After a month, I had a 180 degree change of perspective. The dissatisfaction and discomfort from work set me thinking about HOW to generate more income to make up my lowered income, HOW to consistently make gains and become a full-time trader, WHAT do I have to do to end up working for myself as I've realised that actually I work very hard and wholehearted at work, HOW to make my investment work harder since my capital has increased annually.
Then I took another look at the P&L over the years from 2009 to 2014 and realised immediately that the past two years, my portfolio underperformed with very low returns for the amount invested. That didnt make much sense to me. With a new-found sense of perspective, I looked through and realised a few things about my portfolio - definitely mistakes I have made and will hope to rectify.
1) Auto-pilot
My portfolio had been on auto-pilot mode, with very few sells to realise anything. Given it was a side-way market, the old-me kinda of chose not to sell cos the gains were not as high as my 25-30% target. This is kinda unrealistic in the sideway market and cos in my earlier days, there was the market crash in 2008-9 so those initial gains were in such figures. But realistically speaking even 5-10% nett is a good return given the extremely low interest rates. We all dream of buying a stock and holding and that it will appreciate to several hundreds of dollars, eg Google and in effect, become a millionaire. That does happen to people but those chances are rare. Not sure if possible with SG shares. US market perhaps. There are risks for these new shares when they started out as newly listed small companies. Who can identify the next tech giant etc? But if I keep letting it go on auto-pilot, there will be continued low gains because I am not selling and my counters are unfortunately not Google and are not making astronomical capital appreciation. So it's a double-loss in that. Why shouldnt I realise some gains through buying & selling and still be invested?
2) Too attached to the shares
This is one which was mentioned in trading books (started reading them when I relooked my portfolio) is that there are certain familiar counters that I favor over others and am reluctant to sell them off, at times in parts, even completely, unless there are super-high gains. As one of those many who made this mistake, this attachment meant that even when there are gains to be made, I didnt sell. Then prices dropped back to my purchase. In effect, I have missed the opportunity to make a gain. Sell when it went up and buy back when it came back down. So this meant no gains were made though there were chances. I had this problem of attachment cos in my first 2 years, I had encountered a share that shot up to very high prices when I did this, sell it off with the intention to buy back lower. It never came back down and it was delisted with private offer. There is this fear of a repeat for the counters in my portfolio. The thinking mentioned is to overcome this. The goal is to make money, the counters are your means of doing so. Getting attached and not realising gains does not make sense. There are many other counters even if such unexpected event comes in. Learn to let them go, and look to buy back. If its gone, go elsewhere.
3) Not many dividend stocks
As I took advice (foolish of me and I need to learn to bear the consequences of my decision to do so), I bought into some penny-stocks that dont offer dividend. As a bigger part of my capital went in, even as I invested more overall in stocks, my returns were affected when the penny-stocks fell in prices (pain pain) and get trapped inside, with no dividend, some of my other counters yielded some dividend but overall in the whole portfolio the dividend portion is smaller. And when I sell off these dividend counters for capital gains, I dont receive the full dividends, partly cos I dont own them at that period when dividends came. Some are annually, semi-annual or quarterly. I took a hard look at my counters and decided to search for higher yielding dividends counters such as adding more REITs into my portfolio. I expanded from my 2 familiar to 5-6 REITs across retail, commercial, industrial and logistics rental. Reckon a bit of diversification across different rental markets would be prudent. I was purely into commercial and retail reits. But many have the same idea so REITs werent cheap. Had to wait a bit and just jumped in. I did end up with higher prices then cos thereafter the market nose-dived (not the highest price but still higher) But overall it helped my portfolio to have shares that specifically generate dividends and payouts even when I dont sell them and they are just sitting inside my portfolio. So just by this, I have increased the dividend proportion of my portfolio. Even as I put in extra money, they went into these REITs. Until I was satisfied it was better then any extra went to better counters.
