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Excuse me, are you an investor?

Monday, February 1, 2010

We have heard many times the advice that we should diversify our investments to minimise risk.  For those of us who have read books about Warren Buffett, we would also remember something along the line that diversification is for the "know nothing" investor and for the "know something" investor Warren Buffett, when he identifies something good, he goes in big!  He doesn't diversify, he concentrates!  



Of course, this is probably viable for us if we were in the same league as Warren Buffett and, of course, if we were in the same league as him, I wouldn't be blogging here and you won't be reading my blog.  

Maybe, there should be at least two more categories of investors: the "know a bit more" investors and the "know a bit more than a bit" investors.

I started out as a "know nothing" investor in my university days and would buy anything analysts recommended.  Chasing after the flavor of the month was a regular exercise.  I would be very happy if I made money and would be very sad if I lost.  

I had no technique to speak of and did not employ FA or TA.  I did diversify since I must have had more than twenty different stocks in my portfolio at any one time.  Did that help to reduce risk?  I think not. 

I was constantly worried about whether my stocks would make or lose money.  I didn't know what they were doing most of the time.  I would jump at the slightest noise.  Now, I'm sure just reading this short paragraph has stressed you out.

A couple of years after graduating from university, I did a diploma in business administration.  One of the things I had to learn was financial accounting and that started me on FA.  I became a "know a bit more" investor.  

My portfolio was still very diversified and it had many counters brought forward from my "know nothing" days.  It was really time consuming to go through every stock and much of my FA was half baked.

I then read somewhere that if we had more than 10 counters in our portfolio, that's too many.  That made sense.  

I tried to rationalise and drop some counters which were non-performers or loss makers. I tried to concentrate more of my resources in blue chips: ST Engineering, SPH and SFI are some that I do remember.  

I also loaded up big time on Capitaland at one stage but sold way too early because a friend painted a vivid picture of how the property market would not do well then.  Lesson to take away from this: if you had done your FA well, hold with conviction and if you were not able to do this, hedge by halving your exposure, not abandon the entire position.

I decided that I was "kiasu" but I was also "kiasi".  So, strong dividend payouts became a big plus for me. I went in big time on REITs and other forms of trusts for the same reason, attracted by the high yields.  I also lost big time because of REITs and other forms of trusts in this recent financial meltdown.  Lesson to take away from this:  if someone just talks about high yields and big discounts to NAV without ever mentioning gearing, make it a point to question him or find out for yourself.

The immediate past financial crisis was in many ways the turning point of my life as a stock market investor.  Burnt badly, I decided to beef up my FA and to learn TA.  I became a "know a bit more than a bit" investor.  What this means is that I became a bit more rigorous in my FA, depending on myself more than ever compared to listening to other people, and started using TA to find fair entry and exit points. 

I decided to extract the bad investments made in the past and put them in a frozen portfolio as a constant reminder of what I did wrong as well as the type of people I should be wary of.  I have another portfolio of good investments from the time before the crisis and a portfolio of new investments. 

I am still as "kiasi" as ever and still want to generate a reliable passive income stream from the stock market with less risk.  I would be very happy once I am able to achieve a passive income stream of 100k a year from the stock market.

Being "kiasu" as well, I want to grow my wealth more rapidly and in my portfolio of new investments, I am actively trading stocks of only three counters and, yes, you guessed it, they are Golden Agriculture, Healthway Medical and Saizen REIT.  Well, I guess I am trading more the former two.  I have been accumulating units in Saizen REIT and have not sold any yet as I believe that it is still too cheap. 

For the first time in years, I am spending less time monitoring my invesments. I do not have to actively monitor more than the usual three stocks on a daily basis.  Any time I spend doing FA, most of it is devoted to these three stocks and that gives me enough confidence to put much of my cash in them and because I put much of my cash in them, I am more careful in monitoring them.  It's a loop!  

I am not suggesting that you follow my style.  I am just sharing with you what has worked for me and what has not.  

For sure, I am far from being a "know something" investor like Warren Buffett.  I do not think I will ever move on from being a "know a bit more than a bit" investor but this is enough for me, for now.


Related posts:
1. Grow your wealth.
2. Rationale for divestment.
3. Monitoring our stocks.
4. 101 investment choices.

17 comments:

CL said...

