Rolf’s investment philosophy (Part 3) - Building a Portfolio!

Rolf’s investment philosophy (Part 3) - Building a Portfolio!

In this finale of the trilogy for Rolf’s investment philosophy/strategy, I will discuss strategy to build Rolf’s Equity Portfolio. To recall, Part 1 here discusses the need to build up the right character and Part 2 here identifies the importance of understanding the business and building up your human capital in the early stage of your life. In my opinion and of great relevance to me, the understanding Part 1 & 2, lays the foundation of successful investing.

Number of stocks

Ideally I prefer to have 20 stocks or more. Not just for numeral diversification, but for personal interest of knowing how different companies run their business across different industries. Too little stocks, I cannot learn much…too many, no time to monitor! I am not discounting the possibility of me owning lesser stocks one day. Yet, I reckon my stocks + watchlist stocks shall be between 20-30 stocks at a minimum.

Invest in stocks I know well

I prefer to invest in stocks that I know well or at least have done homework on. This is a theory made famous by Peter Lynch in his famous book “One up on Wall Street”. Lynch said:

• Invest in things you already know or have an edge in.
• Investment without research is like playing stud poker without looking at the cards.

Well, I will not elaborate too much further on Lynch’s ideology/examples. You can easily “google” or simply read his book. Instead, in the following, I will use more of own examples.

Prior to the onset of the oil plunge in Oct 2014, I owned large percentage of O&G stocks in my portfolio. Having work in the industry and have a better insight on the business model of various stocks, I made a few critical decisions then and fortunately it turns out to be right. For instance, I sold most of the stocks during the early stage of the steep oil plunge, either taking profits or mitigate losses. I also sensed trouble and had not added any O&G related holdings since more than a year back.

Read:

Dos & Don'ts during Oil Crisis!

Oil Price Slump – My Portfolio, What Approach & What Lessons Learnt

Despite being more careful having worked in the industry, I am not immune! I am still holding on to three O&G stocks today that had suffered colossal damages. Mind you…that is not to say that these stocks will not rebound. Imagine there is sudden unforeseen news that send Oil price soaring again. 

As a rule of thumb, it is easier to understand the business of stock if you worked in the same industry. But never be complacent and think you know a lot and start skipping the detail reading of articles/reports of the company. Likewise, it can also be a business that you have “rub shoulders” with frequently. For e.g. after I was admitted to Raffles Medical due to an accident in 2013, I started investing in the company.

Read:

Why is Raffles Medical Great? – A tale of personal experience!Why is Raffles Medical Great? – Facts & Figures

The aforementioned are just few examples of my own. Essentially, there can be many examples of companies that you may come across often and the business is easier to understand for you. For example, taxis (Comfort Delgro), trains (SMRT), shopping malls (Reits), banks (DBS, UOB, OCBC) telco (Singtel, Starhub, M1), properties, F&B etc

Diversified across industries

While I prefer to have a portfolio diversified across various industries, I will tend to allocate more “gunpowder” to industries I am more comfortable with over long term. Hence, I do not diversify for the sake of diversifying

Very briefly, I am long term bullish on consumer, healthcare, data/internet or even telco! For Reits and property, I am neutral now (waiting for a better entry point) but also long term bullish. Ok, you may wonder why I am still long term bullish on Singapore telco, since IDA announced the fourth operator.

Read : Recent Actions - Sold Telco! Short Term Bearish, Long Term Still Bullish!

Pertaining to cyclical stocks e.g. Oil and Gas, shipping, construction, I am not quite comfortable. I feel that banking stocks will face short term headwinds and moreover their businesses is “too difficult” for me to understand entirely.

Read : Is this a right time to buy: DBS, OCBC, UOB or Keppel and Sembcorp?

Diversified across countries

In the long term, I am optimistic about the future of Singapore, ASEAN and China. Hence I prefer investment exposures inclined towards these countries.

Read:

Invest Asia 2016 Seminar – Key Takeaways from Kishore Mahbubani et al on ASEAN!China stock plunge - From Horse Mouth of Mainland Chinese ResidentsCapitaRetail China Trust to Continue Thriving in a Pessimistic China Economic Outlook?Why China Today is so Different - My Own Travel Experiences in the Last 10 Years!

