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Wednesday, 14 December 2011

Listen to the walk; not the talk

Do read the below conversations between a newbie and 2 “seasoned” investors with a light-hearted touch:


Newbie to Investor A

“Is this stock a good buy?”

“Sure! This stock’s P/E ratio is at all time low of 9 times; the forecasted growth next year is 20%; it’s selling at 30% discount to its book value; the chart is showing it is building a strong base – which means it will break out in price soon! Plus it got lots of dragons and phoenixes…”

“That’s great! I assume you already own this wonderful stock?”

“I not vested in this counter.”

“..........”


Newbie to Investor B

“Is this stock a good buy?”

“This stock is the pits! I spit on it! The management don’t care a damn about shareholders’ interests; take on massive amount of crazy debt to diversify to new businesses that are not complementary to it’s core competences; and the stock is now selling 50% below it’s IPO price; and the management still got the cheek to issue a Rights Offer to beef up it’s shaky balance sheet!?”

“Oh dear… I assume you are shorting it?”

“Short you head! I will be subscribing to the Rights Offer so that I won’t get diluted.”

“..........”


I leave it to you to take out what you may from the above 2 conversations.

We see what we want to see; hear what we want to hear J


21 comments:

  1. i'm bearish on the stock market, the gold and most asset class!

    but i'm not shorting them....

    ReplyDelete
  2. i resign from trading/investing and retired, hope it won't be long....

    ReplyDelete
  3. Coconut!

    Welcome back!!!

    1) I have bearish bias too. That's why 50% in cash now for my own portfolio.

    Having said that, a few weeks ago I shifted my company's private pension fund from 75% equities and 25% bonds to:

    25% equities

    50% bonds

    25% cash at 3.5% fixed interest


    2) I happy for you qian bei Coconut! Enjoy and smell the flowers!

    ReplyDelete
  4. Market is always made up of two different views; otherwise no transaction will be done.

    ReplyDelete
  5. Hello CW8888,

    Thank goodness for that!

    If not imgaine the huge gap up and gap down days when no one wants to take the opposite trade? Black Monday revisited?

    On that note, we must say a special thanks to all the proprietary traders out there who provide 75% of the liquidity in SGX. (This is old rule-of-thumb... With the introduction of the algos, the percentage must have changed!?)

    Cheers to all trading warriors!

    ReplyDelete
  6. Hi,

    Hello Coconut! Very long haven't "seen" you since FAT stopped posting. Hope you have been doing well. :)

    Interesting post and thought povoking as usual SMOL. For me, it highlights the disparity between views and actions. It's always hard to admit our mistake and take the loss.

    Cheers,

    ReplyDelete
  7. sometimes you do not act on your opinion or the conviction isn't strong enough. but the call on the REITs was way off. had anyone sane they would still be subscribing the the rights issue.

    ReplyDelete
  8. Hi SMOL,

    Someone told me before, that if you say 'but' in a sentence, you practically erase all the things that you had said before the 'but' happened. That's a slice of the truth, of course.

    Let me analyse the two scenarios:

    Scene 1:

    Newbie is asking if the stock is a good buy. That is a complex question phrased simply. To be a good buy, you have to get the right stocks at the right time. If I'm investor A, after all the talk about the good things regarding the stock, I'll add a sentence - "so yes, it's a good buy but not the right time." Investor A is just talking about the stock being the right one, but didn't talk about when it's the right time to buy. It's not necessarily contradictory, rather I see it as complementary.

    Scene 2:

    Investor B reminds me of a joke. A person was complaining about a restaurant's food. He said that the food is lousy, of poor standard and the amount given is too little. It took me some time before I get the joke - why would you want more lousy, poor standard food?

    I wouldn't agree with Investor B, meaning that I wouldn't buy more of a lousy stock so that I won't be diluted (that's 3 negatives in one sentence!). So, to newbie, investor B is possibly saying that it's a lousy stock, but perhaps that now is a good time to buy it, at least for him. If you are not vested, don't get invested now.

    ReplyDelete
  9. i'm doing fine guys.

    again i'm not a crazy bear but i do have a really scary feeling about this one.

    the market is so polarise and show it extremes in the volatility. it going to take out lots of players out from business, pro or not. thats why i'm on the side line (retired). i don't think i can get back to trading/investing anytime soon.

    to do nothing is the hardest thing one can do!

