Position sizing, war chest, volatility, nibbles and gobbles. (What to do as the Yuan devalued and stocks crashed?)

I have been inundated with messages in various forms from readers on how depressed they are or how they are in distress over the state of the stock market. 

There is something I say from time to time and I am pretty sure I have said it in my blog somewhere before:

"Investing in the stock market is like getting into a relationship with another person. If we expect it to be only a bed of roses, don't bother. There will definitely be rough patches."





So, during good times, everyone is happy. During bad times, those who are still able to keep their sanity and even stay quite happy are the ones who have 

1. appropriate psychology, 

2. appropriate money management skills 

and 

3. appropriate investment allocation framework.

Recently, on FB, I shared how a reader accused me of not sharing important ideas on position sizing until quite recently.

I have more than 2000 blog posts spanning a period of almost 6 years and it was quite possible that the reader might have forgotten more than a thousand of my older blog posts.

Anyway, this was what I shared:

Chatting with a reader in FB, he said that I only started talking about position sizing last year. Why didn't I talk about it sooner? Apparently, quite a few people bought stuff I talked about and some "showed hands", if you know what I mean.


Only last year? I don't think so.







Anyway, I searched my blog's archives and went through the 2,000+ blog posts. I am sure I talked about position sizing from time to time in my blog's early years although I might not call it "position sizing".

Well, my blog was founded in December 2009 and here is a blog post from February 2010:


See: "It is, quite simply, a question of proportion."

Only last year? Definitely not.

This leads me to how I recently had two blog posts which were basically conversations I had with two readers who were feeling rather despondent. They were just two of several emails I received from readers but they are enough to give us an idea of how some investors might be feeling now.






In both of my replies, I advised that they might want to consider "Eating Bread With Ink Slowly."  (See related posts 1 and 2 below.)

I also received messages asking me what am I looking to buy, what am I buying now and whether I am nibbling or gobbling? Well, I have side stepped most of these questions. 

This is a blog, my blog. I am merely talking to myself but people follow my actions and I have been stunned before by what some actually did and, later, said.

Don't understand what I am saying?

Well, it is like someone who decides to get into holistic living but because eating right is the least demanding bit about holistic living, that is all he decides to do. 

Then, he picks what he likes about eating right and it becomes eating wrong. 





Why do some people who eat a bit of junk food now and then look healthier than he does, he wonders?


See what I am trying to say?


I invest primarily for income. Investing for income has provided me with a passive income stream during good times and bad times. It is very comforting and that definitely helps to keep me sane.

I have invested in some stocks which have not done as well in terms of their stock prices but if their businesses are humming nicely and if they continue to pay me, I am happy enough.





I have invested in some businesses which are facing tough times but because I have sized my investments in these businesses according to my own circumstances, even if it would mean a total loss, if it should happen, it would not be a financially crippling experience.

I know what I am buying (most of the time). So, I am quite comfortable even if their stock prices go down and, in some cases, I am even looking to buy more.

So, what have I been doing?

Well, I have been nibbling some of this and some of that. Why? 

With lower prices, some stocks looked more attractive. What if prices were to go lower? 

Then, they would look even more attractive or were you expecting me to say that I would go into a depression?

Of course, prices could go lower. However, prices could also turn and go higher.





Our job is not to anticipate what Mr. Market is going to do although I try to engage in a conversation with my schizophrenic bowling ball from time to time. 

Our job is to have a plan on what to do if Mr. Market should do something. So, if something were to happen, we act. 

We can prepare but not predict. So simple, right? Simple but not easy for many.

Let me see if I can throw some light on the matter.







In market corrections, we might want to nibble if we think stocks look relatively attractive. 

Corrections are defined as declines of less than 20% from the top and prices move higher after corrections. 

What we saw up till the last trading session could be a correction. So, selectively buying made sense to me. 

If prices were to recover and move higher, good for me.

What if it wasn't a correction? What if prices were to move lower and we moved into bear market territory which would be a decline of more than 20%?





Well, then, we would be glad that we had been nibbling and not gobbling. Then, we would be glad that a big portion of our war chest is still intact. 

Our nibbling activities should not have consumed more than a quarter or a third of our war chests.

In a bear market territory where there are plenty of screams and cries of blue murder, where there is plenty of blood flowing in the streets, this is where we might want to sit tight and wait for the dust to settle. 

There will come a time or a few when the quiet returns.







Then, we might want to go and take a look. Of course, if we still have some funds left for nibbling and would like to nip into the streets while the blood is still flowing, that is OK too. 

Hey, who am I to deny anyone their spirit of adventure?

In closing, I would say that for those of us who get heart attacks from seeing prices plunging, we are probably more into prices than values. 

