Amazon Contextual Product Ads

Tuesday, 10 January 2012

Interesting Post on long term investing

I was in this FSM forum thread where somebody posted his views on long term investing. Here he challenged on the logic of long term investing and compounding of stock/Unit trusts.
I think it is pretty interesting and I am trying to find out more from him. I am not in support of his views nor am I against it. I am keeping an open mind but thought I share with all as I understand many bloggers here practice long term investing.

Below some of the comments made:

"Little by little you would also come to realized that long term investment is just that. Very very long term. In essence, the market move up and down all the time. You will come to a conclusion that all the theories including how in the long run, the market will always move up is nothing but hype. As long is you 'invest and forget' and hope to make money, you will always lose money.

Then after you come back to square one, you change strategy. Maybe dividend play is better. You started to invest in companies the gave dividend and lo and behold, you make some money when the market start to run up. Within a year or two, market turn down and your share is worth much less than your initial investment plus all the dividend that you have collected. So what now?

Through these experiences, I can only suggest this. Market psychology, money management and emotional control are the lessons you may want to learn more about. Without taking profit or cut loss, your portfolio will yo-yo like the market"


Food for thought?

25 comments:

  1. Hey!
    Quote:
    "Through these experiences, I can only suggest this. Market psychology, money management and emotional control are the lessons you may want to learn more about. Without taking profit or cut loss, your portfolio will yo-yo like the market"
    Unquote:
    i have been practising something like this since day one. Though not doing too bad, i missed all the multi-baggers which only the buy and hold and never sell may get.

    ReplyDelete
  2. Why don't we practise both? Short-term trading and long-term investing and welcome to Createwealth8888's Investing kakis. LOL!

    ReplyDelete
  3. haha..I have 2 highly skilled pros here.

    Yeah, both works if time and money permits?

    So which brings me to the next question, among both of you, who is richer now? :P

    ReplyDelete
  4. Focus on the business and analyze the business, and you will not go far wrong. Be a business analyst and not a market analyst. The stock market's true purpose is simply to provide opportunities for the investor to acquire part-ownership of superb companies.

    You will need analytical skills, an understanding of accounting, emotional control, an understanding of biases, heuristics, fallacies and illusions, disciplines, fortitude, resilience and ability to review mistakes; in order to earn a decent return from investing. And this list would probably be longer - these are just the key attributes.

    ReplyDelete
    Replies
    1. @Musicwhiz: I like this philosophy, indeed. I held on during the subprime crisis, and even bought a bit more units during that period. I was nervous, but kept reminding myself that this is what markets do. I made money in 2010, sold the units to pay up my mortgage, and life is much more pleasant now. Of course, I have to save again, but it's good to live without a mortgage. I just bought SGD$1000 of Aberdeen Pacific Equity last weekend. I have no idea how this fund will do this year. I have only convinced myself that I can wait a long time for this to make money. Meanwhile, I don't worry about it too much and I focus more time on things I'm passionate about such as my work, my writing, cartooning...etc...things that may amount to something in the future and that adds value to the world. Of course, you have those who claim they had predicted the subprime. But probability is such that there will always be a number of individuals who happen to make the right "prediction".

      Delete
  5. Hi Musicwhiz, great comments! Thanks for sharing your words of wisdom, it is great we have many people sharing their views! I had to look up a dictionary to understand the meaning of heuristic and fortitude, but those words really makes alot of sense to do well in investment or they can apply to life as well :)

    ReplyDelete
  6. LOL!

    I am a macro guy. Which makes me a "market analyst", I guess. I just love to watch the herding behaviour of the markets.

    I am a people watcher. Companies are run by people.

    Did you read Drizzt post on Noble Group? Not too bad if you buy and hold for 10 years!?

    So for every person who pooh pooh buy and hold, there will be a counter-balance out there somewhere.

    I focus on results - not methods. If asking a monkey to throw darts at stocks randomly works, I will use it!