    ReplyDelete
  10. oh yes, miss fat very much. lost a mind competitor. he gives me the enegy to trade super short term, my "day" trading also started losing steam after which (i'm a long term trader).

    day trading like i did in stocks was very tire for me and looking back, though its fun but it really does not suit me in the long run.

    the main worry now is, deleveraging, deflation, depression spreading all over the place.

    ReplyDelete
  11. Hello Coconut,

    I know what you mean... I wanted to short the SIMSCI many times but each time I was glad I "chicken-out"... STI down a few days, then up a few days. It's so easy to get whipsawed...

    Another blogger Panzer helped me clear my thoughts. I've already made good money this year. Why shoot for the extra "small change" here and there - when I should be enjoying this holiday season!?

    I'm done trading for the year!
    And I've already re-balanced my portfolio for what may come next year. Bring it on! (Must cheer myself mah!)

    Tomorrow my freight forwarder is coming to my Athens home to pack my belongs!

    Hmm, this time companny is allowing me to use air instead of sea!? Can't wait to get rid of me?

    LOL!

    ReplyDelete
  12. sm@ll.fry,

    After so many years of "paying school fees", I think I am now finally able to look at myself from "outside looking in".

    Ah! The wonders of a Trading Journal to keep me honest! It forces me to walk the talk :)

    Each time I make a trade, I write down my reasons for buying or shorting it. If the reasons disappear, I am out!

    ReplyDelete
  13. Hello Drizzt,

    My posts are gentle pokes at myself on the myriad of silly and stupid things I done in my speculation journey.

    I merely embellish them with literary licence and some word play - which I enjoy very much!

    No one talks much about Contract Manufacturers these days (even Venture is no longer in the limelight despite a good dividend play), but they were the darlings of SGX during the late 90s and early 00s...

    I've made fantastic money with Seksun and Omni-Industries - especially when they were taken private.

    Guess what!? I returned $40,000 of the profits made when I let Jurong Tech went all the way to $0 when it got delisted!?

    I wasn't very sane... I saw the signs of our hard disk industry moving from Singapore to Thailand. Saw the threat of SSD on hard disks...

    What did I do? I relied on HOPE that everything will be OK and a white knight will come "rescue" Jurong Tech... Just like Seksun and Omni-Industries...

    Boy! Was that an expensive lesson!

    The only silver lining was that I did not average down on Jurong Tech. Talk about dumb luck!!!

    Yes, I still can see the bright side of things :)

    ReplyDelete
  14. Hello LP,

    You complete me!

    Wait a minute. That did not come out the way I intended... Stand back!

    I threw a rock, you send a jade back!

    1) Investor A

    I was discussing with sm@ll.fry privately on it's "easy" for me to find the "right" vehicle, BUT the $64,000 question is TIMING!

    We all have been "right"; BUT the trade/investment wasn't profitable as we were either too early or too late :)

    I now doing a dance! Timing is everything! You've made my post more complete!!!


    2) Investor B

    Ah! Vested interest!!!

    The viewpoint of a person with vested interest will be different from those by-standers that were non-vested.

    An engineer working in a contract manufacturer who got retrenched because the company has "relocated" his job to Thailand will have one strong view. On the other hand, a shareholder in that same company may have another view if this relocation excercise results in improved future bottom line earnings... Despite taking a one time hit on the retrechment benefits paid out.

    Which reminds me... I better put ComfortDelgro on my watchlist for next year ;)

    ReplyDelete
  15. Hi SMOL,

    Haha, I like to do those composition that fills in the blank, e.g. "It was a dark and stormy night when I .... "

    You seem like you're putting up the blanks, so I do my best to fill up the blanks :)

    ReplyDelete
  16. actually u are not the only one that reply on hope. there is just so much imperfect knowledge that works against us!

    ReplyDelete
  17. Yes Drizzt,

    I've now learnt HOPE should not be part of my financial journey.

    On the other hand (almost used "but" - lol!), HOPE is so very wonderful in my life's journey!!! My glass is always half-full :)

    It's shades of grey again...

    ReplyDelete
  18. Hi SMOL

    Time flies, soon you would be back in SG!

    Wishing you all the best in your move back :-)

    Be well and prosper.

    ReplyDelete
  19. hi, that is why i do so much deep finding for stocks i invest so that i minimize on these things and make it quantifiable. yet sometime i am told i am thinking too much.

    ReplyDelete
  20. 1) Hello Panzer,

    2 more weeks and counting!


    2) Hi Drizzt,

    We all have our own tools and methods. I am closer to CW8888's:

    Less analysing; more investing ;)

    ReplyDelete

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