Invest in stocks I traded before

I did own close to 30 stocks at one point last year. This is before I disposed most of my equity holdings to hold substantially more cash in the 3rd quarter last year. Since the start of this year when STI tumbled, I had been deploying part of my warchest. 

My stock buy or watchlist this year will generally revolves more on those shares which I use to own/traded before which apparently also means stocks that I know well. Or at the very least, those stocks I had analyzed before and been in my watchlist for awhile.

Ideally, I like to buyback same stock at a lower price, which I had previously sold at a much higher price before. Ok, you cannot time the market. That is true! That said, it is still possible to ascertain if a stock is over or under-valued to facilitate some of our short term trading desire! Read the last section of this article. 

Strategy in creating my portfolio

I attended one Motley Fool.sg seminar, where the topic of portfolio management is addressed. The management strategy is generally Pyramid investing! I think this plan makes a lot of sense to me and hence while using Fool’s strategy as basis, I also improvised to create my own strategy as follows.

Too hard

Avoid or have less exposure in companies that are too “hard”. E.g. Oil and gas companies may appear too hard for many to understand. My “hard” pile consists of bank stocks!

Categories

First, classify all stocks in my portfolio into 4 categories. Categories are guidelines to me and not hard rules which I don’t lose sleep over it, if there are slight deviations. Bear this in mind.

• Speculative : stocks that looks interesting but have some risks, and you less sure of. E.g. the oil and gas stocks now, penny stocks or in general cyclical stocks.

• Growth : stocks that have consistently grow their EPS at least 5% p.a.

• Income : stocks that have consistently pay out dividends of at least 5% p.a.. E.g. Reits, Telco, certain consumer companies etc.

Size position

Below is an example to show how I organise my portfolio. It is for reference and they do not reflect my existing portfolio size.

Space out buy

According to Fool.sg, it is also better to space out your buys to reduce risk. E.g. you can wait for 6 months to 1 year before adding the same stock. 

PS: I do not follow this rule strictly. You can also read following article on my strategy to deploy my cash during a market decline.

Read : STI goes below 2,800 - Eat Slowly, Be Patient, and Don't Get Indigestion

If the market remains bullish, I strive to consistently buy stock every month based on the excess cash I had from my monthly income. Not warchest! This excess cash to invest each month is after taking consideration of unforeseen circumstances etc.

Cash

Fool.sg recommended investor to keep 20% cash as warchest to take advantage of a downturn. In the current market outlook, I am more cautious and decided to keep more cash.

Read:

Hazy Outlook Ahead – Cash as Hedge?My Major Stock Portfolio Selloffs in 2015 - I use more "Gut" than "Logic"!

Mixture of long term and short term investing

Long term investing calls for the elimination of frequent buy and sell (“trades”). This I agree and I have most stocks that fall into this category.

However it does not mean that this is the only way to achieve success via investment. I believe that sometimes, you can also have several stocks that you performed short term trading too! This can add some spice to your investing! But remember to be strict and keep the amount to the conservative non-risky range. Also remember to set and apply your cut loss benchmark for short term trading. 

For short term trading, I prefer to trade BLUE chip stocks that are sort of depressed or volatile now due to the short term outlook!

Rolf’s final thoughts

Currently, my portfolio is far from perfect and is a “long long” way to go before it becomes “solid”. Being solid to me means robust and can weather the “big bear” and not crashed out/bankrupt. It also mean to be sustainable with significant dividend payout over time, and with little monitoring needed. Ultimately, this portfolio should be one that is tailored made to be most suitable for me. And it is going to be a portfolio that will continue to evolve over time, improving to be better and stronger.

Perth Trip

This is my second trip to Perth. The first was five years ago  where the streets were so quiet and so difficult to even find a proper dinner meal after 6 pm. Perth today is so different with so many new developments and a much improved night-life. Ok, let the pictures do the talking as follows...

Perth, the capital and largest city of Western Australia with ~2 million people.

The view of Swan River

Temperature is between 15 - 35 deg celsius! 

My hotel room at St Georges Terrace. Support local developer, Ascott Citadines!

Murray Street - Good for shopping

Singapore Airlines along St Georges Terrace - the main street in the city of Perth

St Georges Cathedral

Louis Vuitton at King Street

The Australian Oil and Gas exhibition at Perth Convention and Exhibition Centre

Titanic Museum

My boarding pass onboard Titanic 

The real passenger, Algernon Henry Barkworth who was a Justice of the Peace, onboard Titanic on 10 Apr 1912. 

