Monday, May 30, 2011

Lessons learned from cboxers

Just by looking through the cbox history, one can learn a lot of lessons from the actions (or sometimes the non-action) of people. I'll just list them out objectively,  not to ridicule but rather to reinforce the lessons in me again. I must have done it many times in the past, but hopefully not ever again.



1. Buyer's remorse (or seller's remorse)


This is when the queue that you had put in place had been hit, but instead of having feelings of joy and jubilation, you are feeling unhappy because you now really own the shares at the price. This is actually quite similar to seller's remorse, where you sold at a certain price but again instead of feeling happy, you actually regret selling at the price. These are just basic emotions of greed and fear at work. For buyer's remorse, it's the fear that after you key in a (hopefully) cheap price, the price will tank further. For seller's remorse, it's the greed that makes you want to earn more after seeing the stock rise up higher than the price you just sold.


Do I have this kind of remorse? Of course I do. It's hard to eradicate it, so it's better to think of ways to manage it. First of all, you really have to want the shares you want at that price. Only after the intent is clear will I queue for it. I don't queue for 'fun' because if the queue is really hit, it's not very funny. As for seller's remorse, I think setting a specific target price and sticking to it (and really, be content with it) is the key. Of course, selling slowly in batches is also a good way to alleviate that emotion if you have more lots - sometime like averaging up your selling price.


These days, after I sell it, I no longer look at it until perhaps a few weeks later. This is more as a post action review on how I can perfect my exit technique rather than to see if I had lost out on any potential future gains.



2. NATO (no action talk only)


I think to make money in the market, it's better to do more action rather than talking about it. Talking (to the right people) will help you understand certain aspects of your intention but beyond that, when it comes to pulling the trigger, you're all on your own. If you do not exercise your own judgement, it's really hard to pull the trigger. When the market is up, you'll be hesitant to buy because you think you can get a cheaper price. When the market is down, you'll be hesitant to buy because you're afraid it'll go down lower. So pray tell, when is the best time to buy? Perhaps talking about it will dissuade you from really doing something about it.


It might be easier if you have conviction behind your buying/selling thesis. There's a reason why people do fundamental analysis and technical analysis - the reason is to discover the value of the underlying stock. 'Discover' is used with deliberation, because I really think that's the way it is. You go around exploring, finding out a range in which the current valuation of the stock is, and you go and make your decision based on that conviction. For those without proper understanding of FA or TA, or those without strong conviction, I think the chances of NATO-ing is pretty high.



3. Too emotional over noise


I hate being manipulated like a ragdoll toy by market physics. It's something that I felt intensely when I was gambling with HSI warrants in the earlier part of my stock market journey and later on during the index futures phase. As I reflected on these emotional roller coasters, I realised that the only thing that make me emotional over such price fluctuations actually stems from money management, rather the lack of it.


If I've 50k and I put 40k into a counter, making it 80% of my entire portfolio, how can I not be emotional? If I earn 60k in a year and I put 40k into a single counter, how can I not be emotional? On the other hand, if I've 100k and I put 10k into a counter, making it 10% of my entire portfolio, would I be bothered if the price tanked? If I earn 150k in a year and I put 10k into a single counter, would I similarly be bothered by market fluctuations?


Feel free to change the percentages to suit your individual requirements - it's the idea that matters.



4. No exit strategy


Most books that I read about stock market focuses solely on how to buy correctly. Seldom do I find one that talks about exiting. I believe that even if you want to keep a stock for long periods of time, there is still a need to get in and out at opportune times to get the best out of the investment. It's best to look at different scenarios before you buy in so that you have a impartial view of the situation. Just by asking yourself questions starting with 'what if', you can clarify your thought process. It's important to have a clear strategy, be it based on specific target price or a particular value thesis, because it allows you to act when the time comes and not freeze like a animal looking straight at the headlights of an incoming car. Think about the cut loss levels (if you have one) and the % returns that you are after before buying it. If you think it can reach the % returns that you are after, then go for it. No point hoping and waiting for a miracle in a stock that just cannot move so much in the timeframe of investing.



5. Improper money management


I think this can be a post by itself because there are just so many points to talk about. I'll just talk about a few pertinent points.


a. Limit your counter to a certain percentage of your portfolio, even if you think the counter is 'guaranteed' to make money. In the face of unknown probabilities, invest in preparedness.


b. Limit the amount that you can buy in a single transaction according to portfolio size. This means that if you have only 100k of investible cash, you don't whack 50k in one single transaction. This ties in with part (a).


c. Bro8888's advice always ring true - buy and sell slowly


d. If you have a losing streak, stop yourself from buying anymore. Give yourself a time to reflect and gather your thoughts and think about why you are losing money. When starting up again, reduce the amount invested again, only increasing it after you've proven your worth by making a winning trade.

