Is investment really so difficult?

Do you hate mathematics when you're studying in school? Maybe.
Investment is all about mathematics and numbers? Not really.
Is investment really so difficult? Well, not that, but this is up to yourself to determine :)

What a mess here?

Let's play with some equations today.
And some simple equations forward.


High reward, short time = High risk
High reward, low risk = Long time
Short time, low risk = Low reward

Looks pretty simple? Don’t worry, it revolves around this few constants.

So how to deal with it? Frankly speaking, the answer varies pretty much for the different situation. 

High Reward + Short time = High Risk

So you want a high reward in a short time frame? You will need an extremely volatile market in order for that to happen. With an extremely volatile market, you will be exposed to a greater risk and prices are bound to swing and bounce up and down. If it goes up, congratulations. The risk you’ll be facing here is IF it goes the other way.

Speaking of short time frame, you should be considering on trading and not investing. This will also mean that you’re buying and selling for the capital gain.

Examples of tools or investment that will be able to help you with it: Cryptocurrency, Leverage, Technical Analysis.

Now a good question you should ask yourself is: Can you stomach the risk and sleep soundly at night? Or perhaps you may not even be holding it through the night!

High Reward + Low Risk = Long Time
Now, it does not necessarily mean LONG. But for sure, you must have the mentality to hold onto it for a decent period of time. It might be months, years or even decades. By saying low risk here, it does not equate to NO RISK. Disruption might come kicking the ass of the company you own, causing the growth to slow down or even travel southwards!

To mitigate or to further lower the risk, the key here is diversification. The more diversified you are the lesser the risk. Diversification does not only mean diversifying your equity holding to hold stocks of different sector but beyond it.

If you’re a DIY investor, handpicking your basket of stocks from the market, it will be good that you pay attention to news and reports of the company you hold for a clearer picture of what is going on. 

There’s many types of investment that will satisfy this criterion such as bonds, stocks etc. and one good tool you can here is fundamental analysis.

If you are looking for even lower risk, go for fixed deposit. The additional risk that you’re taking for investment in the stock market will be compensated with a greater return. 

Short time + Low Risk = Low Reward

Now this is related to point number 2 up there. With a shorter time-frame, the returns will not be as significant when you compare to a longer duration. Needless to say too much about this.

The most important part is the decision making part towards how much you allocate to each part.
Diversify your investment to these 3 areas and you'll be benefiting from each of the scenarios. 

How you want your investment to go will determine on how much you "risk" and allocation you place into the type of investments. But please remember that, regardless of situation, nothing beats sleeping soundly at night :)

Buy and Hold - Who sold you that idea?

(UPDATED: 28/10/17 - example changed to Creative Technologies for a better illustration. Thanks SMOL. Apologies for the poor example cited previously that had caused confusion in readers.) 
 
I've read the 2 recent posts from 2 wise seniors - Uncle CW8888 and SMOL recently. Allow me to induce some flavors of this 2 seniors into this blog post.

Everyone knows what buying and holding is.. So what exactly is buy and hold?? Being curious.. I went online to google about the exact definition.

From Investopedia

Hmm.. but buying and holding does not only applies to stocks!!

Is buying and holding a "sure-win" strategy?  
Buying and holding might increase your winning odds. But there's no guarantee!!
The asset you're buying and holding is important too!!

Let's take a look at 2 example.

Buying SGX in 2004 Jan?

$1.83..

Hmm..

How about buying Creative Technology in 2004 Jan?

$20.10..

Both also inside STI and accepted by investors wor.













Wanna see some real examples??


Read:
Buy and Hold - Who sold you that idea? - Uncle CW

Buy and Hold - Who sold you that idea? - SMOL

The traps in stock market

Trap is a device that is used for catching animal or humans and preventing their escape. Being in a trap is an unpleasant experience and is difficult and impossible to get out of it. I've been seeing the word "value trap" pretty often and I decided to read up more about it. To my surprise, there's more than one trap in the stock market!!

Let's start with the most commonly heard trap:

Value Trap:
Everyone love to buy things at a discount don't they? Doesn't it feels awesome to buy the all new iPhone X at $300 without any contract? This beautiful piece of iPhone X is trading way below it's book value! You realize that you're able to sell this iPhone to a second-hand dealer at $800! Now..you see the opportunity. For stocks, value opportunity is identified by certain metrics, such as low P/E of the sector, trading below book value and more. So once the value opportunity is here, bargain hunter will come cashing into the stock. However, when the value is never unlocked, the value investors is trapped in the situation.

Bear Trap:
Bear trap is a trap that incorrectly shows the signal of a stock that is in a rising trend to reversed and go down. Traders love this. They'll go shorting on stocks with expectations that the stock price to decline after they've discovered certain chart reversal pattern. However, in this bear trap, the stock price stays flat or might even recover. The shortist are now caught and trapped.

