junch buying M1 share recently! fortunately covered part of my lost shorting starhub.

      with the pain accumulating everyday when M1 keeping going south, i cut my losses and get out of the market.

      Delete
    5. coconut,

      I've gotten better at being "Zen" in trading - both in taking profits and swallowing my lumps of coal as in losses.

      But on some days...

      At least now I've got the discipline to force myself not to trade when my mind is "agitated". Mindfulness helps.


      I'm with you on not getting carried away. Hence I don't count my money while I'm sitting at the table. I concentrate on the cards at the table.

      There's time plenty to count my money when I'm done at the end of the year.

      I not those who need to know in 2 decimal places what's my latest unrealised profits/losses daily/weekly/monthy.

      In actual dollars and in percentages ;)

      Delete
    6. i'm bullish on the market overall but pick the wrong stock, with M1 losses, my whole of 2017 now only stand at a small profit. @%*&$@!&^#(!!!

      Delete
    7. "I tell you, markets exist to make a fool out of me :("

      becos you (and i too) think you are very smart thats why you have this feeling of a fool or market is all out trying to get you!

      Delete
    8. coconut,

      At least you know how to do pairs trading to hedge your risks.

      My trading account is 80% denominated in USD. Even without putting any trading positions on, its bleeding a slow death.

      If USD don't recover by year end, I think I'll have my first losing trading year since I've gone fulltime.

      Talk about trading with headwinds against me!

      But then, I shouldn't complain as the last few years I've got the tailwind support of a rising USD ;)

      That's life!

      Water can float us; it can also drown us...


      Delete
    9. coconut,

      Trading is great to learn humilty.

      If only the lessons weren't so expensive!


      Talk to you later. Got to go to buy lunch for mom ;)

      Delete
    10. then put out a position to hedge your losing USD account!

      Delete
    11. "But then, I shouldn't complain as the last few years I've got the tailwind support of a rising USD ;)

      That's life!"

      absolutely nonsense! yesterday win or losses should have no bearing and no decision based with today (now) trading decision!

      Delete
    12. coconut,

      Its the reverse.

      The USD in my trading account is a natural hedge against my savings and assets that are denominated in 2 other currencies other than SGD.

      I don't call myself a nano-hedge fund manager for fun. As a one man family office, my first mandate is wealth preservation ;)


      Delete
    13. Yes, encik yes!

      Thanks for kicking me for lapsing into the "Ah Q" mindset!

      You are one tough warrant officer!

      Delete

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