Thks for sharing your past experience with us, been my before bed habit to read up your blog for weeks now. Really like your blog and your unselfishness with us. If you remember i only started buying from Dec, 1st was magnus with 70 lots which is stuck there. 2nd was healthway when i visited TTSH for my check up and saw that piece of land. Then decided to do more data collection and found your blog. Really hope you can continue this blog in time to come and trust me you always have 1 supporter. Maybe can do up a paypall then those that earn can do a donation? also a passive income for you to hit ur 100k p.a. :)
cheers and many thanks for your pointers and guidance. Really appreciate it.

Anonymous said...

Good post. Thanks for sharing.

AK71 said...

Hi CL,

Thank you for being a regular reader and the words of appreciation. Even though this is just a personal investment blog and I'm not after readers' approval, it is nice to be appreciated. :)

I am happy that you made money on Healthway Medical and trust me when I say that we were lucky as well. Even though I think the business is sound, without the coverage by DMG (which I still think was a bit too optimistic with a target price of 28c), it would not have moved so quickly and by so much.

You mentioned a piece of land when you visited TTSH. Has that anything to do with Healthway?

When I started this blog, it was really an impulse. I was feeling bored last Christmas Eve and decided to go find out what is this blogging business all about and, now, I'm hooked. It is my latest hobby! So, I think I would continue to blog for some time to come. :)

As for installing a widget on my blog to accept donations through PayPal, I actually saw something like this on another blog. Quite clever, I thought. I would be nice to blog and make some money at the same time. That's why I also signed up with "Ads by Google". If visitors find the ads interesting and click on them, I'm doing a service and getting paid as well. The PayPal widget, I will consider in case this hobby grows to be more than a hobby. If you really feel strongly that you want to make a donation to me in the meantime, I could email you my POSB Savings Account number. Kidding! ;-P

Have a good week. :)

Anonymous said...

Dear AK71

I have been following your blog since Jan 10 after being introduced by my trading partner. It is objective and informative. I am a new full time trader, only 9 months old after my last retrenchment. I am still learning and trying to understand TA. I wonder if you can help me look into Indofood and Straits Asia in which I have loaded and struck substantially now. Thanks.

Regards

Blackbird

AK71 said...

Hi Blackbird,

Full time trader, that is what I would like to be one day. Well, I am more interested in being a full time investor but the difference is probably fuzzy anyway. I am so envious of you. :)

To be a full time trader, yes, TA is more useful than FA since you have to read the mass psychology of market participants. I am not the best TA person around as I only use it once I am happy with the FA of a company. If the FA failed to impress me, I don't bother with the TA.

I actually rejected a request by another visitor here to do a TA for IndoAgri not too long ago. The person wants to trade the market but has not bothered to pick up TA. Over the longer term, I am not doing him a favour since he will never learn the ropes.

I am quite happy to provide my opinions of your own TA of IndoAgri and Straits Asia if you have done some initial charting so far. Would you like to share your readings?

Another visitor to my blog, Zac, asked me some questions regarding his TA on Saizen REIT recently and I shared my ideas with him.

So, let's learn together. Yes, I'm still learning. :)

CL said...

Speaking of which any books to intro for me to kick start? know nuts about TA or FA?? As for your POSB account HOpefully I will get it from you someday. :) And i am one of those who's clicking your links. :0

cheers

AK71 said...

Hi CL,

The books in the box you find at the top right hand area of my blog are books which I found very useful and easy to read. Try those out. Amazon.com's prices are quite good but, of course, you have to factor in postage charges and see if it's cheaper to buy from them or from the local bookstores. I think Amazon.com provides free postage in certain cases. Thanks for the support and happy reading! :)

Anonymous said...

Dear AK71

Thank you for replying my mail.

I must first admit I am very new to TA and therefore my skills are very limited. Here's my observation. Straits Asia (SA)looks uptrend from candlestick chart though it had lost most the ground it had recovered yesterday. News is that the company had new contract with India, that was why it surged up yesterday. It broke the 90days resistance, so today I bought some more when people took profit. As for Indofood, its a doji today, good that it recovered to its opening price with gd volume. In addition, Golden Sach upgraded to Strong Buy TP $3 in view of improving financials and CPO prices. I am monitoring the counter now. My average for Indofood is about $2.40 (80lots), and SA is about $2.6o (70lots). Rather strucked with the position. Kindly give me your comments. Thank you.

