Past Experiences 6 - Reflect

Looking Back

The Pig analyses further …..

When asset prices collapsed, so did their composure and they sold at fire-sale prices.

Grit and bear it, Jonathon Burton, Dec. 11, 2009, 11 Dec 2009

http://www.marketwatch.com/story/10-lessons-for-investors-from-a-dismal-decade-2009-12-11?pagenumber=1

I am able to buy when there is fear in market.  It is my belief; we should buy stocks when others are selling.  To me, this is simple economic theory of demand and supply.  When there is no demand, prices is the cheapeast.

In early 2000, I buy, average down and hold Singtel, and ignore the market for sometimes until 2006.  I remember holding Singtel at about 3.20 and buy until it was around 1.30.

After which, I became an ostrich possibly because of feeling the pain of loss and the attraction of business opportunity distract me totally from the stocks investment.  Unconsciously, I do not have much desire to look at the stock market then because of the unpleasant loss.

That’s way benign neglect is, for most investors, the secret of long term success. 

Ellis, D. C. (2010). Winning the Loser's Game. McGraw Hill. Pg 31    

The neglect, whether out of fear or other commitments was tremendously profitable when I sold my stocks and unit trusts in 2006.  I would have lost quite a sum on Chartered Semi-Conductor if I have not average down and made profit on Singtel. 

In my opinion, benign neglect can be practice on stock held for horizon of 5 to 10 years especially when you are able to get it at good value.

Ironically, many folks who find it impossible to take a loss end up selling later at exactly the wrong time: right as the rally begins.

Taking a Loss Is Harder Than It Seems, Jonathan Hoenig, August 27, 2007  

http://www.smartmoney.com/investing/stocks/Taking-a-Loss-Is-Harder-Than-It-Seems-21730/#ixzz0hPKesf3z

I did not take a loss but I did sell exactly right as the rally begins.  I sold Singtel at $2.65 at a $1 margin but it raise up to as high as 3.95 some months later, if I recall correctly.  I could have sold my holding partially instead of all at once.

I was betting on the unit trusts or stocks purchased in early 2000.  The information from the stocks I purchased was garnered from bankers, friends and the internet.

Start Small. The idea is to initially make the mistakes with small dollars and use the experience to prevent blow-ups from happening in the future.

Beginners Should Heed 4 Steps to Trading Success, Jonathan Hoenig, May 14, 2007  

http://www.smartmoney.com/investing/stocks/Beginners-Should-Heed-4-Steps-to-Trading-Success-21253/#ixzz0hPOFHd0R

When my early purchases gave me very high yield, I begin to make even more substantial amount in unit trust.

However, I was cautious when buying stocks by myself investing in small amounts at the beginning.  The cautiousness ensure I survived.

My conviction of my belief give me the gut to average down in buying Singtel. 

On hindsight is correct, not because I am right but the market does recover.

My investment activities during this period is totally out of ignorance and is literary betting.  I did learned from the internet forum of Shareinvestor.com which is invaluable until today.

Looking back, the key factor to my survival and profitability was due to 2 critical factors:

First, I invest with “spare” money and is able to hold on to my losing investment for nearly 5 years.

Second, the nature of the market – it does recovers.

I think the diversification of holding 2 stocks purchased for me by Dave saved the day.  Chartered Semi-Conductor was a technological stock – its dropped in price was at a fast pace.  After averaging down once, I stopped as its price dropped even further quickly.  Singtel, a defensive stock, dropped gradually and it is less fearful for me to follow it all the way down.

My cautiousness and dislike for risks may have helped a little. My quest for knowledge investing may have prevented me from more foolish behaviour.

When I checked the prices of the unit trusts still in existence recently, I found most of them are not doing well.  Of the stocks I buy on my own, its trading remains illiquid and price stabilized around $4.20 – roughly about the same when I sold it in 2006.  That was 14 years ago.  This has implications when I started investment actively in 2009.

I also knew that I could not continue investing in this manner.

From my experiences with Dual Currency Investments in 2007 & 2008, I was taken for a ride by the bank due to lack of due diligence. 

I bought SPH in 2008 at its peak and before the market crash (strong signs of financial crisis).

