BURNT BY STOCKS : STUDENT LOST $700,000 IN 3 MONTHS

[arthur]

Thanks for posting the story. I can certainly relate to the story with my own. At the peak of the recent financial crisis, my loss including paper loss amounted to more than $500K.

I was investing and speculating in stocks before the crisis. In a single day, I could make a gain of 10-20k or a loss of similar amount. I bought some stocks with good fundamentals, but I also bought into stocks on tips and hearsay. Like everyone else, the bull run made me believe I have that special skill to pick the right stock. I also bought into call and put warrants, betting on directions of the STI index. I was 70% invested in equity.

I thought I was well read. Armed with all sorts of investment books including books on Warren Buffet, and a frequent visitor to Wallstraits.com, I was searching for stocks from any media I come across. I was teaching friends and colleagues on how to pick the right stocks. I was telling people to just go for low PE and PB. If only stock picking is that simple.....

Sometimes, we really need some adverse event to knock some sense into us. The global crisis certainly humbled me. I was stunned at how the market melt down, and how my portfolio's amount decrease day after day. I was depressed.

The fortunate thing was that I did not borrow, sold out the weaker stocks and held on to some fundamentally stronger stocks which I added bit by bit along the way during the last 2 years. One such stock is ARA, which I bought at $0.80 before the crisis and started to add more when it dropped to $0.40. Though some of my holdings are still underwater, my overall portfolio has posted positive returns since last year.

I am still invested in those stocks. But now, I spent time looking at balance sheets, cash flows and developments in the companies I am invested. I attend their AGMs, and watch their quarterly results. I tried to check up on the CEO as it is the CEO and the management team that delivers the numbers.

Today, I constantly remind myself that it was a lot of hard work plus luck that I have made some positive returns in my portfolio. I am certainly not smarter than a lot of investors out there, nor do I have the midas touch.

Thanks for sharing such a close personal experience.
Its definitely an eye opener to the newcomers who ignore the perils of the markets.

Wish you all the best in your investment endearvours.

[wj888]

after this crisis... you still intend to hold all the good companies all the way down the bear?

[gutman]

after this crisis... you still intend to hold all the good companies all the way down the bear?

It is just my view that we are still in a bull market. With loose monetary policy, both QE2 from the West as well as a low interest environment here, assets such as property and equity can only continue to inflate.

However, governments will continue to weigh down on property market to prevent run away prices. They are not likely to touch equity market, and thus equity will continue to be chased up. Those money that were supposed to go into properties, but have decided not too due to the recent cooling measures, could be channeled into the equity market.

Then again, we believe what we want to believe. And I must admit I am bad in market timing, more often wrong than right.

Thus, I would stay invested as a part business owner of those companies, though I might take some profit along the way.

Unless a euphoria sets in, then I might cash out and wait. By the way, there are more and more people, some stationed as far as in China, dropping me emails or SMS asking me what stock to buy. Signs of beginning of a euphoria?

[Satchmo]

Thanks for sharing, gutman.

One of my relatives got caught out by the crisis too. Not too sure about the details as I did not want to pry but all i know is he was leveraged and was trying to borrow money to pay off his debts or margin calls. Came to the point where he was contemplating downgrading his flat. But I think he got everything settled in the end without taking any measures too drastic.

I think everyone has learnt something from this crisis. It's only whether these lessons are ingrained deep enough in ur noodle hehe

[mikh]

hi gutman, interesting to read your story. Tks for sharing.

i think you would have done well with your "good" company holdings now that the market has re-bounded and you added more near the bottom. Reasonable dividends as well.

Asides, would you say if you are continuing to take chances with upstart companies of less proven fundamentals and pedigree, with higher risks for higher gains?

Agree with you about the management team. For me, this is a learning process. Unfortunately some AGMs are fairly useless for the purpose. CEOs themselves have varied PR skills and that may not translate to organizational management. Other than AGMs, i go thru the work experience and background of key management in the Annual Reports. Still, i find that it is not enough depth while anectodal stores are not quite empirical. Have you found it useful enough at most AGMs and checking up the CEOs? How has the experience been?

[trendlines]

Thanks for sharing this story. The stock market can be a dangerous and merciless place for the unprepared. There is no easy way to get rich - one has to work for it.