It could also be that we have been bad with money management and used up all our war chests too early. 

It could also be that we have sized our positions badly and we are stuck with having too much of one bloody stock (from bleeding and not profanity). 

You know what I mean?





Whatever it is, look at a bad situation as a learning experience and try to do better henceforth.


Alamak, have I been talking to myself again? 

I am so sorry.

Related posts:
1. Feeling depressed about paper losses?
2. Anything uplifting to say as stocks bleed?
3. Nibbles, gobbles, values and prices.
4. Be comfortable with being invested.
5. Managing exposure in investment portfolio.

UOB, DBS, Citibank, HSBC, SG50 notes and the folders!

I was actually quite happy to wait until the fervour dampens before going to get my share of the SG50 notes. Then, a reader posted this on my FB wall:

OMG! Like this also can? Are the folders made of some precious metals? Is our country's budget in such a bad shape that we could not produce more folders? Must we get the President to unlock our national reserves to do this?

Anyway, not to take any chances, I took leave from work and went to a shopping mall where I knew I could find a few of the banks which are doing the exchange of notes.

I went to UOB. "Sorry, sir, we are out of the folders."

I went to DBS. "Sorry, sir, we are out of the folders."

I went to Citibank and got quite an experience.

Bank officer (and let's just refer to him as "BO" for the sake of economy and not because he was giving off some repulsive aroma): "Are you a CitiGold member?"

AK: No. I just want to change some SG50 notes and get the folders.

BO: Are you a Citibank savings account holder?

AK: No. I have a Citibank credit card though.

BO: Sorry, you must have at least a Citibank savings account to exchange for the SG50 notes.

AK: ....... (OMG! KNS! Simi LJ?!)

If I wasn't in such a rush to go to HSBC to try my luck next, I would have given the BO a piece of my mind!

I did a piece for my imaginary GE rally in the last blog post. This time, it is a piece for my imaginary speech in Hong Lim Park:

"The SG50 notes (and the folders) are produced by our country and Singaporeans have priority to get these. The SG50 notes (and the folders) are not owned by Citibank! They are here because of taxpayers' money!

"What do they mean I couldn't get the SG50 notes at their branches because of some house rules they came up with? I just had to produce my IC and they should allow me to get the SG50 notes!

"No wonder people call them "Shittybank". That's it lah. I am cancelling my Citibank credit card. They can stuff the card up their XXX where the Sun doesn't shine.

"If they tidak kamwan to do this, don't. Otherwise, make sure to do it in the right spirit and that is to serve all Singaporeans equally and whole heartedly.

"Simi Shittygold customer or Shittybank savings account customer then can be eligible. Pui! Just because of what happened today, I will never ever be a Shittygold customer!"

Crossing fingers, I went to HSBC. "Sir, please fill up this form and join the queue. Folders are still available."

Wah! WAH! WAAAAH! Happy like don't know what!

I saw people who were already holding two folders in their hands in the queue in front of me. So, it is true that some people just keep rejoining the queues. Alamak!

Then, I heard the teller advising one such person that as it was her second time collecting the folders, she would not be getting the folders the third time. Good on you, HSBC!

After today's experience, HSBC has been upgraded a couple of notches in "AK's Bank Ranking Table". Citibank has been downgraded to a level so low in a chasm that we would need a searchlight to see even a hint of them. DBS and UOB, ok lah, since this is SG50, I "pang chance" the two of you.

Hey, you say simi? Simi nepotism?

So, if you are a Singaporean, don't think you have plenty of time to get the folders. Go and do the Singaporean thing now.

30 minutes in the queue to get these at HSBC.

I just got this SMS from a friend a while ago:

Go and queue now. Now, I tell you. Now! Otherwise, you will have 50 years to repent.

Related post:
Could long queues for SG50 notes have been avoided?

20 million pieces of $50 notes and 75 million pieces of $10 notes. (Could the long queues for SG50 notes have been avoided?)

Unless you don't read or watch the news, you would know that there are special SG50 notes available for purchase from today onwards. They are available at branches of nine major retails banks:

DBS Bank and POSB

Oversea-Chinese Banking Corporation

United Overseas Bank

Citibank

Standard Chartered Bank

Bank of China

HSBC

Malayan Banking Berhad

Industrial and Commercial Bank of China

I didn't know that ICBC was a major retail bank in Singapore. Well, now, I know.

Wait! Before you rush to purchase these special SG50 notes, look at this:

I was on my way to buy lunch at a food centre when I walked past this UOB branch. 

OMG! Are they giving away special SG50 Hello Kitty toys as well?