Bull Trap:
Now on the other hand, bull trap is a trap whereby it shows an incorrect signal of a stock that is declining, and is currently "bottoming out". However, the fact is, this stock will still continue to fall. Investors will then be catching a falling knife. Bullish investors that had purchased this stock will be trapped in this poor-performing stock and facing 2 choices - to cut his/her loss or average down. 

Superiority Trap:
Now this is strange. Superiority trap is a behavioral trap. This is also a very dangerous delusion. This happens when the investor feels that their investing skills are more superior than the others. I have no idea why anyone will feel this way but.. oh well. This is a some kind of cognitive bias. Confidence is a good weapon in investment however, over-confidence tends to kill. Investors with this cognitive bias will be trapped in a position that they believe will do well, but did not. As a result, they may end up losing a good sum of their monies here. 

Transaction Cost - Are you a trader or an investor?

Transaction cost? 
Brokerage Fees/Commission?? 

Oh well. They're indeed annoying to everyone, and especially much to nano retail investors like me!
Sourcing for the cheapest brokerage fees is definitely important, but hold on.. are you investing or trading? Let's take a look, shall we?

I've found this on the net about the differences between the various individuals

Investing VS Trading:
Investing and trading are two different methods to take profit of the financial market. Everyone in the stock market wants to make money. So what are the differences?

Investors 
Investors tends to buy and hold a portfolio of stocks for a long period of time and uses the effect of compounding or reinvesting into another stock to enhances their wealth. As such, an investors uses time to makes money for them. This is also known as 'Time in the market.'

Investors believe in long-term prospects of the company, as such they do not check the prices of stocks they're holding every minute, hour, days or weeks. Investors buys a company and profit from it's success and growth. They'll usually look at a company's value, balance sheet, income statement, cash flow statement, fundamentals as well as management and metrics such as P/E ratio and more to help them with their decision.

So is there a particular time frame to determine if someone is an investor? The answer is no. There is no definition that defines an investor saying that if you crosses this time period of holding this stock, you're an investor. However, investors usually hold on to their stock for a long period of time and transaction fees are an one-off event for them. This also mean that transaction cost should not be a big issue to them. Nonetheless, it does not mean that the transaction fee is nothing to them.

A very notable long-long-long term investors is Warren Buffett.

Traders
Traders on the other hand profit from the buying and selling of the stocks and the period of holding the stock is usually short-term. They will usually use tools such as charts, technical analysis, moving average, stochastic oscillators, support level, resistance, stop-loss etc. They would use certain instruments such as CFDs, Short-selling to trade and profit amplifying tools such as leverage help them get a better profit. 

Trader trades on different financial markets. Apart from stock market, they would also trade on commodities, currency pairs etc. Now, this is known as 'Timing the market.'

There is a few different type of traders, such as swing traders, where they feel that in a period of time, looking at some possible catalysts, something is going to happen and that this something that is happening will cause a swing in the price, be it up or down. They'll be benefiting from the swing.

Day traders is another type of trader that completes his/her buy and sell within the same day. They're anticipating that something is going to happen in the day that will cause the share price to move up/down whereby similarly, they will be profiting from it. There is no overnight positions for a day trader. Similarly to Scalp Trader, which completes their trades in minutes.

The different type of tradings is suitable for different traders in terms of the level of risk they're planning to take as well as the experience they have in trading and the returns they expect from each trade.

In trading, as the profit is obtained from the buying and selling of an instrument, the transaction cost is much more important as it will plays a part in their profit. If the transaction fee is high and substantial, it will mean that it is eating into their profit.

One legendary trader is George Soros, which shorted 10 billion worth of pounds in 1992 yielding him $1 billion in profit. 


Remember: There is many ways to make money from the financial market. The question is how. 
There is a number of individuals they uses both method to profit more from the market. Finding out which method that suits you will definitely be the priority. 

So who do you want to be??
George Soros? Or Warren Buffett?

Lesson 01: Don't be early at the wrong time.

Throughout the week, apart from being occupied by school and work, I've communicated with several wise individuals.

Don't be early at the wrong time.
A good investment is an investment at the right price.

Time is our best friend yet it could too be our best fiend. 
Time is able to prove your decision right as much as it could punish you for your bad decision.

The idea of it is easily understood but the question isn't about how much you understand it. It is to how you deploy it.

As much as having an extremely small portfolio and starting young as a package, I will try my very best to ensure that the possible capital injection would be a meaningful and rewarding one. In every risk, an opportunity is presented. 

In 14 April 2003 (SARS), DBS is trading at $7.53 
DBS's closing price today @ $20.78
Total dividends received since 14 April 2003: $8.53


Assuming with only 200 share of DBS.. an initial investment of $1,506
We'll be seeing a total dividends of $1,706 and value of $4,156.
The 200 share of DBS is essentially free!! 
On top of that, I'm sitting on a gain of $200 and 200 share of DBS worth $4,156.




STI closed at 3,294,93 today... Impressive calculations. But where am I now.. hmmm....