Sunday, 25 December 2016

What Has 2016 Taught Me/Reminded Me

It is year-end again, and typically, people review their life, thinking about what could have been done better, what went wrong, what good things happened. People also always look forward to a better year ahead. Such is human nature, no matter how bad (good) the year has been, we always remain optimistic and hope next year will be good (better).

Market had its fair share of exciting events and experienced some volatility. In perspective,  some of the market drops were significant, but not catastrophic. In Jan STI was down around 25% from recent peak of 3,500. Significant no doubt, but not that uncommon and catastrophic as some people or media described. I mean, compared to 08/09 this is quite mild.

With the wild-swinging market in 2016, it is even more important to hold on to solid investment principles or philosophies firmly, as these principles will guide us and help navigate through the choppy market. The more wild-swinging the market is, the more we need these principles to anchor us down, and keep us grounded. Our investment themes of the day may change; approach may change; tactical bets may change; but investment philosophy and beliefs should remain.

I begin to sound like a broken recorder, keep talking about the same things. But.... they are still crucial to our investment success. So here are the 2 key lessons (re) learnt with a deeper meaning.

Investment Decisions cannot be Based on Market Predictions

I think this year really epitomizes the horrendous ability of human in making market predictions, and the futility in investing based on these forecasts. I mean, look at these events and how had people been caught with pants down trying to predict the outcome and market’s reaction?

  •          No one expected Brexit, but it happened; people were predicting crash, but market recovered quickly
  •          Majority predicted Hillary to win, but Trump won; the market plunged (as per predicted), but only for a few hours within one day, and shot through the roof after that
  •          Oil price was forecasted to drop to $25. But it bounced off from $35 (or $30?) and today its at around $55

The media get it wrong. Even the experts were caught wrong footed.

  •          Mr Lim Say Boon said in Sunday Times today that he joined the selling early in the year by encashing a large part of his banking stocks, and never bought back
  •          Straits Times yesterday had article on factory output rised in last month caused by a ‘surprised’ surge in electronics and biomedical production

And numerous economists or analysts interview on tv and news regularly expressing surprise on some economy figures, NODX, pharma/logistics/manufacturing output grown, after previous gloomy forecast (yet they continue to forecast next quarter’s performance. Ok I know they are paid to do that, and not penalized for wrong predictions).

If we invest based on these 2016 predictions and their supposedly smarter prognosis of how will market react later, the results, quite clearly, will not be good. Instead of counting our earnings, we will be busy buying, selling, switching between asset classes or securities reactively. Each change will bring losses, incur trading costs, bring about more questions, and shake your confidence. The point is not the legitimacy or justification of these actions, but the fact that they are always taken on a reactionary basis, one step behind the market. 被市场牵着鼻子走, 下场就是累死。

Which brings me to my next principle.

Be Disciplined with The Pre-Set Rules and Abide by It

Do you have investment rules at the tactical level that steer your buy and sell decisions? Qualitative reasons or observations that prompt you to sell out? Lock in profits at certain percentage? Stop loss price for short term trading? Trailing stop loss price? If you have, they should not be changed haphazardly due to news, press articles, hearsay from friends etc.

The criticality here is two folds. Firstly, they remove emotions from your investment decisions that are usually impulsive, hot-headed and illogical. Secondly, it is about consistently following your rules over a long period, which raise the probability of successful investment dramatically should these rules are logical, well-thought through and based on individual experience that suits their style.

Do not get me wrong. I am not saying that all these economists and analysts’ opinions are always wrong and hold no value at all. Their comments do have values in enabling investors to assess the broad economic conditions, and be aware of the big picture that may impact macro indicators. But these are in no means definite predictor of the performance of your counter. Don’t let them dictate your buy/sell, change your rules, or even just arousing self-questioning regarding your guidelines.

Personally, I have benefited much this year from the strict adherence to my investment rules. This reinforced my conviction in this principle further. For example, convinced myself to buy telcos at bottom price as a short term trade, and selling out at the target price and avoided subsequent loss; bought Sembcorp at bottom price range based on strong belief that its business may turn around soon etc.

So, thats it. 2016 has almost passed, in a blink of an eye. It has certainly been an eventful year. With big changes coming up in my career in 2017, possibly a complete change of industry, i certainly need to hope for the best, prepare for the worst, and work like a mad man. 

Lastly, wish all readers a better 2017 ahead. Merry Christmas and Happy New Year! 

1 comment:

  1. Hi Sir,

    Nice read knowing tt we did similar holding our balls this year and had a decent return

    ReplyDelete

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