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"E-book" by AK

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Revisiting AK's simple strategy with Charlie Munger.

Monday, July 7, 2014

Readers who attended InvestX Congress last month would remember that I quoted Charlie Munger:

"It takes character to sit there with all that cash and do nothing. I didn’t get to where I am by going after mediocre opportunities." Charlie Munger

Lesson #1:
We always need a war chest.

Lesson #2:
There will be great opportunities to make money. Be patient.

Progressing from this, readers will also remember that, at the event, I attributed the moderate success I have had in my stock investing journey to my inclination to take a look when there is blood on the streets.

"When there is blood on the streets, go take a look lah," AK.

This is, of course, a Singlish version of what Sir John Templeton said, "buy when there's blood in the streets". Like my fellow blogger, SMOL, I borrow with pride.

AK is a frog in a well.

"... know what is the best way to make money from the stock market? It is to buy at the depths of a bear market when even the best blue chips are bombed out. During the GFC, I bought many more units of First REIT at 42c and LMIR at 18.5c. During the deep correction at the end of 2011, I bought more AIMS AMP Capital Industrial REIT at 95c and Sabana REIT at 86.5c. There are many such examples.

"However, without any money put aside, there is no way we would be able to take advantage of opportunities to buy on the cheap! Indeed, we might not even have to wait for a bear market to buy bombed out stocks as mispricing by Mr. Market could happen anytime and my large purchase of units of Saizen REIT at under 13c per unit middle of (2012) is a good example."

Source: Achieving $1 million in retirement funds.

To cut losses and to sell out of fear then would have been a terribly wrong thing to do. Not having a war chest ready to take advantage of the opportunities would have been a terribly regretful situation.

"If you took our top fifteen decisions out, we’d have a pretty average record. It wasn’t hyperactivity, but a hell of a lot of patience. You stuck to your principles and when opportunities came along, you pounced on them with vigor." Charlie Munger

Remember, we do not have to be 100% invested all the time although it is easy to feel a bit left out or a bit regretful that we are not putting more of our money to work as stock prices climb higher. Now, it might not be a bad thing to have a war chest full of cash and not do anything with it.

"There are worse situations than drowning in cash and sitting, sitting, sitting. I remember when I wasn’t awash in cash and I don’t want to go back." Charlie Munger

By now, my war chest is quite heavy and this blog post is to remind myself that patience is a virtue.

Related posts:
1. Journey to financial freedom needs preparation.
2. To retire by age 45, start with a plan.
3. The mystical art of wealth accumulation.
4. Three points in stock investing.
5. AK71's simple strategy (Sep 2012).

13 comments:

seefei said...

LOL... we are bombarded with too much message of "Make your money work harder" by the banks. So it seems like a cardinal sin to let $$ sitting around and doing nothing.

Singapore Man of Leisure said...

AK,

Yes it's sad to belong to someone when the right one comes along...

;)

AK71 said...

Hi seefei,

We must always question why people say things that they do. In the case of financial advisers working in the banks, the reason for their enthusiasm is quite easy to understand. ;p

Whenever I visit the banks to place money in fixed deposits, I would get myself psychologically ready to do some sparring with the bankers. Some were more knowledgeable than others but none of them had ever bothered to try to understand if I actually needed the something they were trying to get me to sign up for. :(

AK71 said...

Hi SMOL,

Too profound! I blur! -.-"

You have to forgive me as my IQ has this strange tendency to plunge quite drastically in certain situations. I also dunno why. :(

Sanye ◎ 三页 said...

Hi AK,

Thanks for another enlightening post.

I remember you like Chinese saying, so this one describes how a patient investor should be: "静如处子,动如脱兔“。

AK71 said...

Hi Sanye,

I am still working hard to improve my proficiency in the Chinese language. Thanks for the contribution. ;p

Glad you enjoyed the blog post. :)

seefei said...

Just sharing the action i had taken after reading AK post on using the CPF as war chest.

I cleared the shares in my CPF account and actually waited for a good opportunity. It came in the form of the announcement of the split of Fraser property from F&N.

With the spare cash in the CPF account, i actually bought ten lots of F&N at 5.71. After the split of Fraser pty and capital reduction, the return is 26% on my initial capital investment. I am sure there will be more goodies coming after the listing of the Fraser HT.

I truly believe in a war chest. You will never know when opportunity knocks...

AK71 said...

Hi seefei,

Congratulations! I am very happy for you. Huat ah! :D

Singapore Man of Leisure said...

AK,

Chill.

It's just some lyrics to a song.

I'm sure those we were married to their stocks in 2008 wished they were single and available when 2009 came ;)

OT83 said...

Hi ak!

My hand always itchy! Bad hand! Thanks for reminder!

Now everyday I trying to curb itchy hand! So far 30% vested. But maybe my 100% is only your 1%.

How to cure itchy hand?

Reminder! 小不忍则乱大谋 :)

Beating my itchy hand
OT

AK71 said...

Hi SMOL,

Haha... OK. I am not too much of a music and song person. You are the bard. I am the cleric. Remember? ;p

Thanks for explaining to me. I get your drift. ;)

AK71 said...

Hi OT,

I am closer to 70% invested now which is still comfortable for me. So, it is just a matter of waiting for opportunities, I guess. :)

Hey, thanks for contributing another Chinese phrase to help me expand my vocabulary. ;p

AK71 said...

From a reader:

I like to use Google Stock Screener
, for a quick snapshot,
without going too much into things like annual reports, etc. I think it
works for me at my level now. But I wanna know what are the criteria that
you would set in determining a good stock to buy.

For instance - pardon my greenhorn assumptions here - I'd take the
following values:

1. Dividend yield - because I'd like for my returns to at least beat the
inflation rates, hence at least 2%.
2. Dividend per share - because I'd to at least earn 1 cent from the stocks
I buy
3. EPS - to ensure that the dividends are at least paid out of their profits
4. Last price - mainly used as a yardstick to see what I can comfortably
afford, starting with $1,000 for now, if I were to put in a position
immediately
5. 52w low - to gauge how far off is the buying price now as compared to
the lowest it has traded for the past year, in case I'm waaay off
6. P/E Ratio - not entirely sure how to fully utilize this but I see it as
the investors' confidence in the stock (somewhat intangible, which I don't
quite like)
7. Market Cap - another indication as to how vested investors are in a
particular company

I know you would either be shaking your head (and saying no, this is
absolutely the way NOT to screen a stock) or maybe, there's a chance that
I'm 0.1% on the right path and just need more in-depth refinement.

But whatever it is, I just wanna know what will you be looking at in
choosing a stock.
--------------------

AK's reply:

I am going to borrow from Charlie Munger:

"You need a different checklist and different mental models for different companies. I can never make it easy by saying. ‘Here are three things’. You have to derive it yourself to ingrain it in your head for the rest of your life."

It is hard for me to share how to pick stock in an email. I just do a lot of talking to myself in my blog. ;p

I will say that you are taking a step in the right direction. :)

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