BULLy the BEAR

The more I stay in the market, the more I realised that being calm and steady is the only way to win consistently. I've dealt with higher volatile instruments before and the conclusion is that you don't want to be too happy when you win and too sad when you lose. In the short run, what you see is the variability of your system, not the returns. A short run of good wins will be interrupted by a short run of bad losses.

Since today is Hohoho day, I use the opportunity to hammer in some reminders for myself with regards to my love-hate-relationship with the market. Not in any particular order of importance,


1. Be zen. Treat both your wins and your losses with equanimity.

For the boh tak chek, equanimity describes the unattached awareness of one's experience as a result of perceiving the impermanence of momentary reality. It is a peace of mind and abiding calmness that cannot be shaken by any grade of both fortunate circumstance and unfortunate one.


2. Spend some of your winnings.

I think it's important to buy yourself something nice, to close in the winning. Money is just a means, not the end, so I think it's important not to accumulate money but to do something worthwhile with the money. In your death bed, I don't think that you'll worry about not making more money. Converting money into nice memories is what I'll do.


3. Enjoy the little things in life

Hey, market is not everything. Spend time with your friends and loved ones. Take time off the market, enjoy reading a book and playing some games. You'll be surprised how getting away from the market for a week or so can let you see things from a different perspective. I learnt this from the movie, zombieland-> Rule no. 32


4. Don't be too harsh on yourself

I missed DBS in March when it's 6++ and now it's 14++. I missed selling swiber at 3++ and now it's 0.9++. Ya, I suck in this game, but I'm learning along. I missed some good moves and ride on a couple of bad ones but look, I'm still here chatting with superfriends in the cbox and having great power lunches with them. While everyone should treat the stock market seriously like it's a side business, but take it easy on yourself if you missed the good moves and somehow caught all the bad ones.

Bad luck don't go on forever - so does good luck.


Have yourself a merry christmas :)

I heard this story from a friend of a friend. He was walking along Raffles city, on the way to run some errand when his broker texted him, saying that NOL is a good buy because of some news or some reports. Whether it's actual news or just rumors is not important, it's sufficient to know that there are some catalyst to trigger the price and he promptly told his broker to buy 10 lots of it.

After he crossed a road, he met his friend, who is known to be a guru at technical analysis (TA). This TA guru told him that NOL broke out of range, and the macd lines are going to cross over. Yesterday's candlestick shows a bullish engulfing pattern, with the volume being at least 20% higher than the average volume for the past few weeks. This, the guru told him, is a good sign to buy more. Our hero in this story, let's call him Joe, called up his broker again to buy up another 10 lots on hearing this very positive review of NOL's charts. He is going to make some money!

As Joe walked along the sidewalk, he met another friend of his, who is well known to be a successful investor. Joe proudly mentioned that he is now a part owner of NOL, having bought a few lots of NOL today. Joe recommended that his friend should buy up NOL too because the price will run up soon. This investing guru friend shook his head and said that he would never buy NOL. NOL had a rather bad quarter, with poor balance sheet and cash flow problems. The PE ratio is 50% higher than the average PE and no way is he going to invest money into a company like this. This guru mentioned a whole lot of other alphabets and greeks that Joe do not understand at all, but he believed that his successful investing friend is correct in his view point. After saying goodbye, Joe was so ominous of NOL that he called his broker to sell all 20 lots of it.




Joe, still sore over his losses, was contemplating giving up the market entirely. This is when he caught a glimpse of another of his friend (it's raining friends today, it seems). This friend is an expert in unit trusts and he made quite a killing investing in funds he bought over at fund supermart. Joe's friend, ever a believer in the random nature of market, believes that the best way is to buy a diversified portfolio of low cost funds and keep it for the long term. Joe, convinced that this should be the way to go, called his broker and bought a few funds that his friend recommended, one of which is the STI ETF (exchange traded funds).

I don't think Joe realised that the STI etf that he just bought also contained NOL as part of the component stocks.

Is there a little Joe inside us? There are plenty of experts and talking heads out there dishing out free advice that works very well for them and possibly for you. You should reflect and think for yourself. Nobody knows you better than yourself.