Going onboard!

 

Mr. Barkworth was staying in First Class cabin that look like this more than 100 years ago. 

Passengers gazed at the remarkably bright stars, with the pitch dark sky as background

Breakfast time! 

Lunch time! 

Dinner time!

Woolworths supermarket - Yes, I am a vested shareholder! 

Another Woolies at the outskirt! 

Awesome sunset view! 

Time to say goodbye! 

Rolf’s investment philosophy (Part 2) – Understand the business!

In Part 1, aside from the Fundamental/Technical analysis skill which is also important, I reminded the need to build a character to be a successful investor. Part 2 here, I will explain why it is even more important to understand the business. 

A decade ago, I was still an engineer. In office, I perform calculations and software analysis. Outside office, I wore coveralls/helmets/cleanroom suits perform site measurements, talked to clients and got myself dirty on rigs/ships, construction sites and semi-conductor cleanrooms and travelled frequently. Due to health issue, I left my job and joined another company as an engineer initially supporting the sales. Soon, I become a sales guy myself.  My ex-boss who is the owner and also sales-driven by nature, will always emphasize to me the importance of “KNOWING THE BUSINESS” even up to today when we met. He already retired from the business world.

Do I truly understand “what is business” at that time? Egoistically, I thought so! REALLY?

Fast forward ten years later, after travelled widely to close many business deals in many different countries, meeting many business leaders and learn from them, seeing many problems of businesses and how they succeed and fail…etc, I think I finally understood what he meant.

Understand the business, not just the financials

Simply, understanding the business is about understanding the reasons why a company can continue to generate its income and profits. 

It is also many other factors! It is the macro big picture conditions such as global, country or industrial changes/policies affecting the company. It is about being a monopoly, oligopoly or in free market position. It is about economic moat. It is the management team and their business acumen to make right decisions. It is the culture and foundation of the company. It is customer satisfaction and how to make them come back for more. It is product innovation, process optimization that leads to efficiency and effectiveness. It is understanding competitions and how to have a competitive edge of a company. It is plans to change and grow the company. It is long term outlook of the company. It is good project execution, supply chain and after sales market. It is about leaderships and building relationships. Above all, it is about people! It is about many things... and of course financially, strong balance sheets, efficient use of debts, so on and so forth.

Essentially we also have to understand the various stages of a company evolvement, because at different stages the company will encounter different problems. A business evolution is about stages of:

1)     Idea to customer

2)     Customer to a functioning enterprise

3)     Functionality to effectiveness

4)     Effectiveness to self-sustainability

Another matrix that I use frequently in my business presentation is SWOT, meaning Strength, Weakness, Opportunities and Threat of a company. 

Quote from another blogger 

One of my favourite bloggers, Chin Wai of The Boring Investor who had been investing for 30 years have this to say in his recent blog post “The Evolution of An Investor”: 

“.... A few months ago, I realised that I should begin to learn how to make business investments instead of financial investments. That culminated in a 20% concentration in 1 stock....

By financial investments, I mean investing in stocks with good profitability, strong balance sheet and high cashflow. However, I seldom go deeper to understand the factors that give the company its good financial strength. The business investments are to identify and invest in those companies that have strong long-term underlying strengths.” – Lee Chin Wai

Why is Warren Buffett so successful?

I mentioned in Part 1 my love to read biography of famous people. I had read Warren Buffett’s "Snowball" bio, and other books/articles/videos related to him. Many people may attribute Buffett success base on his exceptional analysing skills and ability to calculate accurately the intrinsic values of the company.

That is only one side!

Buffett is not only adroit in understanding the underlying business of a company, but also extremely adept in appointing the right management team to run the business he owned.

How did Buffett manage to have this exceptional ability?

Buffett started earning when he was 6 years old and did all sorts of jobs selling chewing gums, coca cola drinks, pitching newspapers etc before starting businesses in pin-ball, golf balls, stamps, car-buffing and developed many other means of earning money, all before he turned twenty. In his pinball business venture, Buffet also displayed his eloquence, sales and business instinct. He was able to convince the Barber owner that he is representing Wilson’s Coin Operated Machine Company, and that the Barber will have no risk putting the machine in his store, which they will split the profits earned. 

