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To be richer, be comfortable with being invested.

Saturday, July 28, 2012

I met someone recently who told me he is swearing off the stock market for good. I asked him why. He told me that he lost a lot of money in the global financial crisis but he managed to recover all his losses in the ensuing recovery. That is good news, isn't it? Well, apparently, Mr. Market took back some of the gains in the last one year. So, he is still in a nett loss position.

I asked if his investments paid any dividends and he said yes but very little. He said that with the amount of time and effort he put into the stock market, he might as well just leave the money in a fixed deposit and save himself some headache (and heartache).

This person was not a very close friend but for some reason when I meet people, the conversation would steer towards investments and personal finance matters. Anyway, as I did not know the person very well, I did not want to volunteer too much information because it could come back to haunt me one day.

However, I could not resist asking if he had thought of REITs. He looked at me with frown and said he vaguely remembered reading in the newspapers that REITs were a waste of time. He asked why did I ask. I told him I have some investments in REITs and they have been very good to me. He was curious and asked me for more information. I was in a slight fix.

I believe that for any investor, the most important knowledge is not TA or FA, it is self-knowledge. Know ourselves and we will know if a product is suitable for us. Know ourselves and we will know if a certain something is what we have been looking for. We could have all the financial knowledge in the world but not knowing ourselves, we could end up having sleepless nights as investors.

Why are investors in the stock market? To make money. Why do drivers go on the road? To get from point A to point B. Well, that would be a logical assumption. There are many types of investors in the stock market just like there are many types of drivers on the road. Each type would have a distinct behaviour but they all share one primary reason for doing what they do.

Some drivers are speed demons and they also like weaving in and out of traffic. On more than one occasion, a speeding car which had overtaken my slower Mazda 2 a few minutes before would be waiting for me at the next traffic light a few minutes later. Of course, if the driver had not been stopped by the traffic light, he could have reached his destination a few minutes earlier. Just for a few minutes, why increase the risk of getting into an accident?

Some spend much of their time in the stock market looking for the next big thing. The theme is multi-baggers. Is this wrong? No, of course not. I do it too. If we could find a multi-bagger, we would be rewarded many times over. However, once invested, the waiting is the hardest. What if something were to go wrong? Luck plays a big part in success.

These days, I still do a spot of potential multi-bagger spotting but I am able to do it now with a greater level of comfort. Why? I have a thick cushion of capital gains and dividends received. On top of this, I have a predictable flow of passive income from my investments in selected S-REITs and some high yield stocks. So, it helps to reduce any feeling of anxiety if my spotting becomes spotty. Being comfortable, therefore, would contribute to our success rate and if we are honest with ourselves, we would agree that this rings true.

We have probably heard from gurus that we must be emotionless in the stock market. I am only human. So, try as I may, I am not totally without emotions. I know that we should be greedy when others are fearful but if I do not have a greater level of comfort, I find it hard not to be at least somewhat fearful. It is like a person on a flying trapeze. He would feel less fearful if he had a safety net, wouldn't he?

I am a creature of comfort in more ways than one. I must feel comfortable in anything I do. I believe every human being is the same. Now, when financial advisors ask us what is our risk appetite, they could very well be asking us what is the level of comfort we need before we might want to take the plunge. Why do they not ask it differently? I wonder.

Finally, after such a long winded discourse, I am back to where I started. I asked this person to closely examine what he needs in order to feel comfortable in being invested in the stock market. That answer lies within him and he has to be honest with himself. Once he has the answer, things would fall into place and he would know what to do. Ideally, anyway.

Related posts:
1. Of primates and their diet.
2. Trading to put food on the table.
3. A common piece of advice on saving.
4. To protect our wealth, we have to take risk.
5. Why do I not panic?


INVS 2.0 said...

Hi Ak71,

Indeed, the wait is the hardest. I have been waiting for months for a great fall but it never happened. :(

A good investor is the one who overcomes his emotional weaknesses. True?

B said...


Because Life is finite and people are generally greedy,so they want to reap profits at the fastest time with the least efforts.

Dividend investors tend to reap the benefits much more when compounding takes effects. When it comes to that, it becomes mighty and will be handsome to the investor who does that. Until then, people are still greedy and it will not change today or tomorrow or perhaps till the world ends. :)


AK71 said...

Hi INVS 2.0,

I will say that a good investor is more than one who overcomes his emotional weaknesses.

Being able to keep our emotions in check and not to be affected by Mr. Market's moods is undoubtedly a desired trait of a cool investor, however. ;)

AK71 said...

Hi B,

In some quarters, it is known as being more productive. Use fewer workers while increasing output... ;p

Everyone is in the stock market because they want to make more money. I always say that greed is not a bad thing but unbridled greed is. Greed combined with ignorance could be fatal.

Dividend Tech Warrior said...

Hi AK,

Dividends make staying invested comfortable for me. ^^

Very comfortable indeed.

AK71 said...

Hi DW,

I would toast to that. Cheers! :)

Anonymous said...

Hi AK71,
The price volatility of the market is not accepted or easily understand by some people. To tell the truth, till today after 23+ years of investing i still do not understand completely the price volatility of the Mr. Market. But it's O. K. for me because i have accepted Mr. Market's moody behavior since long, long, time ago.

AK71 said...

Hi Temperament,

With certain people, I understand them but I choose not to accept them.

With certain people, I simply accept them even if I do not understand them. ;)

CC said...