(A parallel post of mine - The father, the son and the donkey)

I read a silly post about critical illness. That person commented that there's no need to get critical illness coverage because the probability of claiming such things are very low, to the tune of 5% during their working life. A hospitalization and surgery plan (H&S) is enough. I disagree fully with the comment that having a low probability of claim means that there is no need to cover for it. I shall not comment on whether a H&S plan is sufficient.

The comments made me wonder if people are confused with the probability and the payoffs. The consequence of an event happening are often more important than the probability of occurrence.

Let's play a very sick game of russian roulette. Inside the chamber, there are 6 slots with only 1 live bullet. If you press the barrel against your temple and squeeze the trigger, you'll immediately be given $5 million SGD if you survive. The probability of getting the bullet is 1/6 and you have 5/6 chance of getting the $5 million SGD. Would you play?




I would not, unless there's no more meaning in my life. Though the probability of a payoff is good, the result of having a bullet running through my brain is so disastrous that the low probability is of no consequence to me. Probability works for past statistic over a large sample size, so if there are 600 alternate realities of you squeezing the trigger, approximately 500 such 'you' will get the $5 million and approximately 100 of 'you' will be lying on the floor. Even then, it's approximately. But before it happens, there's no way to know if you're going to lie on the floor or be jumping for joy over your windfall.

It is often said that in the long term, the probability of stocks beating any kind of instrument is very high. Statistics are given, charts are shown. I heard of people using these long term investments as a nest egg for their retirement (it's happening in US now) and I wonder if these 'long term investors' ever thought what happens if in the long term, the investments don't work out. Will they be able to ride out the consequences?

I keep hearing this "In the past, 9 out of 10 times, blah blah blah happened, so you can be assured that blah blah blah will work out fine for you". My bullshit sensor will start to ring. My mind will start to wander - what happens if blah blah blah that is so highly likely to happen didn't actually happen.

I still think that in an uncertain world, the consequence of an event happening is more important that the probability of occurrence. Screw probability and its illusion of certainty under uncertainty.

This is probably one of the strongest post I'd made on the TA vs FA topic. If you feel offended, I'm sorry.

When I started out in the market, I had no clues what is FA (fundamental analysis) and TA (technical analysis). I basically just buy based on broker's reports and hearsay. I remember scanning through CNA forum everyday to pick out those hot counters that people are punting on. Eventually I noticed that the top 30 volume in sgx are these weird little counters that looked like this: STI2750SGAeCW100128 and their % changes each day are superb. I started buying and selling these and eventually started out on TA so that I can understand better the movements of these warrants (notice the order that I learnt TA).

So I started on TA, work out alright and not as magical as I thought. You know, when you just started on TA, I'm looking out for the magic parameters, the magic indicators so that if I knew what those were, I could predict the market. I didn't realise that TA is just a way to see the market. There's no magic parameters and magic indicators to make big bucks. I gave up on it after some time when someone introduced me to value investing.

Hey, I know nuts about finance. I took an accounting module which I had no memory of having done before. I had to start from scratch. I started reading up on accounting and on general principles of investing. Again, I was looking out for some magic ratios to calculate the intrinsic value. Why am I looking for the intrinsic value? So that I can see if the price is below value and above value. Buy below value and sell above it, isn't it what this is all about?

There is no magic formula, no magic ratios to compute that illusive intrinsic value. You can easily be fooled by value, if you ask me. Can charts show you where the prices will be, 100%? Of course not. How about 50%? I don't know. In real life, the uncertainty is unknown and the probability undefined, so it might be for the best that we don't kid ourselves with the certainty and assurance of mathematics. Can you ascribe a certainty as to whether a fundamentally sound company will work out fine 30 years down the road too? We do what we can and hope for the best.




A trader can be conservative and an investor can be risky. The general literature seems to ascribe the fact that investors are safe. As long as you are a "long term investor" (you've no idea how much I'll cringe when I hear those words), you'll make money in the "long run". Nothing is further from the truth. The truth is, it depends on many things.