This is just one example. Buffett is already a business man in his teens! His remarkable business acumen is one critical factor for his success in investing, which is often overlooked by many!

Read : To be a Successful Investor, Start Earning First – The Warren Buffett Story

Understand the business by building up your human capital

Not everyone is born like Buffett to have such incredibly good business acumen at a young age. Or not everyone have a business savvy parents who have time to inject the business knowledge to them at a young age. 

The most natural way of understanding more about a business is via our CAREER then. 

From a start, choose a career that you will be passionate forever (preferably) and one that allows you to learn the most of the business instead. Learn more is more important than earn more for a start! By knowing the business, I mean at least have idea of the business process. For example the biggest reward in my career is the experience of having an overview of entire business process from Sales, Project, Engineering, Procurement, Logistics, After-sales department to Finance and Human Resource.

Even if you do not have the exposure, you can always speak to people from other departments to at least know more about the business! Normally sales person will have an edge in understanding the business more than other roles. However personally I think it is not advisable to start with a sales role after graduation. It is better to be more technical and project savvy before transiting to sales at a later stage. 

Read: Liew Mun Leong’s Advice in Career & Life

Leverage on human capital to build wealth when young

In the process of building our human capital, NOT only we learn business in a more “practical sense”, we can also eventually accelerate our wealth! This can help in building for ourself a substantial investment portfolio. Ok…maybe you do not need the money because your parents can give you the first pot of capital to invest. But I bet you that investing with your own hard earned money is different from money you received from others.

Remember, size matters in investing!

Do not get me wrong, I am not saying we should not start learning investment young. In fact, financial literacy education should start as early as possible. The whole idea is PRIORITY must be set right at different stage of our life. IMAGINE for the first decade of your career, you have developed an impeccable human capital to generate comfortable income. You are able to build your family, pay for your own house or even rental property within manageable debt. During this period, you polish your financial literacy skills (as hobby) and learn to live within means. Hence you also have excess cash to invest slowly.

Think about it : Human Capital (first) + Financial knowledge & Capital (ongoing) and WHEN TIME IS RIPE, to be unleash full power at a later stage (Planned for).

Isn’t it better than just only having financial literacy?

Do not ever use investments or blogging to escape your day job! 

Sorry, I am going to be brutally honest for readers to delve deeper into their thoughts. My take is 

“If you cannot even handle or progress well in your day job, do you really think you can become a good investor part time at night?“ 

Or else, why don’t just gather the courage and quit your day job entirely to be a full time investor or entrepreneur. Oh… the excuse of no income to cover my expenses? Then just do a good job at work first and stop complaining!

Read:

Reasons Why You Should Stay in Your Current Job - Real Life Examples

Reasons Why You Should Resign Your Current Job - Real Life Examples (Part 2)

Building human capital does not mean No Forever Financial Freedom!  

Please do not misunderstand my notion of building human capital as being a forever salaried worker running the never-ending rat race.

A developed human capital can allow us to: understand “business” better; to have a pool of business contacts; to learn how to develop relationships and manage people; to have the right amount of startup capital etc. In other words, MORE EXPOSURE, MORE EXPERIENCES, & MORE WISDOM! With these attributes, then you can much easier to have what it takes to become a successful entrepreneur or a successful investor later.

In the blogosphere, there are two examples of bloggers leaving their successful corporate career to pursue the second career of their own in their 40s. They are Andy of Tacomob who had rose through his ranks in corporate MNC for more than 20 years to the rank of SVP before he left his salaried job. Similarly Jared of SMOL left his successful career in corporate MNC having accumulated vast experiences including working overseas in China and Greece.

Ok, you don’t like to work for others the day you graduate! It is admirable and perhaps if time rewinds, I may take this path too! But then, make sure you have that burning desire of success, high levels of passion, commitments and perseverance!

Alternatively, you can also start planning of building your own business PART TIME, while building your human capital as a salaried worker. This is also a good way, so that you can still sustain your current lifestyle expenses.

Learn from the Veterans!