    That's the advantage of having an open mind. It's also called humility ;)

    ReplyDelete
  7. Actually HOH, most people can not invest like WB. or what MW recommends. Most people if they can be a little of WB, i think is enough. And of course a little bit like the rest of the Great Investors too. Then mix them altogether like rojak. If the Rojak tasted good, then it should be O. K. i believe there are more than one way leading to ROME.
    The only problem is you have to find your own way. HA! HA!
    Hey i am surviving for 23+ years already and still going strong. Amen.
    Shalom.

    ReplyDelete
  8. I lagi jialiat. I bi-focus - short-sighted and long-sighted view.

    ReplyDelete
  9. Track, measure and visualize. Can you achieve your investing goals using your current method and strategies?

    If yes, you are on right path.

    ReplyDelete
  10. So can I summarize Investing is like playing soccer, doesn't matter how well you play or how bad you play, as long as you win, that's the most important result. ?Cheers

    ReplyDelete
  11. Hi Guru,

    I won't liken it to soccer using that statement. Incidentally Deng Xiaoping also said something to that effect - does not matter on the colour of the cat, as long as it can catch mice! But we are talking about investing here, therefore the context is quite different.

    Investing is not to be viewed as a "game", not in terms of winning or losing. It is more of a journey, and to be successful and finish it we have to adopt conservative practices and be prudent, not just in how we analyze but also with our personal finances.

    THe key in investing is to get a decent, long-term, consistent and sustainable return above inflation. If you are able to achieve this over a period of 8-10 years, then you would be able to compound your wealth quite significantly.

    ReplyDelete
  12. Hi Musicwhiz,

    I have set my mind to be buy and hold type investor since 2011, this year It will be the start of my journey of compounding and I intend to do it over a period of 10 years or 20 years. I just hope by then the market situation will be favorable where my holdings will not be caught in a situation of a Financial crisis..End of the day, I am looking at passive and capital gains..

    Incase you decide not to retire your blog , can we do a link exchange ?

    Cheers

    ReplyDelete
    Replies
    1. Hi Guru,
      May you be prepared for this:- i think no one can escape from this: WB. included. ? Yes WB. too!

      Quote:
      [You Can’t Hide]
      [The most damaging types of risk are those that can be attributed to common wisdom or accepted practice. These risks are hidden behind the veil of conventional wisdom, but they are still there. They are damaging because most people do not understand the extent to which they are exposed to the very real possibilities of loss.
      Consider the common buy and hold strategy for investing in stocks. This is the strategy that mutual funds are mandated to use by federal law. Buy and hold strategy keep you in the markets at all times. Anyone using buy and hold strategy saw their investment value dip from 35 % to 40 % in just the year 2008. A buy and hold strategy carries significant risks. You are exposed to the full risk that the market will drop in value. (In reality, Unexpected Catastrophe causing severe bear market is not “Unexpected.”)}

      Unquote:-
      (Actually, it happened to me in 09 March 2009. Don’t you think it’s very scary? And I am not really using buy and hold strategy. I am using “Life Cycle Investing” yet I am caught. But with the Lord’s blessing my portfolio is making a little money now by 25 September 2009, Amen).

      Delete
  13. Hi Temperament,

    Haha..I do respect your views, I went through the crisis too and saw my holdings bleed, that is why I decide to stick with dividend paying shares this time to prepare the ride..I use to have a trading portofilio last year too, but I decided to stop trading as I realized I am still really a newbie plus No more bullets as I need to feed one more soon. Perhaps I need to master the art of technical analysis before I ever go near to short term trading.

    ReplyDelete
    Replies
    1. Hi Guru,
      i am happy for you. Why? It's because i believe one must experience through a bear cycle and if one survives, then he is qualify to become a "lifelong-investment" club member.
      Welcome to the "Lifelong-Investment Club".
      May you prosper with all other club members.
      To me it doesn't matter your investment style or belief.
      The only criteria is to survive in the stock market.
      And if you can do that, you will surely proper as you run the lifelong-investment marathon. It's never will be a 100 metre race. If you specialise in 100 metre race, how many races can you run? How long can you last? You will be exhausted and be used. And perhaps begone, ya?
      Shalom!

