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Monday, 3 August 2015

Investor Psychology Cycle






Something changed last week. Did you notice or felt it?

For the last several weeks, STI was quite boring. 

It was doing the cha-cha-cha. 

One day up, two days down.  One day down, two days up.



Anyway, I've read some newbie investors (started their journeys after 2011) were getting a bit "anxious"...

It's normal. We all have been there before, haven't we?

That's why we need to go through a full bull-bear cycle to really understand ourselves and find the "most suitable" vehicle "just right" for us.

Those of us who have gone through a full bull/bear cycle will look at the above chart on Investor Psychology Cycle with a knowing smile.



Just like we have "traders" who got burnt badly after a trading account melt-down, and have now become born-again "investors"; we may see mind-flips, paradigm shifts, and new born-again converts from the investing side of the community...

Some may realise that DIY individual stock-picking is not their cup of tea. You neither have the interest nor time to put in the necessary hours to secure yourself the edge to achieve that Alpha outperformance you seek. 

You may now switch to passive low cost indexing. 

Not sexy. And does nothing to boost your ego to adopt a strategy that screams: "Look ma! No brains needed!"

But you now know what you want. And its not bragging rights...



At the opposite extreme, some may finally realise why even though they call themselves "investors" previously, they were tracking and monitoring their portfolios on a monthly basis.

You found out that you are more into instant gratification. Or you need immediate feedback on your actions - not 10 years later, but right here right now! 

Your testosterone level is much much higher. You face up to who you are - you a carnivore; a trader.

It's not just money that you are after...

Money is just a way of keeping score for most successful traders.




31 comments:

  1. Hi SMOL,

    Haha, I saw a few anxious investors asking our Wong fei Hong at his blog :) that's partly my motivation for writing my article too :)

    ReplyDelete
    Replies
    1. LP,

      What a coincidence again!!!

      That Blues Brother Ip Man very busy. Not only must inspire, must calm frayed nerves... He's becoming our Uncle Agony in the community ;)

      This is only a 10% correction. Imagine what happens when it's a 20% plain vanilla bear market?

      Life is like this.

      Those who were 100% vested in 2014 were a bit condescending to those who were keeping cash under their pillows.

      Now comes 2015 and those with cash under their pillows are sleeping quite soundly :)

      Delete
  2. i newbie leh
    this medication came in timely :)

    ReplyDelete
    Replies
    1. Jimmy,

      I hope you are keeping your investing diary or trading journal.

      Write down your portfolio prices, STI, etc; when you catch yourself saying your portfolio prices/STI can't go much lower - that's you at the denial stage.

      Keep a record of your evolving emotional and psychological states (in words) - many don't do it as they only review their portfolios with numbers and percentages (left brain bias).

      It's no fun but once you have a record of all the psychological states (try capitulation!), you'll come out stronger and more aware of yourself.

      Only then you can know for sure which vehicle and strategy suit you best ;)

      I always have a smile when I see newbies who are just starting their journeys write with a "wah kali gong" tone... Only veterans like the fisherman have earned that right to speak like that ;)

      If new in our journeys , its better to adopt "this is my opinion" and leave space for you to change your mind.

      The biggest strength of youth is you don't know what cannot be done!

      Why limit yourselves by pretending to be a "old fogey"?

      Stay flexible and nimble!

      LOL!

      Delete
    2. Oh s**t did I write like a veteran ?
      No wonder got reader count but no comment haha
      If yes, sorry if I did offend
      Sometimes I am writing like I am talking to myself and want myself to do or behave in a certain way hehe

      Delete
    3. Seems like more bloggers talking to themselves. Thought only those at Hotel BaungKok talk to themselves. :-)

      Delete
    4. Jimmy,

      Don't get me wrong.

      When expressing an opinion, must dare dare say! If not, why people would want to listen to you?

      The trouble with experience is that we may become too circumspect...

      Having said that, if we don't have a track record or personal experience on a topic, then adding a few words like: "in my opinion", "I believe", "this is what I think"; may invite others to share their own opinions or experiences too.

      That's how a dialogue or group discussion starts ;)

      But if we hide behind the authoritative quotes of gurus to camouflage our lack of "eating salt" - Warren said this, John Bogle said that; then why would anyone want to have a dialogue with a parrot?

      Delete
    5. Ooh open ended questions heehee
      Will try see how

      Cw, I find my blogging is some psychiatric treatment I rant out my feelings know someone is reading and get it off my chest haha I siao already

      Delete
    6. CW,

      I think I should encourage the newer young bloggers to watch American Idol.

      You don't get into the finals by singing the best karaoke version of a song.

      You make the song your own by singing your own interpretation of a song that everyone knows ;)

      Delete
  3. Hi SMOL

    Who is the Wong Fei Hong you guys are talking about? :D

    Those who are fully vested are probably quietly nursing their wounds while wishing they had more funds to pick up at current price. Those who are loaded with cash are equally dumbfounded because they don't know which price they should enter.

    Either way, the market winds...oops wins :D

    ReplyDelete
    Replies
    1. B,

      The market intermediaries win ;)

      Those who sold Keppel above $11 are smiling now.

      The big question is - those who are selling Keppel at below $8 now, will they be smiling in 6-12 months' time?

      Do they know something that those who are buying from them doesn't know?

      That's the beauty of the market.