AK71 said...

Hi Blackbird,

I am guessing you are Blackbird as you did not sign off. ;) Ok, my two cents worth:

Straits Asia: Longer term negative divergence between price and volume is quite obvious. This is not promising. The negative divergence is more obvious in the weekly chart. Unless there is a meaningful expansion in volume of trade coupled with an upmove in price, the negative divergence is unlikely to be corrected soon. This does not mean that the price will crash but it does mean that any big move in price upwards is less probable near term. In the near term, it is still possible to make money from trading the counter since the MFI has bounced off the border of the oversold region. Over the longer term, I do not see any compelling signs to buy into this counter. If you draw a support line connecting the lows of 13 July and 2 Nov 09, you will discover that this line coincides with the rising 200dMA, which is at $2 at the moment. That the price of this counter has bounced off this line twice before suggests that entering at a price closer to this line is more sensible. When you do that, let me know, I might buy some too. ;)

IndoAgri: In terms of charts, this looks better than Straits Asia. You see how the price has been trading above the 100dMA? It suggests that the 100dMA is an important support for this counter and entering at a price closer to the 100dMA is rather safe. That's at S$1.95 thereabouts. MFI has risen out of the oversold region which suggests some buying momentum returning. Short term, we might expect some weakness as the 20dMA has completed its downward turn and is now falling. Initial resistance is at $2.16 which is where we find the rising 50dMA. This price happens to be a many times tested candlestick resistance as well.

Remember, knowing when to buy is only half the equation.

Harry said...

Hi AK, I am just restarting my investing quest. I got badly burnt when I bought stocks blindly when I just opened my brokerage account. Since then, I have been avoided the stock markets. But recently I have picked up some books and joined a seminar which gave me the confidence to start investing once again. May I know which brokerage company do you personally use for yourself and where do you obtain your TA tools ? May I know is subscribing to shareinvestor.com a good start for a newbie like me?

AK71 said...

Hi Harry,

I like Lim & Tan. They also integrated the charting software from ChartNexus which makes it convenient.

As for Shareinvestor.com, I have not found the need for it. :)

Question your motivations for being in the market and plan accordingly. Are you going after capital gains or income or both? You could pick up TA or FA or both to help you on your way.

If you explore my blog, you will find some blog posts on TA and FA. I hope they are useful to you. Good luck. :)

Harry said...

Hi AK, I intend to invest in stocks for capital growth and passive income. I was recommended by a fellow blogger to save up money and to buy blue chips. May I know if you agree that it is the best way to start off as a newcomer or shall I also set aside some funds to dabble with Penny stocks?

AK71 said...

Hi Harry,

I would say that as a new comer to the stock market, the thing to do is to get educated first. :)

Not all blue chips are blue blooded. There were some blue chips which became blue black chips. ;)

We might think that as long as a company has Temasek Holdings propping it up, it should be OK. Look at what happened to SCS and Chartered Semicon.

So, I would not give you any advise on what to buy right now. I would advise that you read up on FA and/or TA and do some research on the companies you are interested in. The stock market will always be there. No hurry. :)

Harry said...

Thanks for the advice, I have bought a book from your betterworldbooks.com link, its great to invest in yourself and help those in need at the same time. Cheers!

AK71 said...

Hi Harry,

Thank you for helping to fund literacry and saving the environment. :)

When you are comfortable enough to explore more, I would recommend the following books as well:

1. Michael Kahn's "Technical Analysis Pure and Simple".

2. "Warren Buffet and the interpretation of financial statements." By Mary Buffet and David Clark.

Happy reading. :)

Solace said...

Hi AK,

Wish that i have seen this earlier. Saw it on facebook page and decide to comment here lol. Maybe i should a solace face bk account to interact with you hahaha.

I too, have make quite a few mistakes in choosing stocks. These mistakes are highlighted in Red on my excel sheet. The neighboring column would explain why it was mistake to invest in it. This Serves as a very good reminder to myself.

ALways believe many roads led to Rome, find the path that best suit one's situation and conditions.

AK71 said...

Hi Solace,

This blog post is just a bit of trivia about myself. No real value in reading it, I am sure. So, you didn't lose anything by reading it now and not earlier. ;p

Starting a second FB account account sounds like a good idea. Haha.. :)

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