In my late 20s / early 30s, when my career took off to new height, I was egoistic and to a certain extent arrogant. I tend to think that the older colleagues are useless because they are slow and talk only, little action. And worst of all, always using their seniority to impose ideology on others. In mandarin we say 倚老卖老. Nowadays I stop thinking this way. When someone who is older with more experience gave advices, I will pay more attention. For the veterans with their vast of experiences and track records, there ought to be certain logic, why they are saying certain things.

Don't discount it immediately!

Listen, filter and absorb the good advices that are most relevant for you. You can learn a lot! Be it in business, investment or in life!

It is ideal to have a Mentor who can provide you with invaluable advices in times when you need to make critical decisions in our life. Take note that the mentor ought to be someone who is qualified with abundance of LIFE EXPERIENCES AND WISDOM!

Depending on your character of extrovert or introvert, an alternative good way is to learn from books. Have an open mind, read, talk to people and absorb readily. 

Do not over-rate yourself

If you have less than 10 to 15 years of investment experiences without going through several bear and bull cycles, you still have a long way to go in investment. Me included in this category. We are no gurus! Just re-producing Warren Buffett and Peter Lynch's theory is cheap! Let the experiences and track records do the talking, otherwise just admit the mistakes and don't hide behind the curtains. 

Many retail investors, after they start to earn some money from the bull-run in last 5 years, start to be full of themselves! Many think they are better than any professional analyst/fund manager. They said “professionals cannot even beat the market while they can get double digit % returns p.a.”

Yes, I agree that there are many crappy professional analyst / fund managers!

That said, do also remember that professional money managers/analysts DO HAVE their own constraints in work. Maybe as a manager of their OWN MONEY, they are not as dumb as you perceive them to be. Unlike retail investor, large mutual funds cannot sell their stocks when market downtrend and liquidates everything in cash. They have certain restrictions to stay invested and only keep say 10-20% in cash. They also hold large portion of share (millions). If they sell, it will cause stock price fall even further. However retail investors like us can happily buy and sell without moving stock price at all.

Stay humble always, admit mistakes and learn readily. Do not overrate our own capability as sometimes it can be just fooled by randomness!

Read: I am Successful Because I am Capable? Do not be Fooled by Randomness!

PS: My blog is a library for my children where I document down my journey of life evolvements. 

Stay tune to Part 3 when I will discuss my strategy to build a Rolf’s equity portfolio!

Recent Actions - Sold Telco! Short Term Bearish, Long Term Still Bullish!

It comes to a surprise to me that IDA announced a fourth Telco. 

Why fourth Telco?

Considering the weak economic conditions, I am not sure why IDA wanted a fourth telco NOW. Yeah, IDA mentioned it is for the sake of the consumers having better choice. We already have three to choose from. Not enough for now? How about we should have another Broadcast company since Mediacorp has been producing year over year lousy TV serials.

Most likely to me, it seems the long term vision of Singapore, planning for the 6.9 million population by 2030. Perhaps this cannot be one of the reasons by the lips of IDA during the announcement as it will probably cause a rant among local-bred Singaporeans.

Or maybe Keppel will sell her M1 stakes to Starhub?

Sales of Starhub & M1

Today, I made sales of both Starhub and M1 that I owned in my SRS. For Starhub, I had owned the stock since 2013 and bought it over $4, and subsequently averaged down. For M1, I recently bought it at $2.6 hoping that the fourth Telco will not be announced. Including dividends, for both trades, I still incur minor losses. 

Reasons - short term bearish

The fourth Telco will offer service as early as Apr-2017 and then another bid for the 700MHz band around End 2017. Therefore throughout now till end of 2017, I anticipate great volatility of share prices of the incumbent telcos. And in an already crowded market where cashflow from TV/Mobile are declining plus the current frail economic conditions, I am anticipating lower pricing of Telco in the short term.

Starhub had somewhat assured to pay out 20c DPS, which is an attractive 5.8% at current pricing of 3.46. This is despite that in FY15 that their net profit is flat at 0.5% growth on a 2% decline in mobile revenue and a 3% drop in fixed network services. Pay TV and broadband is still resilient even in the face of fierce competition. Furthermore, gearing  is  set  to  rise  as  capex  will remain high at 13% of total revenue. Starhub also expect lower handset sales in 2016.  The most discerning news is whether Starhub can maintain its dividends since FCF has been declining over the years? 