Apparently, this is happening island wide and some of the queues started forming at 6am in the morning! 

Despite advice from the government not to rush for the notes, the kiasu mentality of Singaporeans' cannot be suppressed. Hey, I am not being derisive here hor. I am Singaporean too.

I would like to say that this kiasu mentality is part of being Singaporean and the government should have taken this into consideration when deciding on how to get this done without long queues forming. 

Not only are the queues a waste of time, they also show the not so nice side of us Singaporeans. This is the truth lah. Hurts a bit is normal lah. Laugh! Laugh now! Laugh at ourselves now! See, OK liao! So simple!




This is where AK says something to make a bid at being elected a Member of Parliament at the next General Election. This is what AK would say during his campaign rally:

"A way to avoid such a situation is to send out letters to each Singaporean household and to let them know that Singaporeans have priority and with that letter, they are assured of at least 5 sets per household. They could make an appointment to exchange for the new notes at a local retail bank of their choice before the end of the year. After which, the notes will be available to other interested parties. Is this so difficult to do? Seriously."

There, any reasonable person would be able to tell that AK is MP material after this.

Anyway, according to the MAS, they have produced some 20 million sets of the SG50 notes. So, really, if you are thinking of rushing down to join a queue because the notes might run out, I don't think you have to worry.

"A total of 20 million pieces of $50 notes and 75 million pieces of $10 notes - 15 million pieces of each design - will be printed." Source: The Straits Times.

More importantly, what did I have for lunch?

The queue was rather short. Thank goodness.

UPDATE - 29 Sep 15:

I tried my luck at balloting for some uncut sheets of limited edition SG50 notes and I got a sheet of $50 and a sheet of $10 notes!

Special serial numbers for the limited edition notes.
The note on the left is a regular SG50 $50 note.

There are only 50 sheets per design for the uncut $10.
So, I feel really very lucky to get a sheet through balloting!

Related post:
McDonald's Black Kitty.
What? You don't think this is related? OK lor.

Does AK have anything uplifting to say as stocks bleed?

Feeling the pain from the market downturn?

Hi AK,

Its Painful for many over last week.
Myself included.

I m 50% in reits/trust & the rest in others. The others are all doing quite badly.

Following your blog since 2009...

I understand you did very well positioning your strategy buys during the period between 2009 thru mid 2014...

What's your take on current situation & appreciate your view on the best way to ride thru this period?

Possible to share your personal strategy & focus stocks?

Appreciate some emotional uplift for the fallen :)

Sent from my iPhone
T

There is no need to be afraid of the dark. Switch on the light.

Hi T,

I am actually selectively buying on weakness. If you follow my blog and the comments section, you will see me talking about these. Or if you follow me on FB, you will see this too. :)

If we have invested prudently, we shouldn't worry about volatility in prices too much. In fact, if we have an idea of what constitute fair values, we should be prepared to buy on further weakness. ;)

This downturn in the stock market is no different from any other downturns in the past. You will see some of my older blog posts in the past which talked about downturns and how I reacted, for examples, at the tail end of the Global Financial Crisis when I first started my blog, during the Fiscal Cliff worry or the Taper Tantrum. You will find these in the right side bar of my blog.

At all times, have a plan and as long as it is a sound plan, stick to it. :)

For immediate relief, you might want to read this blog post:

"How to have peace of mind as an investor."

Gambatte! ;)

Best wishes,
AK

Related posts:
1. How do I view the plunge? (from Jan 2014)
"What we have control over is to ensure that our investments are fundamentally sound and that they will continue to do what we expect them to do. Since I am primarily invested for income, with a shopping list in hand now, I am quite happy to be paid while I wait."
2. Rules for investing in difficult times.
3. Feeling depressed about paper losses?

How to have enough for retirement and to do charity?

In many ways, this is a heartwarming email from a reader:

Hey AK,

I am going to retire at Age 27!!!!! 

Just kidding. I am 27 and if I retire now, I'm gonna hafta eat grass for half my life. :D:D

Nevertheless, I emailed to say how your recent blog posts on retirement and financial freedoms came at a time when I was just putting some of my "how to retire at 55" strategies to paper! 

Gave me quite a few ideas I could work on.

But first, I had some thoughts after reading your "Wake them up before they get financial nightmares" post. 

You shared how a reader saw how his friends were wasting money and tried to get his friends interested in investing. 

But they basically bo hiew him. And he felt very dejected about it. 

Actually, I want to say to him: 

There's no need to feel affected about how others are spending their money or feel dejected that you feel your friends are not exercising enough financial prudence. 

Everyone came from a different starting point and everyone is on their own journeys in life. 