What I'm really trying to say here is that I've stopped trying to figure out where the next bagger is, where the next hot counter is and whether this school is better or that school is better. I'm in the market to make my returns better than safer instruments out there and I'm under no illusion that I'm doing this for any other reasons. I'm willing to try it out for myself to see if something works for me or not.

Personally, I like doing a bit of charting and a bit of analysing. A bit more of charting these days. I try my best not to be one of the blind men who tried to feel the elephant. The best trader I've seen tries to find out if the company is doing well now and in the future. The best investor I've seen tries to see if there is a bad signal in the charts before buying.

Whichever paths you take, I wish you well in the market. As my friend Panzer would said, be well and prosper. I couldn't agree with him more .

I've been toying around with the idea that you can treat an individual financials as though it belongs to a company. Long time ago, as I was learning how to read financial statements - those pesky cash flow statements, income and balance sheets - I didn't realise that reading those are similar to an individual's statements. Let me illustrate:

Suppose I earn 100k in a year, but spent 70k, thus my savings would be 30k. Isn't this similar to a company with revenue of 100 mil in a year, 70 mil spent on costs, leaving 30 mil profits? Here's the interesting things:

1. Just like one can calculate a company's profit margin (profit/revenue), one can also do the same for a personal financial statements. Savings ratio (savings/total income) is very similar to a company profit margin and the analysis of it can equally be applied.

My savings ratio up to date is 60%. I didn't use total income, but used the basterdised version of it - total cash out/total cash in on a monthly basis (due to the nature of my job, there's a big difference between my income and the cash I get per month - that's another story for another day). It's lesser than last year, which goes around the insanely high amount of 80% on average. But hey, I'm happier this year and I definitely saved more in absolute amount. No regrets on spending money on people around me :)


2. A company that holds too much cash is not good because cash itself is not going to generate a good returns for the company. If you hold too much cash, you'll start to wonder if the cash is really there in the first place (think ass-shares). Similarly, for an individual to hold too much cash in the form of fixed deposits or savings accounts, it's going to reduce one's ROE (not the thingy that you eat on sushi - it's returns on equities).

For me, my ROE this year is definitely going to be low because I'm holding more cash than necessary. Why ah? "Me private limited" is going to have a amicable takeover with "her private limited", where the former is going to assume any profits and liabilities owned and owed by the latter. The impending fees involved would thus be reason enough to hold some cash to tide it over. Hopefully it's a good investment for me private limited :)


3. A company with weak balance sheet can withstand the storms of the business world. Likewise, a person with weak balance sheet cannot weather bad patches as well as someone with stronger balance sheet. What's weak balance sheet? High debts, low in cash high in 'assets' like cars are two things that come to my mind.

Here, we have an interesting situation. Too little cash is no good. Too much cash is not good too. Different companies have to adjust this cash ratio to suit their purpose, I suppose an individual have to do the same too. Just bear in mind the risk of holding too much cash.


Think I'll stop here. The good thing about learning to analyse companies is that you can analyse yourself as a company too :)

I've recently completed my 50k challenge. What's that? In the beginning of the year, I wanted to save money to complete a few short term goals that will commence in 1-2 years time. It's stated in this post here. Well, a few things had changed since then, but the challenge of saving 50k by 31st Dec 2009 remained.

I'm very proud to say that I've done it already, and it doesn't take 12 months to complete that. It took only 10 months. This is not a post to hao lian how much I can save, but rather, I wanted to share the idea that if you really set out a goal that you wanted to, planned to get it, you'll reach there.

I've never saved so much in my life in a span of one year before, so setting a goal of 50k is really out of my reach when I challenged myself at the start of the year to do so. Heck, I might not even earn that amount, much less save it. This is so crazy. These are the thoughts that ran through my mind throughout the months. But the driving force that pushes me to do it is that I've said it to everyone and I'm therefore accountable for what I've said. I must do it and well heck, I do not know how to get there, I'll try my best to reach there.