You mentioned about being vested in high yield stocks (besides Reits).
Can share which ones are these high yield stocks?

Anonymous said...

Hi AK 71,
Of course the choice is our previlege to make.
But i can only think of one concrete instance where i have to accept even though i don't understand.
That's God's way at times is beyond human's understanding.
Like if you have experienced the PEACE of GOD, it's really beyond human's understanding.

AK71 said...

Hi CC,

SPH and ST Engg, to name a couple. :)

AK71 said...

Hi Temperament,

I enjoy going to Yoga and meditation classes (which gives me peace of mind) with my mother (whom I accept although I do not fully understand) on a weekly basis. ;p

Ah John said...

In general, REIT is not cheap now.

Anonymous said...

Hi AK71,
Exactly! i told my son you don't understand your boss, you don't have to accept, you can change boss. But if you don't understand your DAD, you can't change. You just have to accept. Ha! Ha! The privilege we enjoy as a father or mother.

AK71 said...

Hi Ah John,

Like almost everything in life, it is relative.

For us who bought AIMS AMP Capital Industrial REIT at much lower prices, for example, we think that the current price is expensive.

For some who only started to look, they might think that an 8% distribution yield is really good. ;p

Well, Mr. Market will be Mr. Market. ;)

AK71 said...

Hi Temperament,

We can choose our friends but not our family, indeed. ;)

Stanley said...

I always believe that investing on stocks is one of the best alternatives in doing good business. Yet, ROI can be long term.

Options Trading Strategies

AK71 said...

Hi Stanley,


sparks said...

Hi all, as a greenhorn in stocks& investment, with around cash liquidity of $50k...please give me some advice in investment that has stable passive income. Thanks.

AK71 said...

Hi sparks,

You have to ask yourself what are you after. If you are investing for income, what kind of yields would you consider attractive? Then, you would have narrowed down the choices. Continue by analysing those choices to make sure they are sound investments. There you have it. :)

sparks said...

Other than the lump sum, I am able to have liquidity of 2k per month...I'm more into growth & investment so that I can have the capacity to invest in private property when the property market's more friendly to buyers...of course, I won't mind to have annual yield of 4% and above if possible :p

I'm v keen to trade stock...but knows little...any advice & recommendation? Any useful reading material ?

sparks said...

Hi Ak71,

I'm more into growth & investment so that I can invest in a private property in future when the property market is more friendly to buyers...Besides the lump sum, I''ve liquidity of $2k per month which I wish to make it work harder for me...of course, annual yield of 4% AND ABOVE per annum is attractive.

I'm v keen in stock trading but has minimal exposure to it. With what I have, what kind of portfolio would u advise?

Any useful reading materials for beginners like me?

Thanks in advance :)

AK71 said...

Hi sparks,

Here are a couple of books I always recommend:

1. Warren Buffett and the Interpretation of Financial Statements

2. Technical Analysis Plain and Simple: Charting the Markets in Your Language (2nd Edition)

You might want to buy the books from Better World and do your bit for the environment: Better World Books. Free shipping worldwide. :)

AK71 said...

Hi sparks,

I only saw your amended comment after posting my reply to the original one.

The additional question on what kind of portfolio I think you should have, I cannot answer. You have to decide for yourself. ;p

Well, you have a goal and that is to invest in private properties in future. Perhaps, you could have a target in mind as to how much you want to put aside for that purpose within an X number of years.

Then, with a combination of savings from earned income, passive income received from the stock market and/or gains from trading in the stock market, you could gradually hit your target. :)

lhjarque said...

I am 37 years old working in an engineering company and has just beginning to realize that I need to invest for myself and for my retirement and my family. What can you advise me about which one to build, save for emergency fund or invest right away into stocks? Thank you for sharing your experience in investing to other people. Which type of stock should I invest into? May the Lord God bless you abundantly.

lhjarque said...

I've been reading your thoughts for sometime now! Thanks f0r sharing your great experience in investing. For 37 y/o what is the first to build emergency fund or investing directly? Which type of stock do you recommend for growth?
Thank you AK, may the Lord God bless you and keep you.
Thanks. Please continue to share your passion many are blessed.

lhjarque said...

I've been reading your thoughts for sometime now! Thanks f0r sharing your great experience in investing. For 37 y/o what is the first to build emergency fund or investing directly? Which type of stock do you recommend for growth?
Thank you AK, may the Lord God bless you and keep you.
Thanks. Please continue to share your passion many are blessed.

AK71 said...

Hi lhjarque,

Don't ask anyone what kind of stocks you should invest in. For sure, don't ask me.

You have to ask yourself what do you want to achieve and, if you like, use what I have shared in my blog for reference. My approach works for me but is it going to work for you?

You might be interested in this:
Holistic approach to a secure financial future.

WTK said...

Hi AK,

I believe that this is the type of circumstance in which an individual (discovered FIRE and desire for FIRE) will ask at the first instance for the steps involved to reach FIRE. This is the natural way as it is the easy way out for one to seek the immediate solution. I add that one will still be in the procrastination stage even if he/she is given the supposed solution to FIRE. He/She will start to wonder whether such solution is feasible for him/her.

You are right to reply that it is up to each individual to figure the type of strategy he/she deem it as suitable for him/her. Every individual has varying circumstance and hence the solution will be different for each individuals.


AK71 said...

Hi Ben,

It is never my way or the highway, of course. ;)

However, to achieve financial freedom, I will say that the general direction we are taking must be the same even if the routes are different. :)

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