Past Experiences 4 - Ostrich

The Pig turns into an Ostrich

I left the market alone after 2003 as I was very busy with business and perhaps also because the stock prices were very depressing with no light at the end of the tunnel.  The darkest hour is before dawn. I did not know I am doing the right thing …..

However, in Jul and Sep 2004, I brought a terrace house and an apartment in Kuala Lumpur.  This turned out to be good investment when I sold them at a profit in November 2010.

In a stock market that never seems to run out of reasons to go down, you no longer feel like a bull. But that does not necessarily make you a bear. You may, in fact, have become an ostrich.

Heath Hinegardner, Behavioral economist George Loewenstein of Carnegie Mellon University coined the term "the ostrich effect" to describe the way investors stick their heads in the sand during lousy markets………

Turning yourself into an ostrich doesn't make your losses go away, but it does enable you to pretend they aren't there.

Acting like a 200-pound bird with a two-ounce brain isn't all bad..…. If you sell on every bit of bad news, you will never get to profit from the far more common good news.

But becoming completely information-averse isn't a good idea, either. Be contrary. When the headlines are overwhelmingly negative, as they are now, the market tends to feel riskier than it actually is.

If history is any guide, your inclination to act like an ostrich is a strong indication that the market is about to turn into a phoenix

Should You Fear The Ostrich Effect? , Jason Zweig, September 13, 2008. http://online.wsj.com/article/SB122125886256030143.html

In 2003, I was able to ignore the market mainly because I was very focus on my business which continue to boom.   It was also very painful to see the value dropping.

So does a down market mean that buy and hold is done and gone?
The answer is "no". In fact, history has repeatedly proved the market's ability to recover. The markets came back after the bear market of 2000-2002. They came back after the bear market of 1990, and the crash of 1987. The markets even came back after the Great Depression, just as they have after every market downturn in history, regardless of its severity.

McWhinny, J. (2009). 5 "New" Rules for Safe Investing. Investopedia , http://www.investopedia.com/articles/stocks/09/new-rules-safe-investing.asp

The truth is that I do not think I would bear selling Singtel or even Chartered at huge losses.  Did consider cutting loss on Chartered but procrastinated several times and end up holding Chartered until it was delisted in 2009.

It's a lot easier to stay in the trade if they have hedged some risk by holding cash.  but regardless of how the trade works out I'm left in a relatively strong position. If the market rallies, then I've got ammo to expand my commitment to the trade. The best trading ideas mean little to those who can't stay on for the ride.

Hoenig, J. (15 Mar 2004). The Wall Street Rodeo. Smartmoney , http://www.smartmoney.com/investing/stocks/the-wall-street-rodeo-15538/.

I was able to hold on to the stocks when their prices continue to drop as I was using spare cash.  Every year, I was also paid substantial amount of dividends from Singtel.  I was able to sit tight with the comfort of these dividends.  I am able to console myself with my firm belief that the stock price of Singtel would recover. 

A 2003 study by DALBAR f clearly illustrates the "reactive" nature of today's investors and just how much it costs them in return……  "motivated by fear and greed, investors pour money into equity funds on market upswings and are quick to sell on downturns."

Gordon, R. (2009). Rules for Post-Recession Investing. http://www.investopedia.com/articles/stocks/09/returning-to-stock-market.asp.

At the same, I am unable to bear selling my stocks.  Holding power is very important here.  Did not think much about it, feel the pain but somehow I felt that it is a matter of time the prices will increased.  Just an assumption at that time.  But confident about it.

Many of us are dealing with a lousy economy without resorting to suicide. What likely pushed these two investors over the edge wasn't bad bets, but bad bets with huge leverage.

As Daryl Hannah's character Darien said in the 1987 film "Wall Street," "When you've had money and lost it, it can be much worse than never having had it at all."

Overleveraging Is a Traders Worst Enemy, Jonathan Hoenig, January 8, 2009 

http://www.smartmoney.com/investing/stocks/overleveraging-is-a-traders-worst-enemy/#ixzz0fVx5RSZx

Luckily, no leverage.  I have never borrow money even when in business.  Always distrust the bank who will only provide you the umbrellas when it is sunshine and likely to take them away when there is thunderstorms.