Internal Demons 心魔

I “look at” myself in accordance to Charles Ellis’s criteria:

心魔

Our internal demons and enemies are pride, fear, greed, exuberance and anxiety.  These are buttons that Mr Market most likes to push.  If you have them, that rascal will find them.  No wonder we are such easy prey for Mr Market with all his attention-getting tricks.

That’s why the best way to start learning how to be a successful investor is to follow the standard instruction:  Know thyself.

As an investor, your capabilities in two major realms will determine most of your success:  your intellectual capabilities and your emotional capabilities.

Ellis, D. C. (2010). Winning The Loser's Game. McGraw Hill. Pg 42

A.        Intellectual

A1.      Average, neither brilliant nor stupid. 

A2.      Mr Know-All as I read a lot – economy, economic theories, politics, psychology, sociology, philosophy, frictions and now investment books, articles on investing and finance. Someone mentioned sincerely that “it is difficult for others to work for me as I ‘too’ knowledgeable,” perhaps, sarcastically. 

A3.      Able to read and understand financial statements but too lazy to look into details.

A4.      A good administrator - methodical in keeping records and monitoring, organizing and preparations, systematic. 

A5.      A thinker - like to think things through and identify the basic principles

A6.      Good memory of facts – never try to deceive myself

A7.      Unable to absorb complex mathematics like standard deviations etc and not willing to put in the effort.

A8.      Philosophical – life is like the passing clouds, stock prices are illusions,

A9.      Love History – and how it is linked to present – trade has replace world conflicts (Lee Kuan Yew present this in USA Senate),

A10.   No Religion – believe in more Buddhist philosophy and Lao Tzuism.

A11.   Believe a lot in Lee Kuan Yew’s philosophy – Nothing is for free

A12.    Able to applied what I study in daily life        

B.        Emotional capabilities

B1.      Arrogant and proud – show off guy, know I am smart and knowledgeable, show too much of it and “termed” dangerous by others.

B2.      Not carried away by “smartness” because of “cautious” character.

B3.      Well prepared – always worry about the future rather than the present; make good preparation in everything I do.

            Preparation mentally and financially to cope with market crash and taking advantage of future ones.

B4.      Skeptical and cynical of others especially politicians and bankers but able to live with the necessary evils

B5.      Too cautious – avoid exposing myself and family to unnecessary risks ie during travel etc

B6.      Very difficult to be conned – would terminate any offer of free gifts, chances of making good money, or other attractive offers without hearing the details – not to be tempted.

B7.      Truth – always realize that there is “half truth” to make something more believable but not the “full truth” as it will reveal too much.

B8.      Hate to lose – unable to sell stocks at a loss, do not believe in gambling unless I have the odds, 50/50 is not good enough.  Like to “sure win”.

B9.      Flexible – like to look at things and behaviour from different angles.  There is always more than one side to the story.

B10.   Do not use the word “trust”.  Replace it with “Reliable”.  Trust is too emotional.

B11.   Very focus when doing something, but neglect all other areas.

B12.   Original – wrote a composition on “An Important Historical Person - Adolf Hitler” so that I would be different from other students and got an hour “lecture” from the teacher but an “A”.

B13.   Never blame others – took the blame myself.  Believe me, this is the truth.  The philosophy behind it is too blame others, nothing can be done.  By taking on the blame, I learned to be better.

B14.   Still human – sway by short term prices of the stock markets initially but getting better.  Try to take advantage of it instead.

C.        Then I gauge my capacity for taking risk.

C1.      I invest comfortably using “spare cash” I do not needed in the long term as I am a financial conservative.

Your tolerance for taking risk is so changeable, there’s no point trying to measure it.

What does matter is your capacity for taking risk.

It requires a detailed analysis of your present and future financial situation.

How much money do you have?

How might your future needs for income and spending change?

How far along are you in the effort to reach your financial goals?

You must not risk any money that you cannot afford to lose

Zweig, J. How to Conquer Killer Markets, Con Artists, and Yourself, 2010, Pg 188,
The Little Book of Safe Money, John Wiley & Son Inc.

C2.      I could not remember from where or when I learned that whatever I invest, I must be able to sleep at night.  If I am unable to sleep, I am definitely overexposed and would definitely unable to withstand the volatile markets and in a market crash, I would not have the means to capitalize on the fear to buy additional stocks on fire sales.  So I keep reserve for this purpose.

investments that let you sleep at night are far more valuable than exciting speculations

Arends, B., Money Lessons of a Lost Decade. Market Watch, (22 Dec 2009). http://online.wsj.com/article/SB10001424052748703478704574612533936177614.html?ru=MKTW&mod=MKTW.

C3.      I do not leverage and never will– I never buy anything on installments except my first HDB flat or borrow money from banks for my business simply because I am conservative financially. I am debt free for more than 20 years.

Stay away from leverage. Nobody ever goes broke that doesn't owe money.

http://www.cnbc.com/id/31849504/Warren_Buffett_s_Top_Three_Investment_Rules_for_the_Average_American

C4       Debt free and sufficient funds for my simple daily life, I am able to withstand the volatility of the market and hold on to my losing stocks.

I can't tell you how much easier it is to deal with the emotional demands of speculation when you know you've got at least nine months' worth of living expenses — generous living expenses — tucked in a liquid and high-yielding account. As I pointed out last week, trading demands that we all, at times, deal with loss. That is only possible to do, while still keeping a rational mind, when you've got a cushion of cash to mentally shoulder the blow.

Jonathan Hoenig, Beginners Should Heed 4 Steps to Trading Success,

14 May 2007

After taking the Investor Personality Test, I have to realise that the internal demons affecting me is not fully identified and I needs to reflect more and constantly be alert to their devilish intentions and influences.