01.02.07
On investments philosophy
I have recently cashed in some investments of over 5 years. I am sitting on some paper loss still. For the cash-in portion, I am mostly ahead.
I had a few misconceptions to my trading style. Basically, I follow a buy-and-hold strategy. In general, the strategy worked well, but the money allocation did not. If I had equally distributed my investments, I would have done better. I had most money in two stocks. One is doing okay and the other is down at least 70%. As a result, over the 5 years compound, even with discounted shares, I am only up about 2% per year. Good thing is that I did not lose that much of money but the bad thing is that 5 years have gone and I am pretty much where I started. From a timing perspective, I could not have done better, I started buying as the market loses steam and sold as the share market is hitting new peaks (and I only did 2% CAGR). The first misconception is the lack of money management/risk control. I subscribed to the Buffett-Fischer school of selecting very good stocks but the only problem is that I realized that given my time spent and the information available, there is no way I can be so accurate in picking the right stocks. As such, I need to adopt a money/risk management approach to buying stocks. More concretely, I need to be more distributed in my purchase. Putting it in two baskets is clearly not enough. I need more baskets. Having said that, I am still not a big fan of diversification and I still believe in picking a small pool and making sure this small pool do well as a whole.
Second, timing is of certain importance. For example, my global internet unit trust has lost money since my initial purchase and the fund was introduced after the internet stocks have gone down. Therefore, it looks risky buying at a high or when the trend is moving down, because using the buy-and-hold strategy, it will take a long time to reach the break-even point. If I would to do this again, I would rather buy as it is going up, rather than going down. And I should persists my buying over down period rather than stop (because I had to get married and spend money elsewhere!).
Third, what worked well was my money market fund. Sure, the returns are most likely to be described as pathetic, but the fact that I saved $100 a month for 5 years resulted in a $7k savings. Imagine, if i have saved $200, the savings would be $14k and if I have saved $500, it would be $35K. For that matter, this investment worked so well that I am really better off saving a large pool of money in this type of money market fund and invest the money when the market is really doing bad, or as it is picking up from a bad spell.