      Delete
  14. Haha thank you temperament for inviting me to the club and sharing your great comments! Your words are very meaningful! I am already feeling reinvigorated! I wish you and all other bloggers prosper with your investments ahead too !!

    ReplyDelete
  15. May be it is not buy and hold; but rather portfolio management on slicing in and out your investing capital based on your own market forecast.

    ReplyDelete
  16. Hi CW8888, My current holdings now are only reits and they are about 20% down. Do you mean to sell when I make my targeted price and buy back again when it drops..??

    ReplyDelete
  17. Hehehe :-) Guru, why did I get the feeling you might actually blog about the rather unhappy view that this guy wrote in the forum ;-) It's too bad he went through that experience and came out slightly on the more pessimistic side. It's too bad, because I have seen many folks, like him, coming out of the market being overly pessimistic. On the other hand, I used to live in the States and over there, all you had was a combination of some tiny amount of social security plus the 401(k) retirement savings plan which relies completely on mutual fund investments. I have had the pleasant experience of my American colleagues investing regularly over many years and coming out pretty comfortable, simply from the power of dollar cost averaging and compounding.

    As mentioned in the forum, my investment philosophy is not to rely on the belief that I would have 100% financial freedom when I retire. For what I do as a living (as a consultant hired within a company that values my skills), I intend to remain active in the workforce even at an old age. This is because I enjoy what I do, and I don't worry too much about moving up the ladder, promotions, bosses...etc. I do what I do best - solve other people's problems with creative zest, and earn money from it. So when I'm old, like 70 yrs old, I'd imagine to be doing this but at a more relaxed pace (like maybe go to work once a week?) And so my retirement would be a combination of active income and passive income. I think the world is really changing. It's not realistic for me to rely completely on my investments. There are other ways to invest such as investing my time on pursuing my own creative personal projects. Who knows...it could amount to something. And even if it doesn't, I can accept the failure but learn from it. Cheers!

    ReplyDelete
  18. Haha Ronian, I really admire you for your passion for your job, alot of people here slogged daily for work to be in the rat race, maybe it is time we should start to change our attitudes towards our career and be more positive like you or we should start doing what we really love..for me, I am just a money minded typical salesman trying to make a living ha , I have yet to get my own property and I really envy you that you had already fully paid up yours!

    ReplyDelete
  19. Unfortunately, we are living in Singapore without social safety net and discrimination against older workers is practically obvious at the ground despite all the lip service by Govt agencies.

    ReplyDelete
  20. Not losing any of my investment capital is my Rule No 1. If I have my money in a business that is paying increasing dividends, it is also likely that the business is growing earnings and increasing cash flow.

    ReplyDelete
  21. I really don't have any idea on long term investment and I am not actually interested on dealing with it either because I need my finances in a circular pattern. Like I invest, I save, and I spend, that is pretty much like a circle that never ends, but the thing is I am earning my way to have a better savings for my future, that is the very reason I am dealing with binary options affiliates www.binaryoptions-affiliate.com because binary option investment is a bit easy and doesn't require a big investment to start with.

    ReplyDelete
  22. I am ROSE SMITH from CANADA a single parent, before my husband died
    he left us with so much DEBT that we could not cope with life, I was
    totally confused on what to do. When I was going through the internet
    I came across a POST by MARCUS CAFE about how Mrs JULIA NAVARO help
    him to get a loan so I applied for the loan from JULIA NAVARO through
    her mail (navaroloancompany@yahoo.com) of $200,000 with a duration of
    10 years.When I was applying for the loan I made a vow to GOD that if
    I get the loan I will let the world know what she did for me, to my
    greatest surprise my loan was granted with an interest of 2%. I was
    able to settle my debt and start up a new life and business with a
    settled family. So if you want any type of loan in any part of the
    world for as low as 2% please contact JULIA NAVARO on her mail
    navaroloancompany@yahoo.com or her phone number +16618356153.
    I just fulfilled my vow.

    ReplyDelete