      It will reveal whether we knew a little and thought we know a lot, or whether we really have an edge over others ;)

      I think Rolf's recent blog post revealed to many how little they knew about the O&G sector ;)

      Delete
    2. My emotion is still flat. Boring, only 10% drop. Buy a bit the most. Lol

      Delete
    3. Frugal Daddy,

      Sama sama. Although my hurdle rate is higher.

      For the investing side of my nano hedge fund, I won't be doing any scaling in until we have a plain vanilla 20% bear market.

      Thankfully, I still have my trading side of the business to keep me occupied while I wait for the market to come to me.

      Delete
  4. Hi SMOL,

    My keppel also pain but I still nimbling in small amount. I am about 45% invested, maybe is partially smiling haha pain + hand itchy :)

    Who is the Wong Fei Hong?
    10% drop only so far ^-^

    ReplyDelete
    Replies
    1. OT83,

      Welcome back! It's been ages!

      I see your inoculation with Healthway has made you see the market in better perspective.

      If WTI crude does not move beyond USD 50 over the next 1-2 years, there's really no rush.

      Keppel below $7 is not that far away ;)

      Patience.

      Delete
  5. Very long never use my turtle brain already.. Haha..

    ReplyDelete
    Replies
    1. TI,

      LOL!

      You just gave me an opportunity to detour into the psychological realm where some may argue that's where good and bad investors differ - The Mind.

      The turtle is an reptile.

      And the oldest part of our brain is the Reptilian brain. It rules our impulsive responses. You know, fight or flight; greed or fear that sort of stuffs.

      These survival mode instincts would probably help us if we are competitive alpha day traders making split second decisions on hundreds of trades per day.

      But to thrive as an investor, I think the ability to by-pass our reptilian brain's impulses may be needed.

      And this requires detachment (you think why I into Zen?).

      With detachment comes discernment.

      2 investors vested in the same stock. The entries and exits of a discerning investor are day and night different from an "investor" ruled by his reptilian brain ;)

      Delete
    2. Wah. You got ink leh.

      I think my reptilian mind has been hibernating. Mr. Market will give my shell a hard knock when it is time to stir.

      Nice chart, btw!

      Delete
    3. TI,

      Likewise!

      And the pleasure is mine ;)

      Delete
  6. Hmm... SMOL,
    What if there is a split personality?

    The mind wannabe a value-investor but the heart wannanbe a trader?

    Can only 1st and 15th eat vegetarian and the rest of the month carnivore?

    The chart apply to veteran too.

    U and I are waiting for 10% or 20% whatever benchmark we are comfortable to "nimble"

    We smile when it rebound.

    We arh huh when it goes 30% down.

    Hen suddenly it fell 50% down.

    The mind says buy somemore.

    But the balls say ammo limited, wait till it go lower.

    Btw Wong Fei Hong is Ak? Because of his Tang Zhuang ? And his bleeding heart.

    ReplyDelete
    Replies
    1. Sillyinvestor,

      I'm an omnivore. Although I prefer to be called a Trader than an Investor. That's because I'm into improving my craft so I can move up the ladder to be a Speculator ;)

      CW is an omnivore too. He has his ten-baggers (capital gains), collects dividends (passive income), and yet he has his multiple rounds of xx (trading around a core position).

      The only thing he is not is a passive index funds investor! How to show lots of powerpoints like that? LOL!


      It's not important whether others can or cannot.

      The question is whether you can or not.

      Thinking about it won't provide you the answers. To quote CW: Less analysis; more investing.

      Just do it! Your track record will tell you whether you are suitable to be a herbivore, carnivore, or omnivore ;)


      As for Wong Fei Hong, you go ask LP. I only say Blues Brother Ip Man.

      Ha ha.

      Delete
  7. Nice write up you have here SMOL,

    So which group I belong to? I think I'm omnivore :-)

    And who the hell is Wong Fei Hong ...

    ReplyDelete
    Replies
    1. Thanks Yaruzi!

      I think there's a reason why humans have survived so well on planet earth - we eat everything!? LOL!


      You are not onto the passive income bandwagon. No surprise you not familiar.

      Let's say he's a shy guy.

      LOL!

      Delete
  8. Ah I think I know the shy Wong sifu.

    ReplyDelete
    Replies
    1. Yup, he's the guy with the brown paper bag (figuratively speaking) over his head ;)

      Like that also can!?

      Well, this is Singapore! Happy can oredi!

      LOL!

      Delete
  9. Hi SMOL,

    I think I've experienced some of those emotions and still am... Nothing makes me more alert or awake at 8am to see how my picks are doing! ;)

    ReplyDelete
    Replies
    1. Joyce,

      Yup, I know how you feel.

      You trade overseas equities markets, I trade forex futures.

      Waking up, I'm either pleasantly surprised with a in-the-money trade, or I'm stopped-out again...


      It's so nice to have a woman warrior as a sounding board.

      ACCIB is so lucky!

      By the way, I've been meaning to say this ever since you first commented here - your vase pic looks like a cat with a tail.

      Meow.

      Delete
    2. Cat with a tail? Think my dog will be ecstatic to finally have his cat friend..all his attempts to befriend any cat he sees has failed miserably ;)

      Delete
  10. In bull or bear cycle it is important to stay calm.
    Make peace with yourself.

    Also, there are many other things in life which if you are not paying any attention to it will one day be gone and it will be too to regret by then.

    ReplyDelete
    Replies
    1. ... too 'late' to regret ...

      Delete
    2. Money Honey,

      Unless trading or investing is our ikigai, its good to have a healthy perspective.

      Personal finance is only a part of our lives. It cannot be the end all and be all of our time on earth.

      Delete

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