Friday, October 4, 2013

Checking your own investment temperaments

I am no expert in this, I know expert wrote books on this, something like Financial behaviorism

But perhaps one should answer a few of these questions, if you answer is NO, you need not read further question.

1) Do you know that there is a partial shutdown at US and a debt ceiling deadline on 16 october?

2) Are you worried or thinking about the impact of these 2 events on your investment?

3) Have you contemplate selling some of your counters to raise money to take advantage of any selldown, or take risk off table?

4) Have you already sold some counters Purely because of the US impasse?

5) Are you losing sleep over it?

I guess the further you proceed with a "Yes" in your answering, the more prone you are to market noise, and the more likely you might make some decisions based on emotions (Fear or greed), and the more likely hood you have a "trading" mentality. There is nothing wrong being a trader if that is what you set off to do and has a plan for it. 

But for me, as a follower(Self-proclaimed) of Warren and Graham doctrine, the "trading on market news" mentality is more harmful than good. 

I answered "yes" until point 3. I felt a need to do something, when perhaps the best thing to do is to do nothing. I am not just contemplating to sell, I am looking also to buy. So how to prevent such trigger happy purchases or sales that will likely cause some grief later?

I ask myself, if the companies I owned will be directly hit by the shutdown or the impasse? If US really default, nothing will be spared, but I know YZJ which deals a lot with credit, will be more badly hit than say SPH. If credit is freezed, Reits will get it hard too.

So, to prevent myself from being trigger happy, I dig deep into new company research, I ask myself many questions, the one most important question is what is a good price to enter? Once I got that figure, it become easier not to buy anything.

Then I ask myself, if my existing companies, fall below my purchase price by a lot, then what do I do? I might sell my weak Sabana reit, but will most probably take the opportunity to buy more if there is a firesale. YZJ has the China banks backing, and numbers are strong, it survived GFC, so I will pick more too.

Why not sell now, then there is no money lost and more money to buy at a bargain? Well, I cannot be sure how market will react, if might just go thro a small correction, what happens if I am shut out of market then? But since I am young and I will still be earning for years to come, I can afford to keep investing, it will smoothen out the cycle.

In conclusion, its the GamePlan that will keep your sanity in times of crisis, or fear, it can be changed, but unless there is good reasons to change it, such as I have found a better one, it is better to stick to it. 

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