Friday, 10 August 2012

Time Frame

We had a lesson on "Knowing yourself" last Sunday. Today I want to share on the topic of Time Frame. (pardon me if you get multiple emails on this). 

Knowing one's time frame is very important. Do you intend to hold this position (be it any asset class) for years, months, weeks or days. For forex or day traders, it can even be hours or minutes. 

Knowing the time frame is important because it determines the position size and risk which you are willing to take. Let's just use the various asset classes as examples. When I invest in real estate properties, my time frame is in years. This is because I am prepared to ride the market cycles to fully maximise my returns. The quantum involved is large and the use of leverage is inevitable. In addition, I view properties as a natural inflation hedge, hence I am willing to be vested in at least one property at any time. As such I hold a pretty long term view on this asset class. My parents bought their house for only $160,000. After 26 years, the same house which they stay in should be worth at least $2.2 million. They rode through the various peaks and troughs during this period but it definitely served as a good inflation hedge for them. This is inevitably more so in land scarce Singapore. 

When I invest in SRS stocks, my time frame is also pretty long because I am looking to create a portfolio generating passive income. The time frame is years unless there are fundamental reasons that change my views on the portfolio companies. I have held stocks in my SRS portfolio such as Starhub, Starhill, SPH etc for years. (This is investing)

When i trade, i usually swing trade. Hence my time frame is between days and weeks. I seldom hold positions for too long because the positions size i take is much bigger than that of the SRS. Hence each position can be between $20-$50k and the cut loss is tight at around $1-2k. You can see that in my trades in Sakari and Ezra. I could have improved my trade in Sakari by using a 'trailing stop' instead of getting out when it hits my target of > $1.40. I acknowledged that riding the profits till the trend end is one key area I need to improve on.  Sometimes for trading positions, i will get out after a while if the trades did not pan out as what i envisaged it to do but I will not let a winning position turn into a losing one(This is trading). You can either be a discretionary trader or a system trader. I am more a discretionary trader than a systematic one but i am also trying to learn how to be less discretionary and more system based. As always i am still learning. Hence what i wrote here today may change as i gain more experience.

I will elaborate more on the differences between investing and trading next time. It is important that you know the differences for yourself. They are very different concepts and can cause you a lot of confusion if you mix them up and make you "走火入魔". :-) The worst thing that can happen to anyone is a person buying a stock with an intention to 'trade' it and hold it for a few days. The stock then fall below his or her purchase price and the short term trading position become a "long-term" investment holding...hahaha I have seen too many such incidents hor..

As for IPOs, you know how i feel about them. It is usually a hit and run for me unless the stock is so compelling. The time frame is usually between day and days. IPO punting is very sentimental driven and sentiments can change very quickly.

That is it for today as I am "celebrating" National Day (another excuse not to work). 

Have a good weekend! 

I welcome letters or emails from readers. :-) Feel free if you have questions and I will try to answer them via the blog or emails. 

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