Took some time off recently as life has been kind of wanting to teach me a few lessons of its own. Needed some quiet time for myself to sort out several stuff. Firstly was my investment style and temperament. I was investing in a style which I was not suitable for, thus when the black swan (Swiss franc removing peg) came this time, I was not prepared. I sold most of my value investing portfolio and went into cash. Also lost $119 due to the fire sale of some of my equity. All this was due to my own overconfidence bias which I believed even after being proved wrong so many times, that I can time the market. It proved to be futile and finally I understood why so many investors recommend passive investing. In this example I was my own black swan, although the lesson was only $119, this lesson made me realised an important point. Never do anything which is against your mind’s temperament. Everyone has an investing style, you will need to find your own and make it “yours”.
Secondly was in life I hit into a black swan event as well. Blame it on my own overconfidence bias as well. Life wanted me to learn to do things in a humble way and brought me back to earth by these 2 valuable lessons entrusted to me.
Action points which I can learn from these 2 events.
1. Value investing is a marathon, you should not be vested with money your cannot afford to lose (Using of CPF-IA may overcome this bias I have in my mind – The CNAV portfolio would be better off in the hands of the CPF-IA account – Money I will not be using soon).
2. I am actually more suitable for passive investing for my cash. The bulk of my time could be used to fuel up my works for Dot Com Culture. The business belongs to me and I should take responsibility for it.
3. The fucks I give to an event (e.g. the swiss franc removing the peg to the euro) may not be proportionate to the actual fuck it is worth in the real world. This event did not even make the market move a blip. Perhaps its time to stop watching CNBC and reading business times and sunday times invest. They are simply detrimental to your wallet.
4. Life may throw at you several black swans, just because you did not see a black swan before does not mean this predicate (For all elements which are swans, there does not exists a swan which is black). The only way for you to do is to bounce back when you have sorted out everything in a logical way. Once you see the light, it is actually a very clear road.
5. I am a far more conservative investor than I imagined. First will be to rebuild back my capital in OCBC 360, for the risk free 3.05%. This returns can even thrash most government bonds. Plus the fact that this is liquid cash.
6. The most unexpected returns from my permanent portfolio was the long term government bonds. When everyone was thrashing bonds and said that the fed will be raising interest rates once it tapers off QE, I managed to get some bonds at a good price and I am now sitting at an unexpected gain of 15-20% of my capital. It really pays to be greedy when others are fearful and to be fearful when others are greedy.
7.A rising tide lifts all boats. Just because you were able to make money in a bull market does not make you a good investor.
Life was always fair, if only you focus on the positive and not the negative. 🙂
What doesn’t kills you makes you stronger.
2012 – Start of speculations
Started my investing journey or rather speculation journey in 2012. When I started out, speculated on FSL, Chemoil, OUE Ltd, from SGX. All these position do not have any sound analysis and was bought either on friend’s call or by using the brokerage newsletter’s buy or sell call. Wasn’t heavily burnt at that time. thereafter i discovered that stocks in NASDAQ had higher volatility, thus went into positions of Aeterna Zentaris, Activision Blizzard, Primo Water Corp and got myself badly burnt by them . Overall I was losing money.
2013 – Speculations in forex and indexes
Went for further courses such as technical analysis and opened up brokerages with city index and IG market and went to punt in FX and indices. Had also a huge win with Groupon, but overall was still a loss. Punted with the market maker and sometimes won and sometimes lost. I had no particular strategy and was flipping from one strategy to the next. Played with some IPO and had small wins. It was this year which I started my Permanent portfolio which was a passive investing portfolio consisting of 4 asset class.
1. STI Index ETF
2. 30 year SGS bonds
2014 – Going nowhere
Although I was keeping watch of the market everyday, didn’t seem to be able to make any cash. Somedays I won, somedays lost. I read about tail risks from Nassim Taleb, but didn’t put much notice into it as I believe the market makers would be able to close out any positions as long as I had the stop loss in place. Thus continued punting on the FX and index market . I had always thought I could take this risk. Permanent portfolio looks boring as it negative. Did some value investing as per what I have learnt in some courses.
