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Rules for investing in difficult times.

Thursday, August 11, 2011

There isn't very much that I want to say tonight because I have probably said all that I want to say in my recent blog posts. I just did some reading which is something I do every evening and came across an article by Aaron Task who is someone I enjoy watching on Tech Ticker.

Aaron shared 4 time honoured rules:

1. If you can't take the heat, get out!  This is something I did not talk about but I have said time and again that investors should just do what they feel comfortable with. Anything we are not comfortable with, avoid. Aaron is quite specific in who are the people who should get out.

2. Don't panic! This one sounds very familiar. Aaron says that many investors simply cannot take the pain and are cutting and running. Historically speaking, many investors sell out of stocks at important market bottoms. This is a reason why I refuse to sell when prices are forming new lows and would only sell if they rebound to test resistance. Aaron is quite specific in who are the people who should not panic and should stay the course.

The 8 immortals each had his or her own way of crossing the sea.

3. Have a plan! Sounds familiar again. Aaron says it differently from me but the essence of the message is the same. We must understand our motivations for investing in the stocks we are invested in. The tools we employ and the attitude we have must be appropriate to our motivations. That way, we will stand a good chance of doing better with a consistent strategy and this is so both financially and emotionally!

4. Learn from your mistakes! Do we need to say more about this? Life is about learning and more learning. Regular readers would know that I am still learning and would have read my story. New readers might be interested in reading this: Excuse me, are you an investor?

Aaron ends his article by asking us to ask ourselves three questions, go read his article and see how you would answer these three questions. Could be revealing. Enjoy "4 rules for the see-saw market".


16 comments:

financialray said...

I like your picture of the 8 immortals...
unfortunately i dislike having to cross choppy waters.
I much prefer to ride the cloud to travel 10 800 miles ha ha

AK71 said...

Hi financialray,

High flier, I see. ;)

Let me guess, born in the Year of the Monkey? ;p

financialray said...

ha ha ha LOL
ya u r right, high flier but it is the pig.
the pig also can ride the cloud but alas, a little lazy and full of desires....

AK71 said...

Hi financialray,

As a fellow pig, I fully empathise with you. Hahaha.. :)

Well, let us hope that our efforts in the stock market will send us to Cloud 9 in time. ;)

financialray said...

Sorry,

Should be 108 000 miles...chinese translation not so good.

Gut feeling is we will go down a few more roller coasters before we reach cloud 9..if we don't get shaken off by then, so having a distinct plan like your detailed outline is good to keep the focus

AK71 said...

Hi financialray,

I was thinking that it should be "shi wan ba qian li" as well. haha.. ;)

I am really adamant about planning everything in my life. Those instances when I should be caught without a plan, I rather not remember. Planning reduces stress level in our lives. No two ways about it, I feel. :)

Leo78 said...

AK71,
Besides stocks, REITS, any other asset class would you recommend for a balanced position? During past 3 days of choppy market, my portfolio loss almost 27%. I am wondering if my position can be hedged if own bond? gold? or????

AK71 said...

Hi Leo78,

There are 1001 things in this world we can invest in, perhaps more. ;)

Within the stock market, there are certain counters which are more volatile and some which are less. You might be interested in this blog post:

Roads to wealth creation in the stock market.

Now, if you are wondering about diversifying away from the stock market, you want to diversify away from paper investments. You want to invest in physical assets such as real estate and precious metals.

Some blog posts which might help you in your decision making process:

101 Investment Choices.

Conspiracy of the Rich.

Gold: To buy or not to buy?

Real value of gold.

I would not recommend or not recommend any asset class. You have to decide for yourself. Good luck. :)

what are futures said...

I dont think I will see the worst bear market again until 30 years later. The last drop in 2007 is probably a once-in-a-lifetime event, and most people would have missed the rebound in 2009 and they want the market to go down now so that they can profit later.

AK71 said...

Hi W.A.F.,

You could be right, of course.

I do not know for sure what will happen in the future. This, however, will not stop me from pre-empting events, of course. ;)

Good luck. :)

Leo78 said...

AK71

Thanks for your reply. Been waiting for days liao :P

AK71 said...

Hi Leo78,

Apologies for the tardy reply. I was away for a short break. :)

Weekend cruise to Redang.

financialray said...

One reason this blog is popular is because AK gives sound advice.
It is not wise to tell anyone what to invest in. The individual has to take own responsibility when it comes to financial planning.

As for financial crises, there is a book in the library called "Joseph Cycle". Gist of it is that markets move in cycles and probably we see one financial crisis every 7 to 10 years, with perhaps smaller shocks in between, and sometimes aftershocks. If I had read and believed the book way back before 2006, I would be much richer by now.

AK71 said...

Hi financialray,

Thank you for the vote of confidence. However, I have to say that I hardly give any advice in my blog. I simply share ideas. ;)

Anonymous said...

Hi AK

I'm reading your past blogs and am enjoying them very much.

Just to spur some discussions and thoughts from readers & yourself, for the sake of young investors out there, how do you decide the amount to put in for every trade (they called it 'position sizing').
With proper sizing, one can keep emotionally calm despite sufering from paper loss.

I googled to read about it (seemed more important for traders), but wonder if this is something everyone is conscious about and if this is equally important for buy & hold strategy.

CH

AK71 said...

Hi CH,

I am glad you are enjoying my past blog posts. There are many blog posts which I have forgotten myself. :)

Position sizing? I must say that this is something I have never consciously thought of although I have heard of it many times before.

Personally, I go by gut feeling. This is why I am not a good candidate for writing on the subject.

If I do not feel very confident, I could put in as little as $6k into a counter. If I feel confident, I could put in 10 times more without hesitation. ;)

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