I set out to do a plan of how much I need to save to reach my goal. A simple calculation will show that I need to save $4.2k to hit 50k in 12 months. It's impossible for me to do this consistently for 12 months because I do not have a stable income every month. My peak season is towards the 3Q of the year and the 1st and 4th Q are usually much more free (and therefore lower income). Therefore, this is how it should be done:

Month---------Amt to be saved
Jan----------------2,500
Feb----------------3,000
Mar---------------3,500
Apr----------------4,000
May---------------4,500
Jun----------------5,000
July----------------5,500
Aug----------------6,000
Sept---------------6,500
Oct-----------------6,500
Nov----------------1,800
Dec-----------------1,200

Total amt=====50,000

If you're staring at it and wondering how can I ever do this when I don't even earn that much - well, I had the same thought as you. I remember telling my gf that this is so f**king insane BUT I'm still going to do it nevertheless. Armed with this suicide bomber mentality, I toiled month after month. I'm going to die trying it if I have to.

When you announce to the universe that you wanted this so badly, things will bend over backwards to make it happen for you. I cramped some much work in a single day that I broke all records in my 7-8 years in my career. I had the longest amount of work hours in a day (10 hrs of pure work, meaning 13 hours out of home), had the earliest lesson ever (7am), had the latest lesson ever (1130pm). I'm not out to set records, but if I really wanted something, I really have to do it. Whatever it takes, for as long as it takes.

All this takes a toil of course. I was very stressed especially over the Aug to Sept period. When I'm out pak talling with her on weekends, I'll sometimes whip out my black organiser and start to plan out the work for the coming week. I remembered confiding to her how am I ever going to save that much. I must have been quite a pitiful sight, because she gave me 1k to tide me over my darkest hours. Love her.

And so, when I mean that I've done my work for the year and I've earned enough, I freaking mean it. Nobody can say that I didn't do my best. This 50k challenge is especially sweet because there's a lot of people out there who care for me. When I feel like shit, they take me out for a drink and listen to my ranting. Hey, brothers and sisters who are followers of my blog, a big salute to all of you. I'm honored to have known you.

Someone sent me a newsletter that essentially is an advertisement to buy some diversified funds. Attached in the newsletter is this picture which I found it very interesting. This is, of course, not the first time nor the last time I’ll ever see this picture. I’ll like to take some time to think about the myths portrayed in the diagram.




The diagram shows the investment risk pyramid, where the highest and presumably highest returns are placed right at the tip of the pyramid. At the base, and therefore forms the foundation of the whole pyramid structure, lie the no risk and presumably lower returns (in fact, negative returns). You can see that cash is defined as a no risk instrument.

I think everyone should define what they mean by risk. In the academia world, risk is volatility – or how much the price of the instrument varies from its mean price. In that aspect, then the investment risk pyramid would make perfect sense.

However, I find that definition of risk a bit inadequate for my laymen, non-academic purpose and $-minded purpose. Risk, at least for me, is defined by how much you can lose for how much you want to gain, i.e. I risk $10 to bet that this team will win, so that I can get back $15. My risk for earning $15 is $10. It does not really matter to me if the it yo-yo up and down since I know how much I can lose and how much I can win. I suppose in that sense, the pyramid does not make sense to me at all.

I know the risk of holding cash - it will be lower each year after accounting for inflation (which is around 3-5% pa). It's invisible but the effects can truly be felt. In the past, I can go to the food court with $3 and have a full meal. Now, I can barely fill my stomach or even buy anything with $3. So, I'm questioning if it's right to treat cash as 'no risk'. In fact, the risk of holding cash is that you will lose some 3-5% of it every year.

Going by the same argument, if you treat shares as the second highest risk group according to the investment risk pyramid, it doesn't make sense to me too. Yes, shares are highly volatile (actually, have you seen those illiquid stocks that pay high dividends before? Vicom, anyone?) hence it has one of the highest volatility. This means that it's 'risky' since the price fluctuates wildly about its mean. Well, they can go ahead and classify them as risky but I'll do it anyway. Not dabbling in shares intelligently is the most risky thing you'll want to happen to your financial health.

After reading through the newletter, the punchline came. It offers a product that gives a guaranteed annual return of between 2.30% to 2.55%. Sounds good isn't it? Better than fixed deposit - a fact that they never fail to mention.

Thanks but no thanks.