19 comments :

AK71 said...

Hi LP,

All very good advice. For some, the advice is timely. For some, it might be seem as if it is too late. However, good advice is timeless in nature and should benefit readers now and in the future. ;)

Personally, I have come across many types of traders and investors. Although each might have his or her own approach, some ideas are universal in nature.

I have people who like my approach and people who are doubtful. Some even dismiss my methods as limiting or ineffective. Why the different reactions?

Well, we are all different individuals with different backgrounds and temperaments. Frankly, not everyone is cut out to be a trader or an investor.

Just like playing any game or being part of any profession, being ignorant of the rules would only lead to failure or abandonment. The same goes for trading or investing in the stock market.

Mind you, I am not saying that I am a success and that my methods are fool proof. No method is fool proof and I think anyone who claims his methods are fool proof might be delusional. I am still learning, honestly.

It has been a long day and my brain is not functioning 100%, I'm sure. Forgive me my ramblings. :)

la papillion said...

Hi AK,

Thanks for your lengthy comment on this post. I do not wish others to follow the costly mistakes that I made when I've started on the stock market. Even up to now, I'm still paying to recover my mistakes.

But I've also realised that certain things in life must be experienced - it can never be taught. I can't, for instance, tell someone what is feeling of being electrocuted or what is the taste of chillies. I still believe that small controlled mistakes are good for the overall development of the individual, provided that he/she reflects upon the mistakes.

This post is really for those who had not been through the bottom-est valley of the market, and how scarred a crash in the market can mean for one's pocket and most importantly, to one's psyche.

In the blackest night will come the brightest light...provided you survive.

OT83 said...

Hi Mew Ge,

Your point on money management is so far the most important lesson which I had learn since the start of my investing journey.

I only realized it after I start losing all my gains so far. It is very very painful. Nevertheless, it is a good lesson which I will remember for life.

Thanks for the nice post.

Temperament said...

Hi LP,
Wow, very good post.
But your reply is even better. i like. Quote:
"But I've also realised that certain things in life must be experienced - it can never be taught. I can't, for instance, tell someone what is feeling of being electrocuted or what is the taste of chillies. I still believe that small controlled mistakes are good for the overall development of the individual, provided that he/she reflects upon the mistakes."
Unquote:

My own experiences tell me even though i know it's very dangerous to "speculate" in the stock market, i still did it more than once. And each time, i lost "terok". (Of course with money i have made from the market, but then it's still my hard earned money then.)

Createwealth8888 said...

New monkeys must try learn the tricks from old monkeys and not trying to learn from Gorilla.

Gorilla can sit anywhere they like but monkeys can't.

Temperament said...

Another words, nothing can replace practical lesson and experience.

You will never really know or feel what it's like until you try it, yourself.

Of course, some of the things you better don't try; like doing drugs or womanising.

i remember teaching my few years old child the danger of playing with fire without our supervision or presence.
i brought his hand very near to the lighted stove, he felt the heat of the fire for the first time and he never forget. So during Christmas, he was not afraid of playing with lighted sparklers but with care. Because he has had practical lesson on the danger of fire.
i even gave him "practical lesson" on the meaning of death. Which psychologist think a child of his age will not understand. But to our(my wife) surprise, he did. Because he never ever once bring a chair to the balcony, climb on top of it and peep over the balcony's wall. (Our balcony was not fenced and we were living on the 12 floor.) We told him he will be dead and no more existing in this world, if he fell from the balcony to the ground; just like the dead ant and drinking glasses accidentally falling on to the floor, breaking into pieces and discarded into the dustbin. No more existing in this world.

So is investing in the stock market. You can learn a lot of theories, but practical lessons in the markets are the time you really learn and become learned, hopefully.
So how many practical lessons have you taken? Are you still O. K.?
Hope you do well & survive & prosper.
Shalom.

Singapore Man Of Leisure said...

LP,

I just love the way you write and share without sounding "preachy".

I think our english teachers will be rolling up their eyes! Bottom -est? LOL! That's literary licence for you!


CW8888,

Where do you find these one-liner gems? Respect!

Musicwhiz said...