Apart from lack of due diligence, I am reckless.  It is at this point that I suddenly realized that when my investment was doing well, I was much too aggressive. I forgotten that I am a impulsive man who lack patience. This I think continue in 2009 and by end of 2010, I am nearly fully invested.  My aggressive and impulsive behaviors have overwhelmed my usual  cautiousness.

This pig must learn his lesson.  I have become conceited with the success in my investment, thinking that I am a very smart investor and is infallible.  Believe me, my thought all these while is: it was so easy to make money from the market.  With the good returns from my investment, I have forgotten the famous phrase - " the market gives, and the market takes away".  I have stray from my defensive approach and placed myself at risks.

I will be doing a lot of readings, and need to reflect further.

Past Experiences 5 – I Survive

Lucky Escape Does Not Bode Well for the Future

It was year 2006.

On my partner’s suggestion, I sold off all the holdings brought by Dave sometime in Feb 2006 when the market recovered and split some profit of about SGD 50,000 with my partner. At the same time, I made substantial profit from the sales of my personal Singtel holdings with a profit margin of $1 per share.  This more than covered my losses on Chartered Semi Conductor.

Later in Nov 2006,   I was able to sell the balance of my unit trust holding with very good profits.

But in “taking a gain,” we are actually stopping it.

A Simple Recipe for Making Money, by Jonathan Hoenig, December 21, 2009

http://www.smartmoney.com/investing/stocks/A-Simple-Recipe-for-Making-Money/

 In fact we sold off early as Singtel climb from $2.65 to $3.95 some months later.  

You can't let the winners run if you're always cutting them off at the first possible opportunity.

Staying Open, Jonathan Hoenig, July 17, 2006 

http://www.smartmoney.com/investing/stocks/Staying-Open-19773/#ixzz0hPkgvHLk

I am still holding to Intraco today. But holding to loser is different to holding on to winners.  The stocks has not recover after more than 10 years.

Ironically, many folks who find it impossible to take a loss end up selling later at exactly the wrong time: right as the rally begins.

Taking a Loss Is Harder Than It Seems, Jonathan Hoenig, August 27, 2007  

http://www.smartmoney.com/investing/stocks/Taking-a-Loss-Is-Harder-Than-It-Seems-21730/#ixzz0hPKesf3z

Kingboard Copper (average purchase price SGD 0.60) was only sold recently at more than 50% loss.  In 2009 Charter Semi Conductor was delisted but all loss has already been taken in as all along I take paper loss as real loss.  I never learned to cut my losses.

George Soros:  It is not whether you are right or wrong that is important but how much money you made when you are right and how much you lose when you are wrong.

Luckily my “wrongs” are usually with small stakes except for Chartered and my stakes are bigger on those that “rights”, Singtel.  This is actually quite risky.  In the case of WBL, my stake was small and capital gain was better than Singtel in term of percentage – 50% versus 38%.  Stock investment is big risk and we should listen to Peter Bernstein.

He counseled investors to take big risks with small amounts of money rather than small risks with big amounts of money.

Peter L. Bernstein 1919 - 2009 Remembrances, Jason Zweig, Jun 13, 2009

http://online.wsj.com/article/SB124486041357112031.html#mod%3Dtodays_us_opinion%26articleTabs%3Darticle

A very happy pig.  As at the end of 2006, I sold all my unit trusts and stocks.  It had been extremely profitable. 

In retrospection, I was simply lucky.

Because while Lady Luck might occasionally blow on your dice, you can't build a successful investment portfolio by being "lucky."

Investing is not gambling, but if you treat it as such, you'll find the endgame — empty pockets — is quickly the same in both endeavours.

Dictums like "let it ride" or "all in" tend to make for as short a night in the market as it does in the casino.

Investing is not Gambling, Though Both Carry Risk, J Hoenig, 9 April 2007 

http://www.smartmoney.com/investing/stocks/Investing-Isnt-Gambling-Though-Both-Carry-Risk-21064/?page=all#ixzz0hOoWnJgH

Or the way I have done it is simply a recipe for failure – losing BIG.

I think so.

Conventionally, we believe that we have a lucky escape, we would continue to be lucky

大难不死

必有后福

福 Luck

But in investment, if we have a lucky escape because of indiscipline or trying our luck, we are more likely to face disaster

必有后祸

祸 disaster

There's a bit of sage advice that suggests it's better to lose money than make it the first time you buy a stock, because that instills more respect and fear than making a quick buck on the first trade.

