Friday, January 16, 2015

Start with the man in the mirror

I started ‘playing’ the market with no skills, dabbled in warrants simply because they are cheap and that I have limited amount of cash and patience. I've no idea how warrant works but that doesn't stop me from buying and selling them, often several times in a day to the tune of 15 to 20k per trade to scalp the minute changes. It’s a wonder that I didn't catastrophically burst my bank account. I've heard of people making a lot of sense talking about support and resistance and how the Bollinger squeeze makes a good long or how a RSI and macd-histogram shows that this and that is a good short. I also wanted to be knowledgeable and trade using technical analysis.


So I learn more about the technical side of the market. Charts, with support trend-line and horizontal supports and resistance are drawn.  I learned that the trend is your friend and 61.8% and 38.2% are the golden numbers in the Fibonacci retracement, also found in nature. I need to be careful of divergence when the MACD lines makes a lower low while the price heads up to a higher high. I read Jesse Livermore, Guppy, Martin Pring and all the other greats to learn their trades. But I lost more money. I thought reading these chart wizards makes me good. I understand the theory behind the books I read but I couldn't apply it profitably enough. Then I heard about the people who talks about the market being a weighing machine in the long run and a voting machine in the short run. We’re actually not buying counters but being a part owner in a great business. I also wanted to be knowledgeable and invest like a value investor and analysis a company fundamentally.


So I read up about financial accounting and know the how the cash flow affects the balance sheet and how the accrual accounting makes a profit looks nicer than it actually is. I learnt that we can find out how leveraged a company is by looking at the assets/equity ratio or see how times their current assets can cover their interest payments. I learnt that a PE of 10 means that you've bought 10 years worth of earnings in today’s price. I read that ROE is not a Japanese delicacy that I like to eat but is an important ratio to measure how good a company is at allocating their resources to make a profit. So is the ROA, enterprise value/EBITDA, Price to FCF and many more. Then I was caught in the s-chips like Longcheer and China milk. They have fantastic numbers, amazing value, rich in cash, low in debts and best of all – undervalued based on the whole matrix of ratios applied to them. As the prices of Longcheer dropped, I put in more and more, because if the price of the company is attractive before I bought, it’s going to be even better as the price drop further. I ended up cutting losses. Then I heard someone mentioned that it’s not the individual assets that are important, it’s the portfolio allocation that plays the most important part in your portfolio’s return. I also wanted to be knowledgeable and be a good manager of money.




So I learnt about the efficient market theory and how it’s useless to time the market. Nobody beats the market in the long run, so there’s no point trying to beat the market. Higher risk gives higher returns so if I have different classes of assets at different risk levels and therefore, different returns, it’s possible to find the efficient frontier whereby I have the most diversified asset allocation with the greatest returns for the lowest possible risk. I know about the Greeks, which are really not people from Greece but letters to represent different things. Specifically the beta, which represents how volatile a security is relative to the market in general. Then, there are the delta, vega, theta, gamma and all the fun stuff in options, which are also found in warrants. I didn't know that I dabbled in financial alchemy when I first started! Then I read more about bonds, because it’s a good alternative to the more volatile stocks and are supposedly inversely related to stocks. But bonds are a debt instrument, and when a company issues a bond, they are essentially borrowing money from the investors. Thankfully I know that little bit about accounting in my ‘fundamental analysis phase’. That helped tremendously when I also ventured into preference shares, which have features of both bonds and shares.  Hey, suddenly a lot of things gets tied in from all the loose ends and things seem less muddy now.


I stopped wanting to go for the next hottest quick fix to investments. I stopped wanting to be knowledgeable. I stopped trying for the next cure before I even figured out why the previous method doesn't work. I stopped escaping and finding the next scapegoat to blame for not making a killing in the market. I stopped looking at the stars and the Bradley’s turn dates to decide when the next major top and bottoms are. I stopped looking for the next guru to follow and for them to instruct me what to do.


Instead, I looked deeper in myself and looked hard at the man in the mirror. I have met the enemy, and the enemy is me.

27 comments :

la papillion said...

This is not really the story of my financial journey. Fragments of it are true though, as I'm sure it'll be true for the readers too.I just wanted to bring across my feelings, the frustration, the envy, the guilt and all the fun stuff that comes from putting your money into the stock market.

Everyone's journey in it is different, yet strangely, they are also similar. It's always about self discovery and finding something that rings true to yourself.

ladykiller said...

I found this post funny, typical of many of our investment journeys, before we all settled on a style that best suited our personality. We've all been there before. Familiar frustrations!

Createwealth8888 said...

Not all look at mirror and learn.

I have been probing those in their 40s, 50s and 60s at my workplace on their investment success and I have realized that quite a number of them started younger in their 20s but after 20 to 30 years in the market; they are still not making much.

Where is the common understanding of starting young, learn and compound our wealth @ 4-5% p.a?




S-Reit System Investor said...

Aye, the man in the mirror is often our greatest enemy when it comes to trading and investment. Not the market. Not the Fed.

B said...

Hi LP

You just busted the best learning journey one could have get from investing.

Unfortunately there are many experienced investor that even after 10 to 20 years of investing still doesnt know who the enemy is.

Singapore Man of Leisure said...

LP,

I was reading with interest your recent forays into fixed income instruments ;)

That's interesting considering when you started blogging, it was on warrants!?

To echo what CW and you have pointed out, there are 2 groups of retail investors/traders after being in the market for 20/30 years:

1) Those who continue to learn new skills, and

2) those who are one trick ponies.

It does not matter whether we are jack-of-all-trades omnivores, or super specialists like the Panda or Koala bear, our journey will ultimately end up to a discovery of WHO we are ;)

I am of the opinion that not everyone is suitable for investing/trading.