2015 – The wake up call and knowing yourself is the path to victory
Something happened early this year which made me realise that I may have been ignoring tail risks all along. First was the standard chartered bank closing of the institution equities. I panicked and sold some of my holdings in the London Stock Exchange. This actually turned out to be a blessing in disguise as I unknowingly bagged some dividends for one month of holding. Although Standard chartered was not even closing off the retail equity investment platform, this fiasco made me realise that I was not ready for so much of risk taking as I had 80% of my equities in SCB. Just when I thought all was over, within the span of a few weeks, the swiss franc strengthened against all currencies by 20%. Although I was not in this scenario, I realised why Nassim Taleb was talking about this tail risk. I didn’t want to be in this situation thus I closed off all my FX positions called for my money back. I eventually sold off most of my holdings in SCB as well. The next day, I was watching CNBC where I saw the brokerages FXCM stocks dropped by 90%. It was then than i realised that you could lose more than your capital when the banks ganged up against you. It felt to me like picking pennies in front of a steamroller. You need to hop away as soon as you see the steam roller coming towards you. Read the article below to understand more.
I was no longer comfortable with this sort of blowup as per the swiss franc shock. I do not think my portfolio can withstand a 2000 pips drop. Thus I prefer to get out while I am not killed. I imagine myself as the turkey over here. Quitting while you are ahead is not the same as quitting. With this renewed understanding of myself, I am ready to take on the market once again, once I get things sorted out. 🙂
I have just blogged about having the type of “investment game” that you are most suitable for your temperament and something spectacular happened today. What was it? Behold the image below.
This is an example Nassim Taleb was talking about in his book fooled by randomness. This currency pair climbed up slow and steady for the past 1 year and suddenly flashed crashed in a day. If you did not have a proper stop loss in place, you might have been closed out. The cause for it was due to the central bank of Switzerland removing its peg to the euro dollar at 1.2. Well fortunately for me I was not trading in this pair, but I held 2 positions in 2 carry trades, the Kiwi and the Aussie. I was lucky the news did not hit them.
As per my previous blog article, I found out that I did not really have the risk appetite and temperament to continue trading in the FX market, thus I closed off both my position and emailed my broker to closed down my account. I will be focusing on passive investing (Perm portfolio) and more of dividends investing of stocks trading below their NTA. This was really a wake up call to me to remember Taleb’s warnings of tail risks.
Although these events don’t occur normally, we cannot dismiss them. You’ll probably should grab all 3 of his books to read.
1. The black swan
2. Fooled by randomness
Well. the first thing you will need is to be truthful to yourself. If you are one who cannot take losses, then your money should be placed in banks. There are a few good products out there like the OCBC 360, Standard chartered Bonus savers and the CIMB star savers. However if you can take in more risk and don’t mind your money “locked in” for at least 5-10 years, do read up on some passive investing styles like 60/40 stock bonds portfolio, permanent portfolio or the dollar cost averaging purchase of the STI Index ETF. Books which I can recommend are
1. The millionaire teacher
2. The permanent portfolio
3. Fail Safe investing
If you would like to take in more risks, you may wish to look at dividends investing, value investing etc. First step is to be honest with yourself and find out who are you before you can start to invest.
I have found that by changing strategies all so often, I ended up with a net loss even though I was watching the market the whole time since 2012. Where as, my side business, dotcom culture had earned me a $3000 income in the past year without me spending so much time as per watching the market, my brickify sales business had also generated close to $750 in the past year. I realize that I should focus more of my energy on something I am better in, instead of spending too much time trying to beat the smartest traders and investors in the world.
By the way these are 4 of my focal points which I hope I can attain
1. Meditate at least once a day
2. Start on my app gaming project
3. Start on getting my certification from coursera.org on dinosaur paleontology
I have found my own “investing game” and I hope you can find yours too. So the next time if you ask me what happened to the market yesterday, I will most likely answer : “I Duno”.
Last week when I was having my reservist, I received the news that Standard chartered was going to close its institution equity business. This got me panicking as I held more than 80% of my portfolio in Standard chartered. The thing I was afraid at that point of time was that there would be no custodian which I can transfer out my shares as I held some ETFs listed in LSE. This caused me to sell off my Vanguard all world ( VWRD ) at a slight profit due to the panic.
I must admit I was panicking for nothing as this news only affected their institution equities business and not their retail business. However out of this fiasco, I have realized 2 points.
1. My personality may not be suitable to take too much substantial amount of risk, which is why I did the panic selling
2. The lingering effect of this fiasco also made me realized that I may be more suitable for dividends investing and passive investing.
Although nothing is happening to SCB retail trading system, I will be slowing transferring my shares out to my CDP account where I can have better sleep at night. It may sound weird but this gives me a better peace of mind. From this fiasco I found out i learn more about myself. I will probably perform better sticking to passive investing and dividends investing using my normal CDP brokerage.