The problem on those occasions when you do succeed using undisciplined technique is that it reinforces exactly the wrong behavior.

 Although we might promise that our lack of discipline was a momentary transgression, the fact that we "broke the rules" and yet it worked makes us more likely to repeat the behavior in the future.

And sooner than later, it catches up and knocks you out of the game.

Of course, that sort of ruin only happens when you bet big at moments of weakness rather than strength.

Indeed, it's the one time you don't wear a seatbelt that inevitably leads to disastrous results.

One reckless indiscretion will likely cost them years of savings and consistent returns.

Keep Your Investment Guard Up to Avoid Knockout, J Hoenig, 5 Nov 2007  

http://www.smartmoney.com/investing/stocks/Keep-Your-Investment-Guard-Up-to-Avoid-Knockout-22088/

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.

Past Experiences 3 - With Help

Investing with Help

The smartest thing The Pig did during the early days was to obtain assistance of a retired successful professional to assist me to invest in stocks.   My partner had lost a few hundred thousand in CLOB.  I was holding a substantial sum of funds belonging to both of us.  I was apprehensive of releasing my partner share of the funds to him.  With his agreement,  I sought the assistance of our mutual friend to get her husband, “Dave” to invest the sum in stocks for us. He was a successful professional stockbroker who stopped work before retirement age.   

Though I was not close to Dave, I assessed him to be a cautious and reliable guy.  He was active in horse racing and betting but did so sensibly and I learned, quite profitably.  To me, he is one who knew his odds. 

He was given a free hand to buy and sell any stocks for us using our account.  I will pay his broker, “WH”, directly.  That is how I come to know this wise old lady who will guide me successfully when I started actively again in buying stocks in 2009. 

On my own, I followed Dave’s purchase of Singtel and Chartered.    Through Dave, we made good money buying IPO of Chartered Semi-Conductor IPO, and another tech stock; lose some money on Ong & Company IPO and Pac Century.  He brought Singtel and Chartered Semi-Conductor in substantial amount.  I remember he told me that these should be the two main stocks we should be holding, one defensive and other more volatile.   Now I understand this is a diversification strategy.  He quitted doing this for us suddenly when we were still in the blue.  It is only after some time that I realized he stopped and I still did not know the reason to date. On the whole, the trade or shares brought though him did make  money.  I suspected it is the burden of bearing some responsibility if I lost.  I am grateful to him.  If not, the pig would already been “Cha Siu”.

I

 I recalled averaging down Singtel from $3.20 to as low as $1.30.  In the case of Chartered Semi-Conductor, I averaged down from over $5 to about $2. It went down to below $1.  The price did recover a little but far from it heyday.  The amount invested in Chartered was more than total I put on Intraco, Kian Ann and others which I brought on my own.  I suffered a huge loss of 75% of the total amount invested in Chartered. I caught the “falling knife”.  Fortunately, I did not average down at the volume which I did for Singtel.  Without the profit I made on Singtel, I will be badly hurt.  25% of my Singtel profit was sufficient to cover my losses in Chartered.

behavioural economists such as Richard Thaler and Werner De Bondt have uncovered strong evidence that regression to the mean, or something akin to it, occurs on financial markets. It occurs at both individual and aggregate levels, i.e., with respect to both individual securities and markets as a whole. Using data for the period 1926-1982, Thaler and De Bondt studied the securities of those companies whose prices over a three-year interval had either increased or decreased more than the market average. They found that “extreme returns of stocks listed on the New York Stock Exchange were subsequently followed by significant price movement in the opposite direction.”

Leithner. (15 Jun 2002). Regression to the Mean in Financial Markets. Leithner.com ,

 http://www.leithner.com.au/circulars/circular58.htm.

My confidence in Singtel lays in the perception that Lee Kuan Yew allotted Singtel shares during its IPO to all Singapore citizens allowing them to use CPF for purchases.  His aim was for Singaporean to share wealth of the country.  It is unlikely for the Old Man to let Singtel go down the drain – he cannot let his fellow citizen lose money.  I was right philosophically but, now with better understanding of the stock market, it is more likely the ”regression to the mean” of the market or a return to its fundamental value after the bubble.

