Sunday, May 30, 2010

Lazy sunday

This is one of those lazy Sunday that I didn't have to work and have the time to read newspaper at a very leisurely pace. This is so unlike the past few weeks where I've to scan the headlines and basically leave it at that. So, naturally, my eyes focused on the investing segment of the Sunday Times. This person was giving 5 tips on how to invest despite the bear.

My first impression is that how come nobody is giving tips on how to invest despite the bull. Perhaps it's our natural inclination to see prices rise up. Even the major stock exchanges in Germany and US are setting up measures to prevent short trading in case the market plunges too fast and too soon, but they did not do anything to prevent long buying in case the market rushes up too fast and too soon. Quite bias, don't you think?

Anyway, here are the 5 tips. Having nothing better to do, I thought it'll be a good idea to reflect on how these tips are useful to me or not.

1. It is better to remain focused and stay invested during volatile times.

It further elaborates by saying that over the long term, you can ride out the volatility. I hate it when people say that. It oversimplifies a lot of things. So do we stay invested in one company over the long term or do we put all our investing money in the market (regardless of the companies actually invested) over the long term? From the people I talked to, they seem to think that the former is the way. They then quote Warren Buffett doing that too (if you think so too, read more about him).

In my opinion, I think that staying vested in the market for the long term is the right thing. But you need no stay invested over the long term on the same companies. Just do the necessary adjustments from time to time.

2. The three Rs: Revisit goals, review portfolio and rebalance your investments.

Ok, this I agree. I made a mistake in the past of not reviewing my investments. A good profit thus turned to a very bad loss. I guess everyone does that kind of mistakes. It's a very very good idea to rebalance your investments. It's like a garden full of plants that you want and a lot of weeds. Just take out those weeds so that you can clear more space to grow the plants you wanted.

3. Spread out your risks, diversify

The article says to diversify across different asset class. Ok, it's great advice. But to a common retail investor, it's hard to do spread out your assets into more than 2 classes, unless you have a lot of bullets to fire everywhere. To me, if you have less than half a million to invest, you might want to concentrate on just one or two asset class. Perhaps stocks and bonds? If you have more than half a million, then capital preservation might play a more important role, hence the need for a more robust portfolio to weather the shit in life. Stocks, bonds, properties, commodities might even out just nice.

Please don't quote me Warren Buffett's style of focusing. You're not him and he's not you. Besides, he has many many more companies than you will ever have.

4. Have a balanced portfolio

Erm, isn't this tip the same essentially as tip no. 3? I guess the author elaborated more on using the funds approach. Coming from the head of UOB deposits, investment and insurance branch, I guess it's normal to talk about this.

5. Market corrections can mean opportunities; use dollar cost averaging to smoothen price swings

I'm not such a big fan of blindly doing DCA. I believe that the market can be timed, not precisely, but approximately. We do not have to buy every month because we cannot time the market. Just do DCA with some chartings, and I think you can do a lot better and save yourself on the transaction costs.

As with all articles, they never never talk about selling. It's all about entering the markets and giving the impression that by holding long enough, you'll have a good return in the end. To me, selling is the other half of buying, and there really is too much literature on how to buy and when to buy. How about doing a DCA on selling? As market goes up, you sell a little more and a little more so as to average up your selling price?


Createwealth8888 said...

Why Don't People Advise You To Sell Your Stocks?

JW said...

Haha, LP

Today Sunday, I'm also rather free... Only 1 tuition in the morning, and the others cancelled.

I'm spending my time on my A level Physics book instead.

Musicwhiz said...

I agree LP. Frankly I posted this article on Afralug and commented that I only agree with No.1. Even then, with caveats of course!

News articles tend to over-simplify cos they are writing for the masses and not for the sophisticated investor (who probably doesn't need such articles anyway).

Also, with regards to selling, it's never an easy process. Even though I sold my last few investments for gains, psychologically I classified them as a mistake as they did not conform to my original principles. So it can be quite an internal conflict as well.

Just my 2-cents.


Shud'n said...

I think why DCA is recommended most of the time is actually to get the emotions out of investing.

la papillion said...

Hi bro8888,

Well articulated...indeed indeed.

la papillion said...

Hi JW,

It's rather that we have a free sunday, haha :) Hope you enjoyed yours, I certainly enjoyed mine!

la papillion said...

Hi mw,

Afralug? I never visit that site, so can you pls share the links with us here? Thanks :)

Regarding selling, I think you only sell when fundamentals changed right? Have you ever sold because you want:

1. To take profits
2. To buy back cheaper
3. To switch to a company with more prospects?

Just curious :)

la papillion said...

Hi Shud'n,

Hmm, I think you're right. But what a price to pay for getting the emotions out of your investing.

Saw your're still in forex trading?

PanzerGrenadier said...


A bit digressing but I tend to take the articles published in Sunday Times on investing with a pinch of salt. As Musicwhiz observed, the articles tend to over-simplfy and does not capture the nuances of investing and about the pros and cons of diversification and being invested in the market.

The issue is that personal finance is a broad topic of which investing is only one part of the process. The other parts are living within your means and to save before you have money to invest. :-)

Be well and prosper.

la papillion said...

Hi PG,

Ya, I would take it with a pinch of salt too. I usually don't even read them these days. I do, however, make an effort to read the interview section, which I found interesting :)

axt said...

I did a little "survey" among family members, some colleagues and friends. Surprise surprise only 2 out of 23 ever read the investment article in Sunday Times.

la papillion said...

Hi Axt,

Haha, not a fair survey, unless you tell me that all the 23 members surveyed have interest in investing :) If I'm not interested in sports, I also won't go and read the sports section religiously :)