4) Buying in times of irrational exuberance and over-confidence
I think all investors make this mistake. I find that I had made quite a few poor buy decisions when I managed to get a decent gain from selling. The sense of accomplishment, plus pride and ego and exuberance at my own ability made me itchy to jump straight back into the market to buy something, usually at a higher price. Doesnt make sense to do so. I have learnt an important lesson from reading the trading books, 'Dont always need to be in the market. Dont always need to buy or sell. Having NO position is also a position.' or aka the Cash is King maxim. This is still something I am figuring out. Though before it fully became internalised and conscious, I made the same mistake again.
5) Buying on other's advice...
The book says, just like you dont ask your bartender for stock advice, any unsolicited stock advice one should be weary. Very rarely it pans out. So... I did buy into the counters my Dad were into and seriously regretted and am still in the red. I have to take responsibility for my own actions - which was I chose to follow... I cant keep blaming others and this wont help me grow as a trader and investor. Though I did it again and bought into one counter from discussions with friends and am in the red but at least then the lesson had sunk in a bit and it was a small punt. I had learnt that some trades should be in small amounts for these so-called chances, hence the word punt is more apt. Unfortunately greed got into me and I put in bigger sum in one of the punt after I had made a bit of gains and suffered when the music ran out. I have to take responsibility and learn never ever ever to buy on other's advice. (A couple friends bought into my counter and bought in at high price then which took a big hit when stock prices dropped in mid-Aug 2015)
6) Not taking loss
This is a very foreign concept to me. Tell me which investor or trader looks upon loss positively. Unfortunately I am often caught in this loss-aversion mentality. In human psychology, we are adverse to loss. An equivalent loss is felt much more keenly than a gain. Plus there are other aspects at play, such as ego and pride at having to admit 'I was wrong' (an incorrect decision to either buy or sell) and most of us will throw in more money to 'average it down' lower in hopes of eventually getting a gain ('I was right') when prices finally went up. Problem with this is that the losses can get bigger and bigger. Then the 'averaging technique' meant more and more capital goes in and gets locked up in the losses. And chasing a stock as it plunges is very taxing on the capital, every extra stock you buy in hopes of averaging down, magnifies the losses when prices went further down. A lot gets locked in and one would be unsure of WHEN you can break-even. There are those that rebound and there are those that never comes back up again. A lesson from trading books is that 'The intial Stop-loss is the smallest.' How very very true. This is something I am trying to work on and internalise. I still havent set up the correct stop-loss way of thinking and internalise this concept. But when you have missed the stop-loss target, then you are stuck. Then you have to wait and wait and hope. Then at what limit are you going to say, this is long enough, I think I have made a mistake?
7) Losses are cost of the Business and a lesson
Nobody likes losses, mentioned in the earlier point, period. But making a loss is not the end of the world unless it was a devastating one that wiped out your entire capital. Imagine being in a business, losses are part of the cost of doing business. Hence the goal is to keep losses small and continue to make more gains. So that the overall nett effect is positive. A loss can also be a cost for a lesson. Learn the lesson well cos you have paid for it. Imagine paying fees to learn and train to become better. Gains are not always good too. You might have made the mistake of not 'letting profits run' and at times you learn little from making gains and learn more from making mistakes and losses. Just dont let the chance to learn from it be wasted.
Results in 2015
So with these main ideas in my mind and with new perspective and understanding, I went about 2015 and increased my nett gains significantly, hitting the nett dollar returns I had in my 2nd year of investing (though with a much capital base) Almost tripled my 2014 paltry sum, and my dividends alone was close to $3.3K. Though with the event in my family that took up all my time and attention Sept to Dec even Jan. At least the dividends and payouts from REITs helped alot. Though I did make the mistake of buying on exuberance again, not taking loss, averaging. As any investor would tell you. These are the mistakes we all make. There are still lessons to be learnt, realised, internalised and it feels like a journey. I try to make fewer and smaller mistakes as I learn more about how to set up your own trading system, trading rules (not computer systems), scenarios for decisions, indicators, stop losses and trade size decisions, precise buying or selling decisions , execution, reflection, seeing it through from start to end and repeat it without deviation. After 7 years of investing, finally I think I have grown a little more and will continue to read and try to set up all these. I dont have any hard and fast rules about buying, selling, when to buy or sell and so on. Now that is a challenge and a goal to work towards, not just 2016 but into the future.
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