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.