Monday, January 14, 2019
There are many forms of strategy or trading pattern in the market.
I used to do short term trading and contra in the past. Some times i lose money, some times i made money. I still remember i made 5 figures from a short term trading of SBI Offshore in the past. I used a catalyst to buy and held for about a month then sold them. But does this kind of strategy suit my personality and is able to deliver a good return for me in a long run?
Recently i was very tempted to buy Singtel when it dropped to $2.86. Then i asked myself "What is my purpose to invest in Singtel? As it is trading near historically recent low? Do i plan to have dividend income from Singtel? How much do i value Singtel's business? Do i think that my portfolio value is high enough for me to change my investment strategy? Do i hope it will bounce back to a higher price then i can sell and profit from it? How much do i plan to invest in it? What is my strategy going forward?"
There were many more questions popped out from my mind at that time. I have been trying my best to discipline myself to stick to my own investment strategy which i think it is heading in the correct way so far? Maybe i can speed up my portfolio value by adding in a variety of trading strategy, but is it what i want to have in my investment journey? It is clearly the answer is "No".
What i am working towards is having a good & reliable system and is able to deliver a consistent return in a long period of time (maybe in bull or bear market).
My investment journey is not about having a race to have a faster finishing line, in fact i hope to have a longer finishing line so that i can learn more along the way.
I want to eliminate many kind of thing which is irrelevant to my main strategy now.
To have a simple system in a very complex market is the best strategy for me so far!
I will keep learning and maybe i will have to change my system along the way, but let it be baby steps!
Tuesday, January 8, 2019
I just finished reading "The Little Book That Still Beats The Market" - by Joel Greenblatt.
(1) Buying a share in a business means you are purchasing a portion (or percentage interest) of that business. You are then entitled to a portion of that business' future earnings.
(2) Figuring out what a business is worth involves estimating how much the business will earn in the future.
(3) The earnings from your share of the profits must give you more money that you would receive by placing that same amount of money in a risk-free 10-year U.S government bond (for US market).
(4) Stock prices move around wildly over very short periods of time. This does not mean that the values of the underlying companies have changed very much during that same period. In effect, the stock market acts very much like a crazy guy named Mr. Market.
(5) It is good idea to buy shares of a company at a big discount to your estimated value of those shares. Buying shares at a large discount to value will provide you with a large margin of safety and lead to safe and consistently profitable investments.
(6) Paying a bargain price when you purchase a share in a business is a good thing. One way to do this is to purchase a business that earns more relative to the price you are paying rather than less. In other words, a higher earnings yield is better than a lower one.
(7) Buying a share of a good business is better than buying a share of a bad business. One way to do this is to purchase a business that can invest its own money at high rates of return rather than purchasing a business that can only invest a lower ones. In other words, businesses that earn a high return on capital are better than businesses that earn a low return on capital.
(8) Combining points (6) & (7), buying good businesses at bargain prices is the secret to making lots of money.
(9) Most people and businesses can't find investments that will earn very high rates of return. A company that can earn a high return on capital is therefore very special.
(10) Companies that earn a high return on capital may also have the opportunity to invest some or all of their profits at a high rate of return. This opportunity is very valuable. It can contribute to a high rate of earnings growth.
(11) Companies that achieve a high return on capital are likely to have a special advantage of some kind. That special advantage keeps competitors from destroying the ability to earn above-average profits.
(12) Although over the short term Mr. Market may price stocks based on emotion, over the long term Mr. Market prices stocks based on their value.
(13) If you truly understand the business that you own and have a high degree of confidence in your normalized earnings estimates, owning five to eight bargain-priced stocks in different industries can be a safe and effective investment strategy.
Wednesday, January 2, 2019
(1) Risk - All investment evaluations should begin by measuring risk, especially reputational:
1. Incorporate an appropriate margin of safety
2. Avoid dealing with people of questionable character
3. Insist upon proper compensation for risk assumed
4. Always beware of inflation and interest rate exposures
5. Avoid big mistakes; shun permanent capital loss
(2) Independence - "Only in fairly tales are emperors told they are naked":
1. Objectivity and rationality require independence of thought
2. Remember that just because other people agree or disagree with you doesn't make you right or wrong - the only thing that matters is the correctness of your analysis and judgment
3. Mimicking the herd invites regression to the mean (merely average performance)
(3) Preparation - "The only way to win is to work, work, work, work, and hope to have a few insights":
1. Develop into lifelong self-learner through voracious reading: cultivate curiosity and strive to become a little wiser every day
2. More important than the will to win is the will to prepare
3. Develop fluency in mental models from the major academic disciplines
4. If you want to get smart, the question you have to keep asking is "why", "why", "why?"
(4) Intellectual humility - Acknowledging what you don't know is the dawning of wisdom:
1. Stay within a well-defined circle of competence
2. Identify and reconcile disconfirming evidence
3. Resist the craving for false precision, false certainties, etc
4. Above all, never fool yourself, and remember that you are the easiest person to fool
(5) Analytic rigor - Use of the scientific method and effective checklists minimize errors and omissions:
1. Determine value apart from price, progress apart from activity; wealth apart from size
2. It is better to remember the obvious than to grasp the esoteric
3. Be a business analyst, not a market, macroeconomic, or security analyst
4. Consider totality of risk and effect; look always at potential second order and higher level of impacts
5. Think forwards and backwards - Invert, always invert
(6) Allocation - Proper allocation of capital is an investor's number one job:
1. Remember that highest and best use is always measured by the next best use (opportunity cost)
2. Good ideas are rare - when the odds are greatly in your favor, bet (allocate) heavily
3. Don't "fall in love" with an investment - be situation-dependent and opportunity-driven
(7) Patience - Resist the natural human bias to act:
1."Compound interest is the eighth wonder of the world" (Einstein); never interrupt it unnecessarily
2. Avoid unnecessary transactional taxes and frictional costs; never take action for its own sake
3. Be alert for the arrival of luck
4. Enjoy the process along with the proceeds, because the process is where you live
(8) Decisiveness - When proper circumstances present themselves, act with decisiveness and conviction:
1. Be fearful when others are greedy, and greedy when others are fearful
2. Opportunity doesn't come often, so seize it when it does
3. Opportunity meeting the prepared mind: that's the game
(9) Change - Live with change and accept unremovable complexity:
1. Recognize and adapt to the true nature of the world around you; don't expect it to adapt to you
2. Continually challenge and willingly amend your "best-loved ideas"
3. Recognize reality even when you don't like it - especially when you don't like it
(10) Focus - Keep things simple and remember what you set out to do:
1. Remember that reputation and integrity are your most valuable assets - and can be lost in a heartbeat
2. Guard against the effects of hubris and boredom
3. Don't overlook the obvious by drowning in minutiae
4. Be careful to exclude unneeded information or slop: "A small leak can sink a great ship"
5. Face your big troubles; don't sweep them under the rug