It's perfectly OK to be doing what we enjoy and getting paid for it.

Is this not bliss?

Createwealth8888 said...


SMOL:"I am of the opinion that not everyone is suitable for investing/trading."


As an old timer financial and investment blogger, I hate to agree; but I have to agree with SMOL.

Why? Save more than 60%. No need to invest???

la papillion said...

Hi Ladykiller,

You too? Haha, so what I thought is true..this is not really just me :)

la papillion said...

Hi bro8888,

When we're young and idealistic, we thought that putting money into the stock market can get us 7% or 10% returns per annum. But that is an average based on past data...might not happen again. A more realistic might be more like 3-5% pa, and even that is hard. So the q is whether we want a guaranteed 3-4% CPF returns or a market 3-6% returns lol

Nothing is for sure in the market.

For a guaranteed 3%, the younger you start the better. For a market returns of 3% non-guaranteed, the age might have nothing to do with it. The most important thing is to collect data, analyse and review again and again to improve. Still, nothing is for sure LOL

la papillion said...

Hi SRSI,

I think this works equally in our work life too. Some might blame that prospects in this company isn't good, or the boss keeps tekan-ing me and so on. Until the man in the person changes, no matter how many companies you switched to, it's still going to be the same struggles, the same politics, the same evil bosses out there :)

la papillion said...

Hi B,

LOL, doesn't have to apply to investing only :) I know of one student who keeps hopping from tutor to tutor. Every time he didn't get good results every quarter, he'll switch to another tutor, hoping to find that one miracle tutor who can pull up his grades.

You can imagine how disastrous and disruptive that is. He did horribly in his O'lvls released recently.

If we keep looking at external fixes to solve our problem, we will never stop searching for that one holy grail. The solution, most often than not, resides in us.

la papillion said...

Hi SMOL,

Haha, my interest in fixed income is due to circumstances because of my parent's investment requirements :) I really only have 1 bond and 1 pref shares in my own portfolio :

Indeed, it's always about self discovery. You know those ang moh who travel around the world backpacking? They are also looking for self-discovery, lol

I think theirs is a lot cheaper compared to putting money in the market!

SMK said...

This got to be your funniest post ever!
Bollinger bands RSI MACD.. lol

Got inspired by MJ?

la papillion said...

Hi SMK,

Our misfortunes are all tragedy in the short term but comedy in the long term :)

It certainly isn't very funny when my 3 red 1 green signal turns upside down, or when my china milk turned sour from cows that turned mad :/ At one pt I was even severely depressed from losing so much money. Suicidal thoughts occur every now and then!

Now, looking back, all of this is funny and silly :D

K said...

Hi Createwealth8888,

Special account in CPF provides 4% guaranteed return. (This guarantee is better than any Goldman Sachs). I believe this is an excellent place to build up an individuals retirement fund.

la papillion said...

Hi K,

So sure it's safe? LOL! Is it safe because it had never failed before or is it safe because it will never fail? Sometimes we don't know what is the current situation now, really.

Everything is as guaranteed and safe as the underlying. That's the most impt lessons I learned from dabbling in bonds and pref shares.

K said...

well... if Singapore goes bust, then all bets are off....

K said...

Looks like I should have bought a luxury swiss watch too... :P

la papillion said...

Hi K,

Not Singapore. Singapore and the govt are not the same thing, though it's taken as the same thing often. We just need another govt who have a different policy to change whatever is guaranteed on the cpf. Singapore need not go bust at all.

K said...

true.... that's what PAP has been saying.... ;)

Createwealth8888 said...


Pay and Pay?

Why Pay?

So Don't Pay?

Pay and pay or Subsidize and subsidize.

LOL!

Sillyinvestor said...

Hi LP,

What deep knowledge u have accumulated to write this post, so many "greats" that I didn't even heard of.

I realised I also have reached LDMR in pursuit of knowledge. I am not sure why.

I am quite sure after a few years, I will
Be obsolete.

I used to go for numbers first. Now, the business is what still hangs on to my little DR of interest in prospecting.

U know what, I saw noble price at $1, and I had heard of it on and off. I look at dividend records, it's there, then I start reading their business.

I look at their numbers didn't really like it, and then off it goes in the Dustin radar, where in the past I would read and read...

Investor fatigue???

la papillion said...

Hi SI,

I've to google what's LDMR! Haha!

I think part of it is fatigue, part of it is always a increasingly sensitive bullshit detector. It doesn't take long to know the bullshit because either we've seen it before or we've seen it happen to others. That's the good thing about being more experienced - you stop being wide eye curious kittens and start being cynical.

No time lah, so many things to do lol!

MrPhysiotherapist Guy said...

Were you at one point of time believing in the efficient market theory?

la papillion said...

Hi Mptg,

Nope, I never did believe in it. I did read about it and know about the random nature of market movements. It's only after Nicolas nassim taleb that i took the random nature of market movements a little more seriously. In the same book, there's also info about portfolio diversification and the different asset class coming together to generate the greatest return with the lowest volatility. Good info in general.

secretinvestors said...

Hi LP,

I must say this is a refreshing and unique perspective of an investor. I also started by doing all the technical analysis and results have been horrendous. Wasn't satisfied with myself that time because some people do make money by using charts etc. After much study, soul-searching and understanding myself, I decided to pursue an investment framework that I feel works best for me. So far so good :-)

la papillion said...

Hi secretinvestors,

I guess we all have to explore and find out for ourselves what works and what don't :) Small failures are okay, and we should all take it in stride :) It's part of self discovery haha