I will not go in depth into M1, since it is smaller portfolio for me compared to Starhub, but it is probably most vulnerable to the fourth telco considering the fact that most of its revenue is from Mobile.

 Source: Motley fool

Long Term Bullish

Frankly, I am still long term bullish about Telco. Hey...15 years 6.9 million is a long time. Yes, I know. That is not the main reason why I am bullish. 

If you look at how Singtel and Starhub has evolved over the years since 1990s, it is not necessary that a phone operator will only be a phone operator in the long run. 

Singtel has transformed from an Internet dial up, fixed line TV, Mobile company to expanding her foothold in Australia, India. 

Similarly Starhub was just a fixed network and mobile services in late 90s before becoming an Internet service provider when it acquired CyberWay, and then later merged with Singapore Cable Vision in early 2000s.

I will possibly wait for better entry points later for the Telco, or I may just put the money in Keppel DC Reit? 

Rolf’s investment philosophy (Part 1) - Building a character!

Most savvy investor readers here probably know more about value investing, fundamental and technical analysis than I do. So while FA and TA are extremely important tools for an investors, I shall not bored you guys further with that. In the following first of the few series of Rolf’s Ideologies for investment, I will try my best to include my philosophy that is more unconventional and coupled with some of my personal experiences. Hopefully it can add some Rolf spice!

Part 1 here will emphasize the importance of building the intangible aspect of successful investing. It includes the character/mental strength building and not just focusing on the analyzing skills, although the latter skills are equally important.

Core values - integrity

I am an engineer by training. Before a building is built, you need construction piling. If the piles are not strong enough, the building will eventually collapse. I believe human life should be built upon the core foundations of integrity (right heart), passion (love), hardwork (discipline & perseverance) etc. The same principles apply in investment. With the core values drilled in right from the beginning is extremely important. Then plus exceptional mental strength, you will do very well later on.

Know and invest in yourself

First criteria - Know yourself well. This is the underlying principle as my blogname suggest; Rolf Suey, re-arranging means “Yourself”. Popular blogger SMOL also reiterated this point here. To me, stock selection and what/when to buy/sell is even of secondary importance compare to knowing “why and what” you are doing with regards to the “bigger picture and longer term objective”. Not just knowing, but also continuously investing in yourself – books, articles, courses, talking to people in the same circle.

Read :

Know yourself and define your own success!

Understand Yourself – How to be Happy

How well do you know yourself – Psychology Test

Be patient and build a long term vision

Having a long term vision for my portfolio is important and it is slightly different from long term investing principle. It is not just identify one stock, buy and hold for long term. Instead for me, it is to build a Rolf’s equity portfolio with a well-mix of stocks that is robust and can be sustainable over longterm. It is liken to building a business. During the course of doing so, I will encounter many challenges and failures. It is fine and I will come back stronger. It takes time to attain success. I will constantly remind myself to be patient!

Be passionate and ask yourself why you want to invest?

For most people, the main reason to start their investment journey is to become financially freed achieving X amount, in Y years, just like a NSF counting down his days to ORD! By all means, it is admirable to start planning and working on your financial freedom early. But just to be financially freed and retire early to relax and stop working, should not be the underlying reason.

In my case, I ask myself “Why am I doing this and why is it so important? What is the mission?”

My answer: 1) Additional tap of income 2) To learn more about different businesses. 3) To impart these skills to my children, people around me and the community.

Today, investment has become a part of my life. I am passionate and enjoy doing it!

Think Big

THINK BIG! So far when I do something passionately, I like it to be really big. It is a trait that is within me since young. In investment, I hope that one day, Rolf’s portfolio and my investment knowledge not only can create a comfortable income for me and my family, but also help people around me and the community. Perhaps even create jobs for this country and beyond. I am not joking really. Wish me luck! If you are interested in Think Big, there is a book by Donald Trump written around it.

Read : Mark Zuckerberg’s 3 Stories - Mission, Care, Look Ahead!

Compete with yourself to beat the market

I am competitive by nature and love wining since young. With much humility, I did have several achievements at national levels and also a successful career to speak of thus far. In spite of my earlier successes, I LEARN SO LITTLE. On the contrary, I learnt the most when my life hit the trough. As I grow older, my explosive nature becomes more placid and yet more focus! I reflected my life often nowadays and start to think that winning over my peers is not so important afterall. This energy of jealousy can be better channeled to focus on beating myself. And to continue invest in myself to beat the stock market!