Trading is akin to fighting fire. How are firemen different from the rest of us folks? They are highly-trained, well-protected, well-equipped. They have a strategy - a map of the building - even before they head in, and an exit plan. And perhaps most importantly, they are very brave. They know who they are, and they chose this path in life. They take calculated risks to save other peoples lives.

I will not bore you with the comparison to trading, it is pretty obvious. Now consider a civilian in his silk suit rushing into a smouldering building with no idea & no game plan? The only trait he shares with the fireman is... he is very brave, and some might say foolish. He may get lucky, but chances are he may add to the evening news count.

Contra/Margin or any leveraged trading is akin to dousing yourself with a bit of petrol, and running into that building. I exaggerate, but you get the idea!

However, before we paint trading as a mortal sin & as someone who trades frequently, allow me to share my philosophy. I consider all investing a form of trading , and thus a risk/gamble(no risk/no gain). What separates them all is the duration. Some use Fundamental data, others Technical. Both have their pluses and minuses. And then, there're also the valued techniques of gut-feel and rumours, among others.

But it takes real hard work and patience to pick solid fundamental companies in the right growth areas at the right price, just as it takes effort to pick the best chart setups, and formulate an entry and exit.

1. Do you know how brave you are in a crisis? Did you liquidate during the recent crash, when you thought you were a long lerm investor?
   
2. Have you trained yourself? Have you researched enough? Studied the risks involved?
   
   
3. Have you protected yourself? Holding power, Spare cash, Insurance, etc
   
4. Have you a plan before the trigger? What's a good price, a good setup? When do i stop-loss/take profits?
   

In short: There is a serious blaze in there. Are you a trained fireman?

Feel free to disagree

[arthur]

trendlines:

Which major wave do you think we are right now, for the world equities mkts? Not to worry, I am really asking for an opinion and not poking fun at this theory.
Am trying to correlate with my own opinions.

[trendlines]

trendlines:

Which major wave do you think we are right now, for the world equities mkts? Not to worry, I am really asking for an opinion and not poking fun at this theory.
Am trying to correlate with my own opinions.

arthur, as this is primarily a value investing forum i will keep it brief. I use EW wave forms as a guide to understanding the underlying sentiment of the market, and not an exact science.

Different world markets are in different stages, but my personal view is that most world markets are in a wave B upwards. Characteristically B waves can be described as bull traps, sucker plays, speculator's paradise, institutional complacency, etc.

Hope that helps.

[newborn1000]

I am not a big fan of wave theories.......but allow me to guess as well......

I say we are in the 2005 stage of the bull market........

[koh_52]

For me, know nothing abt TA and FA, though read quite alot but never get into my head.

Its easier n more accuarate to forecast short term, like 6 mths ahead..i referring to stock market.

Let me offer my views for next 6 mths SGX market...personal opinions hor, lose money dun blame me huh.

1. GE in 2Q, say somewhere in June - August, so garment must stimulate the market.

2. Feb'11 budget report sure 'swee swee' report and give angpow to buy vote.

3. Apr'11 companies report, most will report good earnings.

4. Property market on stand still, drastic drop in volume, so fund will flow into equities...in addition, my take is pty bubble wouldn't happen now....after election pty market including HDB will cheong again but moderate increase, till 2013, then b..... ??? But, for now flippers might divert into commercial/industrial properties where not affected by the new rules. In short, as long as Open door policy maintain, population increased Pty sure wouldn't die one instead it will cheong further...this class investment must hold long term say 10 yrs.

5. High inflation & ultra low FD interest, so common sense park at equities blue chips, almost garanteed better than bank FD.

6. Many walls of worries already subsided, like US double-dip recession, QE2, Korean peninsula tension, EU financial crisis.....but still vague outlook are China hyper-inflation and IR hike...hmss, not sure wat the effect for these 2 issues?

7. Well, we already worried for 2 straight years abt the same issues, eventually people will put these concern behind, and start re-enter equity market.

8. Its good the cornerns continue in investors' minds, as there a saying when everyone r happy, no concern and anyhow buy, then I will be more worry.

So 2011 will be a Bull year, hehe enjoy the ride while u can...
so i foresee 1Q equity market cheong till 3500 pts....so people called me a market sentiment investors, hmms also know as trend investor..or market cycle / timing..aiya, most important make money lar???