Thursday, January 21, 2016

Lessons Learnt in this bear market

Sleep has been getting better. Surprisingly, i managed to not buy anything for the last 3 days. Is this the sign of investor fatigue which i need to be contrarian about against my own behaviour? As of today, total unrealized capital loss is 7.7 %. I am actually getting pretty ok about the further capitulation of the stock market as it just means there is less risk if i were to buy further but lets see how long i can be on cold turkey.
Lessons learnt
1) The role of bonds.
I have come to appreciate the presence of  retail bonds in my portfolio. Nearly all asset classes available to the common retail investor will fall in a bear market ( except US treasury bills, USD,JPY e.t.c) but unleveraged non-junk retail bonds will fall less. My bonds act as a stabiliser, it dampens returns in bull times and dampens losses in bear times. As of now, my bonds could be sold to add to my cash warchest, having helped me earn a higher rate of return as compared to fixed deposits in the past 5 years of ultra low interest rates . Now, the US Federal Reserve increasing rates is something i need to watch out for as it will affect my bonds.

2) The role of sentiment.
As much as fundamental analysis is important, the role of sentiment  is equally or even much more so. I really like the article written by Howard Marks of Oak Tree Capital recommended by investmentmoats and there is a sentence that says" a common behaviorial trait among investors is their tendency to overlook negatives and understate their significance for a while, and then eventually to capitulate and overreact to them on the downside..". I am now waiting for the overreaction patiently.

3) My psychology
I know for a fact that making a return of $50,000 brings me less joy than the "xian-ness" of losing $50,000. A terrible mistake is the failure to apply this knowledge. I must now keep telling myself, it is never a wrong time to take profits. NEVER. Forget the shit of selling for a profit and later regretting when the price shoots much higher. A profit is a profit.

4)The importance of market cycle investing
Warren Buffet said " Never fall in love with your stocks". I read but didn't internalize. Shit man. He is darn right. but of course. Buy and hold is quite a buzzword but does one really know what it means? Market moves in cycles, it had, has been, will always forever move like that. This is just nature. I fell in love with my stocks and now i'm dumped! I have to thank the late Dennis Ng for his knowledge shared in his forum, Masteryourfinance.

Anyway, if my memory is right, i remembered 2008/ 2009 we saw asset managers like Franklin Templeton, Schroders selling en mass, daily or weekly as their unit trust holder panicked but i don't see it this time which may explain why i'm not as calm and collected this time as i was then. This might be a long drawn process, no hurry to buy, so lets go to sleep , life goes on....


3 comments:

  1. Don't curse Dennis Wee! He's not dead yet lol

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  2. 1. bonds are not terrible. there's a time and place for them. I am still waiting for the time to overload on bonds but for now, they are just short time stabilizers to me.

    2. 'sentimental analysis' is understated or underestimated. most people know it only as technical analysis. (http://singaporemanofleisure.blogspot.sg/2016/01/what-do-i-fear-most-as-retail-investor.html#comment-form) (http://www.kennybastani.com/2014/09/deep-learning-sentiment-analysis-for.html for an idea)

    4. buy and hold is not wrong. but it is just a tool and doesn't apply everywhere. (observe: https://sg.finance.yahoo.com/echarts?s=BRK-A#symbol=BRK-A;range=my can this be wrong?) just using a hammer and treating everything as nail is just investor laziness. (http://singaporemanofleisure.blogspot.sg/2016/01/what-do-traders-fear-most.html?showComment=1453687230891#c7399917344335065317)

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