Hi LP,

Very nice post, and thanks for it. :)

I am still learning from mistakes, though I hope they are more from others than my own! Haha. But nevertheless, it's a continual learning journey.

Though I can say I am probably a better investor now as compared to 5 years ago, there's still much room for improvement and I still need to be able to continue to generate a decent return while preserving capital.

I certainly hope I am not "NATO" haha. Problem is I take so long between buy/sell actions that sometimes it really does feel like I am talking and analyzing without much action. I hope I can classify it as "wise waiting". LOL!

Money Management is important, and not just for the trader, but for everyone! Personal Finance is a lot more personal than what the media makes it out to be. Each person has to come to terms with his/her own personal circumstances, profile and character. The sooner, the better.

Cheers,
Musicwhiz

coconut said...

"emotional management" is the most important aspect on trading and investing, more important than money management, much more.

one way is to justify your trade, convent yourself that it is the right way to take a trade, no matter what is the outcome (win or lose).

Isaac said...

Hi LP,

great post! I especially resonate with point number 3. I guess I'm one of the cboxers who regularly complain when my counters go down one bid, make funny emoticons when I make money, make :underwater: and :vomitblood: when I lose. Haha!

I don't think the issue here is that I've put in how many percent of my portfolio into a particular counter. It's just that I'm too obsessed over small little things like this. Better change it!

la papillion said...

Hi OT,

Thanks..I think knowing is one thing, for you, doing what you know is the next step. Try doing it :)

Hi Temperament,

Thanks! I really approve of the ways you teach your kid. I think experiential learning might be the best way for kids to learn, until the point where they can reason out things themselves. You're a good parent!

I'm losing money, that is all. I have not recovered from my past mistakes, but so be it. Time can heal all wounds and so far, I've not made any major mistakes anymore. I guess I'm improving, haha!

la papillion said...

Hi bro8888,

haha, new way to put it :) You're always very good at simplifying the issues at hand :)

Hi SMOL,

Haha, thanks! I guess years of being in my job makes me able to 'prep talk' people without sounding preachy :) You think young pple these days will let you talk talk talk meh? haha

Oh yes, I really abuse my literary licence, because there's no more teachers to mark me down, haha!

Hi mw,

Thanks! I think there's a difference between NATO-ing and waiting patiently. Usually those who are nato-ing either do not have a plan, or they keep shifting the plan so that they don't have to act. If you find yourself doing that, then perhaps you're NATO-ing too!

Hi coconut,

I think emotional management is somewhat tied to money management too. If I only put in say 5% of my total portfolio, I dun see how it can make me agitated, either when the price is down or up, haha :)

la papillion said...

Hi Iz,

Too emo isn't very good for health. Actually if you have 100k, will you still fret over 10 cts, 20 cts? Really not because of overinvesting?

Anonymous said...

LP, as always, you're right again. ;)
If I had 100k, there wouldnt be that much agony. ;)

-Isaac

PanzerGrenadier said...

Hi LP

Yes, there are some things in life that cannot be taught but have to be experienced. :-) That is the only small consolation of growing old :-) haha...

But I've learnt that reading books help one to experience vicariously other people's life triumphs and mistakes without having to go through it. Of course, it cannot replace real experience but is the closest thing to it that is accessible to most of us.

Now I'm reading "Liar's Poker" on my Kindle. I like the author's writing style, very funny :-)

Be well and prosper.

la papillion said...

Hi Iz,

Hahaa ;)

Hi PG,

Looks like you're enjoying your kindle on ipad, haha! Liar's poker is a fantastic read indeed :) Have you read the BSD yet? haha!

PanzerGrenadier said...

Hi LP

Yes, I've read BSD. I think it's quite apt, reminds me of "Masters of the Universe" description of Nicholas Nassim Taleb on those investment bankers that eventually get themselves "blown up" in the markets :-)

Anonymous said...

Thank you LP.

Very insightful and I am not the only one with the remorseful feeling.

Huat ah...

SnOOpy168

Patty said...

Gonna quote Robert Jordan's opening for all his WoT books...

"The Wheel of Time turns, and Ages come and pass, leaving memories that become legend. Legend fades to myth, and even myth is long forgotten when the Age that gave it birth comes again.

In one Age, called the Third Age by some, an Age yet to come, an Age long past, a wind rose. The wind was not the beginning. There are neither beginnings nor endings to the turning of the Wheel of Time. But it was a beginning."

I am seeing the 4th gust of wind. May hab the 5th is coming.