Tuesday, 28 October 2008
I have been looking through my old trades for the last few days. This is the equity curve of a "long-only" $50,000 margin account which i managed for a good friend since Dec 2002. I almost doubled the capital over this period and the return is around 18% per annum if i average it out. The return is nothing spectacular if you consider the bull run which we went through from 2005-2007 but i guess it became "spectacular" if you include the current 10 months in 2008. I have not been trading actively in this account since November last year as it is difficult to trade a 'long-only' account in a downtrending market.
These trades revealed some interesting points which i would like to share with you:
1. Most of the trades in this account are swing trades that last for only a few days to weeks.
2. There are not many trades during June and Dec where i usually take my holidays. :P
3. There were extensive periods of time which i didnt trade. For example when i am either busy with work or travelling overseas.
4. Some stocks you just have no luck. Every trade i make in that stock lost money. :(
5. You can see that i was breaking even in the initial 10 months of trading that account. (Prior to Dec 02, i have been making losses in my own account when i started trading actively from 2001).
6. Drawdown in the equity curve is inevitable. My equity curve is not a straight line upwards. I have to pay refresher course to Mr. Market every now and then. But the trick is not to let any drawdown wipe you out completely.
7. Trading is a marathon, not a sprint. I have many friends who made a lot of money during the bull run from 2006-2007 but gave everything back (with interest) within a short span of 10 months in 2008. I think the first 10 months of 2008 is the defining moment on what kind of trader you are. Everyone is a genius during the bull run.
My trading journey can be summarised in this manner:
June 2001 to Dec 2002. 18 months of constant losses and learning more about myself each day. Most trades lost money as i trade on rumours and news. After much losses, I spent a lot of time reading up books on trading and investing. I learn something new about myself each day, what kind of character i have and what kind of rules i should adopt in trading the market. As mentioned to you before, "Trading for a Living" was one of the few books which helped me in my trading journey. I will share some of the other books that helped me another time.
Dec 2002 to Sep 2003. 9 months of breaking even. Equity curve fluctuate up and down as i had some initial success only to see drawdowns due to lack of discipline in money management. Many profitable trades are wiped out by a few losing trades.
Oct 2003 onwards. I finally start making consistent profits. I start to use the same indicators which i am comfortable with. I have certain trading set ups which i like and have enjoyed some success. Money management is in place and i can cut loss without feeling anything. I will actually feel worse when i know i should cut loss but didnt.
My friend thanked me for "not trading" her account actively for the last 10 months. She was also thankful that i advised her against buying the property she was eyeing early this year. You can say that she is now my "die-hard" fan but she is the only account that i will manage for others now as she has stood by me during my initial difficult years. I have recently decided to help her manage her $80,000 CFD account. Let's see what kind of performance i can deliver now that i can behave like a 'hedge fund manager' and can trade both up and down direction. I will keep you updated again but hopefully you can draw some inspiration from this posting and find a path that suits you most.
Sunday, 26 October 2008
I attended Dr. Alexander seminar on Saturday and managed to get him to autograph his new book "Sell and Sell Short" for me. Dr. Alexander Elder is the author of the book "Trading for a Living" which sections on Mind, Money and Methodology helped me during my initial years of trading. However, my trading methodology has since 'differed' from him and it is good because as i mentioned, trading is a very personal journey which you have to walk yourself. If you fully rely on your broker or your friends to give your tips on what and when to buy and sell, then trading is not for you. You have to walk this path yourself and pick and choose a style that suits your character. You must know yourself first before you can embark on a trading journey.
The key difference in our mindset is that i prefer to trade in the direction of the trend whereas Dr. Elder prefers to do counter trend trading. Remember, "The Trend is Your Friend". Trading with the trend allows you to have wider stops and better profit potential. Whereas counter-trend trading requires strict money management and has less room for error. Why bother to catch a falling knife? You will cut yourself inevitably one way or another. The inability to cut loss is what kill most traders and investors and i have to stress that for anyone who aspires to be a trader, cutting loss is THE most important lesson which he or she has to master.
