2 questions for investors losing sleep due to their losses.

Sharing a recent conversation with a reader:


Good day to you AK,

- Long message ahead - 

I have been following your blog for some time since around 2 years ago, have not read all your posts, just most of what's on your sidebar. You blog about investing methods which are very relevant to Singaporeans, thank you very much for sharing your stories. I am 26 this year, and earn a very modest income ($3.4k gross) I have adopted a few you shared like transferring OA to SA and let compounding do its magic, as well as going into value investing. I am however, not knowledgeable about REITs and thus am not vested in them.

Shares investing started in 2015 for me, I set a method for myself, in which I only look at the STI components, or SGX mid/large-caps which I have at least seen/heard of/personally use (brands like ComfortDelgro, Raffles Medical etc). Once in a while when I sit down and open my spreadsheet, I will filter out stocks which are near their 52 week low (5-8% away). This filtered list will then consist around 8 stocks. Then I look at them individually and decide if the graph trend is going up/down. If the trend is going up, I will buy. I believed that I do not need to do detailed FA/TA as these stocks are well managed and my strategy is to buy and hold.

Alas, the correction/recession happened. Over the past weekend, I panicked and wondered if I should offload my portfolio. I talked to myself and began writing my thoughts down (realised that I should save these running thoughts somewhere or I will never find them back). I realised that I have bought some counters at a very high price, probably grossly overvalued. There is not much potential upside, and I would have to hold them for a very very long time. Please see below for my portfolio.

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-- Portfolio removed --

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Should I sell them? Or should I wait? I have always told myself, I am young, and time is on my side. But emotions play a big part. I actually entered selling positions on Sunday night and then cancelled them all on Monday morning, thinking that I should at least see how the market is moving in this new week. Not sure if I made the right decision :/ 

I have learnt some lessons:

• The need to look beyond 52 weeks - Though I bought them near a 52 week low, they are actually at XXX week high. But then, no one knows if the trend will continue going up, or come crashing down like now. I thought the stock was cheap, but it is actually not :(
• Read up more about market history - Recently realised that it has been a bull run since 2009, and with oil price not seeing any recovery for the whole of 2015, I should have been more cautious
• Do not buy more than you can afford - My entire stock portfolio now consist of 50% of my net worth (excluding emergency funds), meaning I am holding another 50% in cash. If I have adopted a nibbling strategy like you at no more than a third of war chest, maybe my heart will not be so painful now. I know my portfolio size of 17k is peanuts compared to others, but for a 'poor' person like me, it is still very significant
• Patience, patience, patience - I was looking for places to park my money, and as a young working adult, equities was the natural choice. But hunting for good value requires patience. Accumulate war chest, and wait!
• Know the value of each stock - I guess investing is not as simple as I thought, the next immediate thing I would have to learn is to identify if a stock is over/undervalued

I am not sure if I am talking sense to myself, please advise me if there are more lessons I can learn from this! I am still thinking if I should sell some counters (especially those with little potential upside, meaning I have bought them too expensive) and reposition. But losses are certainly not easy to stomach. :/ 

Otherwise, the only thing I can do now is to stop looking at the markets, just concentrate on saving and come back when the market has bottomed. I remember feeling good when the dividends came in bit by bit, no matter how little they are. I hope holding will be the right strategy. 

Thank you for reading this far.. I did not expect to write this much. I hope to hear your thoughts if you have any. 

Regards,

W

Motivations and methods.

My reply:

Hi W,

I am going to be cautious and not give any specific advice. I will say:

1. IF we are disturbed by our investments in the market enough to lose sleep, then, chances are we are probably over invested.

2. IF we are clear as to what are our investment objectives, examine if what we are doing now gels with those objectives. If they don't we could also lose sleep. The tools and motivations should match.

I have blog posts on these two topics, probably. :)

Anyway, take some time to ponder over these two "ifs" and you should know what you should do. ;)

Best wishes,
AK

Related posts:
1. How to make recovering from losses easier?
2. Feeling depressed about paper losses?
3. What should I do? A letter from a retiree.
"Each time the market drop, my heart drop too.  At this age, I cannot effort to loss much of my hard earned money, as I do not have time to wait for the market to recover again."