Right temperament

As like any novice investors, I initially thought that just by mastering the analyzing skills of a stock, I can become very successful in investing. This is a fallacy. You need to also have the RIGHT temperament either to stomach the paper losses of the market or to be patient when the market is in a bull rally.

“Temperament is more important than IQ. You need reasonable intelligence, but you absolutely have to have the right temperament. Otherwise, something will snap you.” – Warren Buffett.

The personal experiences (crises) I gone through in life had probably carved out quite well this quality in me. Now I just need more stock market crisis to further build this up for me. Haha…. I am just kidding!

Read: Crisis? We should be happy because it is the best time to learn!

Read biographies of successful people and know the meaning of life

To have to right temperament, aside from my own experiences, I often reinforced it by reading biographies of famous people. I enjoy doing that. Ok… maybe I am also quite “Kay poh”. The life story of a person can tell us a lot. Not necessary those successful ones, but those not successful ones can also teach us a great deal. My career also allows me to travel widely and meet many people of different backgrounds. By talking and learning from those who are successful and have more life experiences than me, also help to build a stronger me.      

Reinforce your philosophy

Once a philosophy I think most suitable to me is ascertain, I like to consistently remind myself. Either by writing it out, or constantly communicate the ideology to people around me. It can be blogging, commenting on blogs or speaking to family members, friends and colleagues. Over time, you will be so good that you can explain so simply and systematically your winning ideology for others to understand. For instance, you will realise how great investors always like to be interviewed by journalists. During the interview, they always repeat the same philosophies they believed in!

Failure is a must – one step back, two steps forward

Ok, you think you will never make mistakes because you are cleverer and meticulous. You think you can learn from other people mistakes or from books? I use to think like that also. Think again, because even Warren Buffet who is known to be extremely careful admitted his first big mistake is buying Berkshire because it is cheap and call it “monumentally stupid decision.”

“Do not worry about mistakes in life. It is good to lose money and go broke at least once, preferably twice. But does it early so that you are talking about US$20k not US$20mil, which you still can come back. Losing everything can be beneficial because it teaches you how much you do not know. And if you can come back from a failure or two, chances are you are going to be more successful in the long run.”  - Jim Rogers.

Read :

Failure is Not an Option, It's a Must - Nassim Nicholas Taleb

“Street Smarts - Jim Rogers” (Part 2) Investment Advice

I admit my mistakes and I think I have become a better investor!

Just know and understand is not good enough

Read : Be it in life or investment – Just "know and understand" is NOT good enough!

Cutting losses

Admit and knowing mistakes are not sufficient. You need to take action to mitigate it. 

Do not hold on to your losers

One critical mistake an investor made is NOT selling their losing stocks whose fundamentals have worsened. By fundamentals worsened, it means company losing it’s economic moat, balance sheet deteriorates rapidly due to unforeseen circumstances or getting implicated with fraud etc. It is not always true that “what goes down is bound to rise up again, as long as I wait.” The sad truth is not all companies will have their share prices bounce back to the levels of what you initially bought! Yes, blue chips are not exclusive either! Just look at the fate of the once dominant Kodak and Nokia!

Do not catch the falling knives

Read Dos & Don'ts during Oil Crisis!

Learn to cut losses

No doubt, it is painful to sell at a realized loss initially, but the pain can be alleviated later if the stocks plunged further. I did sell many stocks last year at losses after the stock market start its decline in June and then later black Monday in August. Total realized loss trades made were more than S$20k. Ok, it is peanuts compared to many! But it is not a small sum either to sell at a realized loss! Ask yourself, can you do it? While it was offset by realized gains elsewhere, it is still painful.

I reflected this loss shortly later and strangely, I was actually feeling very happy that it happened. Perhaps the loss was not substantial enough to wipe me out or to cause me losing sleep. Hence I can come back stronger. I also feel I had made a big step forward in my investment journey, to be able to stomach losses. Fortunately those stocks that I sold off have seen hitting even lower share prices today.

Read :

My Portfolio – Updates of Buy and Sell & Rolf's Advices!

Hazy Outlook Ahead – Cash as Hedge?

Stay tuned to Part 2.