Investing with Prudence
Emotional Challenges to Rational Investing - Part 2
This is continuation of the piece I wrote a few days ago.
Having lost so much, I was naturally very disappointed. It was not just the loss of money that mattrered. It was also damaging to my psychological wellbeing. It dented my my self confidence, my ego and my trust in the financial system and the people around me. I even began doubting the financial and market theories that I learned in school and had believed so much before.
Some fundamental issues cropped up in my mind. How could some companies lose 70% or 80% of their values in such short periods.
How could perceptions about those companies change so drastically?
How could they sink so deeply into financial troubles? How could they get into such difficuties so suddenly and so easily?
Where were the auditors?
What was the boards and audit committees and the regulators doing?
Where have the investment analysts - who sang loud praises for these companies before - gone to?
And most important - how could all the 'safety valves' fail all at once? Not in one single company - but in a few - over just a brief period?
It was scarcely possible that these were simply only business failures. As much as it takes time to build a successful business, it also takes some time for a soundly founded business to fail s badly. Even when they do, there would have been tell tale signs of the impending failures. The boards, the auditors, the regulators and the analysts would have been able to smell the rot.
My confidence in the system vanished. It appeared to me that there were probably a group of smart and skillful people collaborating and preying on the small and trusting investors. I am not alleging any breach of laws or any elements of criminality here.
I am just saying that a retail investor should not simply assume that all parties in the market will do their best to take care of his interests. No regulation is perfect and no enforcement is faultless. There are gaps in both and certain parties may take advantage of these gaps in pursuit of their economic interest. Small investors should indeed expect these to happen. The investors should come into the market with the assumption that anything that could go wrong will indeed go wrong.
The capital market has come a long way since then. There were new regulations, new institutions, new requirements that could enhance the interest of the investors. The environment is now, I believe, much better. I followed these development and I saw that the capital market had grown from strength to stregth. After about ten years, I decided to return - still injured, depressed and doubtful.
I now knew my 'financial literacy' alone would be extremely inadequate. Even if I could fully understood financial statements and analyst reports about a company (which I never did!), it is not enough to form a sound judgment on its future prospects and estimate its fair value. In many stuations, what were not said in those reports are probably just as important as what they loudly stated.
I decided to seek new understanding about the capital market. I knew I had to dig and find wisdom and guidance from others.
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By your standard, if you can lost 70 or 80% in a single counter in 2002, believe me, you will not survive 1997/98 onslaught..........
2017-11-08 17:25
I am a ca and cpa. I know 1997 and 1998 was worse. I wasn't investing very much then. So my losses were naturally not much in absolute terms
2017-11-08 17:27
Your Part 1 & 2 sound very typical & standard, I believed many retailers went through the same path & process also. I have been through the same process. Looking back at our own experiences sometime will make us laugh at own self - how could we made such a silly decision years ago.
If your experience stalled at part 2, you got a lot more of walls to bang . However, from your writing, it doesn't sound your experience stalled. Please continue with your other parts.
My silly investment decisions strategy years ago :-
1) buy on tip . the downfall - the tips were traps, you went in, insiders offloading.
2) buy on news . the downfall - after major contract announcement, it takes years to realize the profits, insiders selling / offloading on news announcement knowing that the rise will be short live / the rise have priced in the future potential gain.
3) buy based on analyst report - suddenly become very hardworking reading newspaper column / The Edge, attend talks & seminars by IB. Niamah - only 2 of the 10 counters average gained, the rest stagnant / decreasing over time. Initially got rose la but shortlive & not sustainable. Similar to your experience, after thing turn 180 degree, beautiful analyst reports can be revised to become as smelly as shit. ( Masterskill & JCY )
4) after 3) did work, you will keep on working harder. Somethings must have went wrong. You went online & started to join forum & blog - your intention, you must be ahead of 1),2) & 3). You then started to follow the "sifu" in the forum. The "sifu" making the most money by declaration or help other forumers made good money before, you will follow 100% without any question. Down fall of this - when the "sifu" turned demon, accidentally or intentionally picked up lemon , they themselves looking for exit, they ask the followers to support. That time still fresh mah, who dare to go against "sifu", don't know what is lemon & what is not, so obediently follow without head & tail. When price keep on dropping, keep on asking "sifu" how come price no up? "sifu" will said patiently , sang Warrent Buffet strategy - buy & hold long term. If not, the "sifu" never put gun on your head to buy will be quite popular defense statement by other followers. When other forumers started to give valid different opinion which was making the counter vulnerable, you will start to panic & counter attack to protect you interest ( your 2 foots already inside ), die die defend like crazy ppl daily. End up - "sifu" went missing , you went to holland.
5) after 1 to 4 failed, you will started to be emotional. You digged a big hole & you was thinking how to recover this losses as fast as possible. The faster you want to recover, the faster you sink inside the quick sand / magnify your losses.
wah....if continue like this, my grandfather stories cannot finish. You continue your parts first, I got time , I come back chui sui later
2017-11-09 22:34
What u said is largely true. U seem to have plenty of experience with our market..
2017-11-10 07:15
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
ks55
Curious to find out what qualification you have?
Accounting degree?
Finance degree?
Economics?
CFP?
CIMA?
CA?
CPA?
CFA?
And how long were you actually in the market continuously?
10 years? 15 years?
To be good at market, you need to possess:
1. knowledge
2. skill
3. experience
4. discipline
I believe those who had gone through 1987, 1997/98, 2002, 2008/9 will strive and will not blame market forces, regardless mere presence of certain characters who use to con public in general...............
2017-11-08 17:22