Saturday, 27 December 2014
2014 Review and 2015 Targets
2014 has been an eventful year. I got my house and got married. So the previous few years' savings had been well utilised for the 2 big events.
Investment wise, I did not achieve the yearly target of 12% return per annum. It is probably about 9% or so. The focus was on establishing positions in low PE and relatively unheard of companies. These shares usually will take a longer period to realise its values, hence a one year time frame may be too short to determine the true returns.
Based on my investment journey this year, there were 2 lessons learnt. Both were old adage in the investing arena, but were given a deeper level meaning due to my first-hand experience.
Firstly, trading and speculating in the share market is absolutely not for me. As I had decided to be an investor, it is best not to be half-hearted about it and try jumping in and out of the market quickly, even when the amount is small. I know there is common saying that it is fine to use a small portion of your portfolio, say max 10%, to trade, to satisfy the itchy fingers, or for whatever reasons, since it cant do big harm to your net worth due to small capital. But in my case, no matter how much I study the trend, follow the MA and volume strictly, set strict cut loss, I always end up in the losing side. Each subsequent trade I had done was thought out carefully, and rules were refined from previous position such as wait for further confirmation in volume spike, relax the cut loss limit further to accommodate price swing etc. But these efforts were futile. I lost 5 out of 6 trades. I recorded the losses in these trades in bold and red font, to remind myself to stop trading.
Second lesson, importance of cut loss. I used to feel that cut loss is not necessary if I can be sure about the business fundamentals. Furthermore, as an investor, lower price give you the chance to accumulate more on the cheap. But the problem is, are you sure the companies you are holding are strong enough? Even if you are sure about the business, should the macro environment is so unfavourable that even the strongest will see a drop in price, is there any point in holding on?
Furthermore, cutting loss has a deeper, second level impact. Its not just the capital that is at stake. Your confidence and conviction will be affected too. Watching the price fall daily will affect your judgement, and deal a big blow to your belief. You start doubting yourself. What seems to be positive developments would be viewed in a different lens and interpreted as negative now that the price is down 30%. It makes you lose your head.
So in this year, I finally sold out Midas at a 48% loss, after a painful 4 years. Whether the business is still solid, which I highly doubt so (could my judgement be affected by the price drop?), or it is a temporary price fall, is none of my concern anymore. I am just glad that the cancerous lump in my portfolio had been removed.
I also sold NOL with a 16% loss, after a 1.5 years holding period. Had I not done that, I will be staring at a 30% loss with no end in sight.
Cutting loss allows me to free up my capital, and re-allocate them to better counters. Having this flexibility is important as it frees you from the mental burden, and allows you to react nimbly to market movements. Although it resulted in realised loss, but taking a portfolio approach to my investment, overall they are still doing fine.
Lastly, for my 2015 targets: 130k portfolio and 12% returns inclusive of dividends.
Have a great festive season and Happy New Year!
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