For instance, my mum came from a poor family of 10, worked hard to see her siblings through school, sacrificed her own material comforts when young. 

Now that I have grown up and have earning power, I don't begrudge her anything, e.g. so she travels comfortably, I got her a car; supp cards etc. 

If someone had nothing growing up and when he wanted to blow his money on things he never had, during those young careful years, who are we to stop them or judge them you see? 

If someone wanted to zhng his house or car cos he derives great pleasure from it, who are we to say they are "wasting" money? 

I think the best way is to simply share rather than scare people into financial prudence. But that's just me thinking lah.

Okay, onwards to retirement strategies. 

I have a more realistic plan of easing off (semi-retiring) at age 55, so hopefully when 55 hits I will have multiple streams of monthly income. 

My target income streams are 

1. Sharebuilding, 
2. Dividend stocks, 
3. corporate bonds, 
4. Annuities.

I wanted to seek your advice (or thoughts if you are scared of the word advice, haha) on 2 matters:

Annuities - Is it too early to start at Age 27? I only want to start drawing at age 55. At my age now, would it be better to use the cash going to pay premiums to instead accumulate shares or buy corporate bonds? 

Or do you think it is more feasible to accumulate a basket of shares now and use their dividends at age 40 to pay off the premium for the annuity? 

Would you recommend annuities even?

Another way I thought of was using SRS money to buy annuities and draw down from 62...

Cash flow - each mth combined my husband and i will have 16.5k of cash savings (nett of everything) I don't do anything with it, just put into CIMB star saver. 

In your opinion, do you think given our age profile, we should be a tad more adventurous?

I know what you will say, haha. Hard to analyse cos nothing is said of my debt situation right? You are right, I am still paying off a HDB home loan. 

But suffice to say that after accounting for home loan, we will be 50k positive. 

Given this, would you have any advice for me on my above 2 queries?

Lastly, I have been inspired by your frequent calls to give back to society. 

I always read in the papers how the poor and elderly Singaporeans cannot benefit from Singapore's growth (inequalities widen in Singapore etc etc). 

Even though now they have lowered the lot size so that lesser well off can participate in the stock market, 

1) The commission fee is still geared to benefiting those who buy more than 1000 and 

2) I don't think the elderly destitute have any notion of the stock market. 

So I have decided I am going to do it for them. 

I will use 5k seed money of my own, perhaps with yearly top ups. 

And I will distribute the dividend money each time I see the truly poor e.g. buy them a hot meal when I see them foraging for scraps. 

If this "fund" grows, I will realise the profits as well and distribute them as and when needed. 

I know this is probably a drop in the ocean and very geographically limited, but this is as best as I thought of on how I can help the elderly poor participate in the growth of Singapore. Any better ways you reckon? 

Do you have any recommendations on what stock to buy for this "fund"?

Thanks and regards,

T

See: To be a happy peasant!

My reply:

Hi T,

First, a general impression. You are young and your income is definitely way above average. You have time on your side and the resources to plan for a very comfortable retirement by age 55. It is definitely good to have advantages. :)

OK, this is where I talk to myself.

Annuities. In Singapore, I believe that the best annuity money can buy is actually the CPF Life. 

4% risk free returns and a monthly pay-out for life? Sign me up! 

Max out our CPF-SA early if we have the resources to do so and we are set for a nice lump sum withdrawal at age 55 and a lifetime monthly pay-out from age 65. 

I like low hanging fruits.





Having time on my side in my 20s also means that I am able to ride the ups and downs in the stock market. 

So, after making sure that I have a sensible emergency fund and necessary insurance in place, I will put aside money to invest in equities for greater returns instead of having all my money in fixed deposits or bonds. 

After all, in the long run, equities outperform bonds.

Of course, if we have spare money to invest in the stock market, we are considered very fortunate. 

We should not forget the less fortunate amongst us. 





Is our effort just a drop in the ocean? I think every drop helps. :)

In the past, I would give a portion of my income to a list of charities that I support but starting this year I am putting such money away in a charity fund which I will not be taking much risk with. 

This is consistent with my idea that we should not risk money that has been earmarked for purposes other than for investment.

As I make money from my investments, crossing fingers, and as I make more public appearances, I will put more money into this fund. 

It will hopefully grow to a size that is big enough for me to do what I want to do with it in a few years from now. 

In the meantime, I will probably park money in the charity fund in fixed deposits or the Singapore Savings Bonds.





This email exchange took place quite some time back. Should have been published earlier. 

I only discovered that I overlooked this when I was clearing my mailbox. Terrible.

Bad AK! Bad AK!

Related posts:
1. Wake them up before they get financial nightmares.
2. Retiring before 60 is not a dream.