The current market is a very volatile one. It can be up 5% one day and down 8% another. DBS hit my target of $10 within one week after my posting last Sunday. What can i say? Am i a Guru? Of course not. If I am , i would have shorted DBS with all my available cash already last monday. hahaha. As you know, there are 3 positions you can take in the market. Long position, Short position and No Position. Many people failed to realise that No position is a position itself. That is one of the reasons why i dont like unit trusts. Fund Managers has to be vested in equities all the time. Even if they are 'bearish' on the market, they cannot sell the shares in the unit trust unless there are redemptions to be met. They can only keep at most 5% of the portfolio as 'cash' and hold the rest in equities. Hence if you like to invest in unit trusts, you have to know when to enter and when to exit the unit trust yourself. The Fund Manager is not going to help you with that decision.
The violent fall in market in recent weeks will result in a equally violent rebound as well. The rebound will be just as swift and sharp as shortist and hedge fund managers start to cover their positions in the market. So watch out for it. My personal view is that the markets will likely to stage a significant rebound in the coming weeks before they crashes again..... but for the nimble, if the rebound rally comes, make hay while the sun shines.
Sunday, 19 October 2008
While i have written an article on the "risk" of fixed deposits before, it is really sad to read about people who are 'pressured' into buying an investment which they were "told" that it was very 'safe'.
I remember my own encounter whereby i was depositing the cheque from my sale proceeds from the sale of property at a POSB branch in Dec last year and immediately the teller asked if i need any financial planning and whether i am interested in investments which will give me a higher return. I politely turned down her "kind gestures" and told her that i managed my own finances.
In any case, I think DBS will be bearing the full brunt of their 'folly' in marketing the DBS Hi Notes 5. If the MAS start doing what the Hong Kong government is doing by making the banks 'pay back' the amount lost by the investors, then DBS will have to fork out millions in compensation. Unfortunately, since DBS's majority shareholder is THE Governement, i really doubt MAS is going to make DBS compensate for the losses of Singaporean investors who bought into the Lehman minibonds or the DBS Hi Notes. Looking at the chart of DBS, i think we can see more downside ahead. My view is that it could be heading towards the $8 to $10 support zone in the coming months.
In life, timing is important. There is a saying in Chinese "风水轮流转" and this is what cycles are all about. I believe that if one wants to be rich, one will have to catch the cycle. Remember my previous posting in July on the run in commodities coming to an end? While i am happy that my petrol bills are finally coming down, i am sad that many retail investors are once again caught in the euphoria of "chasing bubbles" and losing tons of money in the commodities fund. I have also shared my view with you on the pending "breakdown" in Singapore property prices in Oct and i read in The New Paper today that many property owners are starting to cut their losses on their properties after being burnt in the stock market and are trying to get out before the TOP of their properties as they are either unable to get mortgage loans or that the falling rentals will not be sufficient to pay for their mortagages. There is an interesting chart at salary.sg where the URA property prices and the STI index is 'superimposed' and we can see a 'pending crash' in the property market here as well.
Take care and happy investing. Hold your cash tight and make sure you are there where the property market crashes so that you can scoop up some nice bargins.... Happy Investing :)
Sunday, 5 October 2008
Source: URA quarterly updates
Ok. Finally what I have been waiting for.... the "downturn" in the private property market. As mentioned before, things move in "cycles" and property is no exception and if it is tradeable, you can probably 'trade' the URA private property index as well. I bought an investment property during the consolidation period in Q205 under the deferred payment scheme and sold it off in Q307 when the first sub-prime news came out. But while the stock market has crashed in 2008, the property market was still stable and laggging behind the stock market but it finally showed the first 'negative price growth' in Q3 08. My personal view is that the price will start to come down in the next few quarters and head towards the "140" levels. Remember to "save up" and dont miss the next property cycle. Happy investing and wishing you success in your pursuit of financial freedom.