Thursday, June 12, 2014

Random thoughts: know the limits of convention wisdom, yourself

I was reading the winning habits of warren and soros. Rather disappoint, but it sets me thinking.

Do note that I do not question the wisdom of these legendary great, I question my own understanding of them. So here goes:

Circle of competence.
How long have u been seriously investing? Few years? A decade? Do u have a circle of competence to start with? I know I don't, I am still experimenting and learning. I have tried recovery plays concept, dividend play concept, value-investing concept. I am no master in any of them, so should I stick to any defined circle? I think not. Staying in that circle, will cause me running in a circle, not circle of competence. But I do know my circle of incompetence. 1) Penny trading. 2) trading in gnerally. 3) TA 4) investing based solely on numbers and ratios

Be greedy while others are fearful.
Well, u have to be very careful when applying the above. U could be catching falling knife and be stupid when others are fearful. I thought I am greedy when others are fearful of s-chips, I am actually stupid. Thanks goodness, the heavy loss of s chips are offset by decent win too. I never brush off schip. I was vested inYZJ till recently, I wil buy back if the price is right. Just have to know that we are dealing with s-chip, even alpha s- chip with solid dividend records must be seen differently from others.

The most dangerous words are "this time is different".
Someone just slap me with these 4 words when I posted in a forum about Venture. I replied another forummer who is skeptical about its recovery, I explained my thoughts and another forummer slap me with this famous quote without explaining the details why is it not different. Hmm... If it always not different, then what is there to invest?

Diversification vs concentration
Many legends "hood" big big in several concentrated plays and scorn at diversification. Buffet, Soros etc. u have to ask yourself if u have a circle of competence to start with before u try concentration strategy. In the boxing ring of Mr Market, some of these legends know how to wait for a knock out blow. I am happy to survive and learn to take snipe at him first. If I "hood" big time and I missed my footing, and think the knockout punch will be on my face instead!

Never follow others blindly.
The key word is blindly, not never follow others. If u do your research blindly, follow your own gut feel, u will not be any better off. Do your due diligence, but if u know someone has done his due diligence, and u did yours but checking on his work, because he has a more robust framework of analysis, why the problem of following smartly? Our ego should not stand in our way, if we recognize someone superior, just dun follow blindly, and check your own ammo level and risk appetite to decide to follow or not.

My conclusion:
To rephrase Graham words, since I cannot remember his actual words. U are right not because many agree that u are right, u are right because of facts and research. My take: I am only partially right when I exited with profits. I am totally right only when I made net gains beating inflation or whatever targets u have,nice CAGR for years to my coffin or senile. Yes, u can only be totally right when u stop investing totally, most likely because death do us apart. LOL

10 comments:

  1. sillyinvestor,

    LOL!

    Well, knowing our circle of incompetence is already an edge ;)

    If we don't put ourselves in harm's way, our survivability index has just gone up a few ticks!

    The rest is just pepper and salt; we add according to taste.

    I've experienced what's it like to be right and lose money; and to be wrong and made money,

    So being "right" has no hold over me.

    Too much concern over being "right" means I am not "listening".

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  2. SMOL,

    "I've experienced what's it like to be right and lose money; and to be wrong and made money,"

    Wow, there is higher level than buy high and sell higher.

    Wrong about timing? Or price ??

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  3. Don't lose money. Don't lose to inflation.

    Over long run, you will know you are investing it right. LOL

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  4. Oo CW,

    Warren 1st and 2nd rule, never lose money and never forget rule1.

    Losing money is part and parcel of investing. Think one can buy toto if every time he buy a counter and the price raise the next day.

    It's about wanton risk, its about not having plans if market go the other direction.

    But how much loss is ok for long term gain, how much loss is "silly"?

    No offer of solution here, I heard of keeping war chest, knowing how much to invest according to market valuation etc. haven tried it.

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  5. hahahaha... like how you put what you've learnt in such a candid way, I guess investing is a life-long learning venture... keep learning, keep earning... ;-)

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  6. sillyinvestor,

    I've bought for the "right" reasons, stock went up, then got hit by global macro event... I too stubborn to recognise that's part of the fundamental too. Let a winning position turned into a loss :(

    I bought a stock thinking the catalyst is for X reason. Stock went up for Y reason instead. I was wrong... But hey! I made money ;)

    Just roll with the punches.

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  7. Hi Richard,

    Glad u find it entertaining and not irritating. Yup, quite sure I will keep learning, not too sure about the earning part

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  8. Hmm... SMOL,

    The one that is bought with the right reason, it rebounded after the macro event right ???

    As the winning for wrong reason, my foray into S- chip is, wow china GAO xian, only 2.9 PE cheap cheap...

    Then news to dual listed, almost 70% gain... Not the reason why I vested, jut lucky. Wait till dual listing materialize, thinking: aiya, drop 3-4 bids I also win more than 65%. Then like drama, fall more than 10% in a day. Still say bye bye with 50% profits, Heng.. We all know what happen soon after

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  9. You have some interesting and contrarian views. Your views are not wrong either. The methods used by the "great" may not be suitable to all. I guess we somehow have to grasp the "essence" and use it to our own advantages given our different circumstances.

    I guess what really matters is the end result. I don't care which approaches work best, as long as we somehow achieve some degree of financial freedom. Haha

    As long as the approach works for you, all is fine :)

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  10. Hi solace,

    Agreed! I believe in the wisdom of the greats, but the circumstances if each are different.

    The specific temperaments and skills of each are different too

    ReplyDelete