Past Experiences 2 - Stocks

Going into Stocks

With this initial success with unit trust, I begin to take an active interest in stocks listed in SGX.  At that time, I knew nuts about stocks except that many people are speculating in the stock market. Most of them lost a lot of money when the Malaysian government stopped the trading CLOB shares in Singapore in 1998. My business partner who was active CLOB Shares was hit hard.  Therefore I was a little more careful with stocks.

I started using the internet platform as my source of information especially shareinvestor.com on stocks.  I actively followed the discussion in forum; picking up bits and pieces of information and knowledge on share investing. I started with mainly small caps but in small amount.  That may be reason I survived. 

I followed one guru, “Moses”, who posted regularly on shareinvestor.com and learned to buy “value small caps” especially Pertama, Kingboard Copper, Kian Ann.

The most valuable lesson I learned and agreed fully with whatever investment one made, one must be able to sleep at night.  This simply means investing with money that I do not need for at least 10 years.

  

I also brought “dormant stocks” like Intraco and WBL waiting for it to “run”.  Yes, I made as much 200% of my purchase value of WBL when I sold it in Feb 2006. I incurred paper losses in Intraco (-50% of the purchase value) and Kingboard Copper(-30%) which overwhelmed gains in Kian Ann (18%) and Pertama (10%).   

Before the sale of WBL shares in Feb 2006, I was suffering about 25% losses of my funds invested in these stocks.  It is only with the enormous WBL profit, I was fortunate to be profitable to the tune of 31% of total amount invested in these stocks.

I was simply lucky.  Like my purchases of unit trusts, I am betting on the stocks and not investing in them.  I was able to hold on to WBL for a duration of about 4 years and made great gain. 

Past Experiences 1 - Unit Trusts

Of Unit Trusts and Fixed Deposit in Ringgit

It would be fifteen years later, likely around year 2000, that I had have the funds to invest.  In the 1990s, I was very busy with my business which was doing very well.  In early 1990s, the Singapore government allowed us to use CPF funds for investment purposes.  Banks, financial advisers and insurance agents were actively pursuing Singaporeans to invest their CPF savings with them.  

Statistics showed that between 1993 and 2004, nearly three out of every four people who had invested under the CPFIS ended up worse off than if they had just parked their money in their CPF accounts. It is believed that these Singaporeans got burnt because of a lack of financial education.

http://www.asiaone.com/Business/My+Money/Building+Your+Nest+Egg/Investments+And+Savings/Story/A1Story20071010-29246.html

My earliest experiences were buying $5,000 worth of UOB Regional Growth Funds in 1995 using my CPF. I am still holding this fund today.  The fund did more than double in price in 2006 but in recent two year ranged from 105% to 140%.  After 15 years, this is disappointing.   So much for buy and hold approach.

I used UOB predominantly for my business and personal banking needs.  Most of my Unit Trusts were products of UOB Assets Management SIN. These unit trusts were bought between 1997 and 2001. Flush with cash in the bank, I invested in unit trusts, stocks and currencies based on friends’ and bankers’ recommendations. 

My first major purchase of UOB European Equity Fund in 1997. It increased in value substantially after a short time. It looked as though it was so easy to make money buying unit trust.  The difficulty I faced was trying to sell as high as possible.  As a result, I was very confident.  The overconfidence was reflected by a 6 folds increase in the amount of fund I placed in unit trust between Feb 2000 and Apr 2001.
 

兴奋

Xīng fèn

be excite
急起直追

奋起,激动

因好奇心而变得兴奋起来

控制不住自己的感情

 

The riskiest moment is when you're right. That's when you're in the most trouble, because you tend to overstay the good decisions. So, in many ways, it's better not to be so right. That's what diversification is for. It's an explicit recognition of ignorance.

Zweig, J. (15 Oct 2004). Peter Bernstein Interview. CNN Money, http://money.cnn.com/2004/10/11/markets/benstein_bonus_0411/index.htm

At about the same time, in early 1997 the interests on Malaysian Ringgits had increased very much to 10 to 15% per annum.  On the suggestion of my business partner, we changed our SIN dollars into Malaysian Ringgits to place in fixed deposit to get The exchange rate was about SGD 1.00 to MYR 1.70.  We were not aware of the risks at all.  When Mahathir imposed capital control, we lost at least 40% of our funds.

亏损到屁滚尿流

Lose until shit and urine in the pants

Actually, it was not so bad as we are able to bear the losses.