Tuesday, September 23, 2014

Dealing with Losses

In Business Insider, there was a recent interesting article entitled 3 Lessons that Investor Learned After Losing His Job, Reputation and USD1.6 million. It is a story about a poor Kentucky boy, Jim Paul who made it all the way to the top- he served on the Board of Governors of the Chicago Mercantile Exchange- and lost it all. If the story ended there, it would have been just tragic. But, he is in America and there, they are used to heroes (don't we all?). Paul then started all over again and slowly rose back up. Today, he is a manager of a team in the investment advisory firm, Brendan Moynihan. Together with the boss, Moynihan, Paul wrote a book about his experience entitled "What I learned Losing a Million Dollar?" If you have the time, read it. If you don't have the time, read this article.

I like to highlight Point #3 of the article; Emotional decision-making is dangerous when it's done in a group. Many people are investing these days through the sharing of information in a group. You have people joining forums, what's app groups and investment study groups to learn about what's good to buy today. With very few exceptions, investment decision-making in a group should be avoided at all cost. The pitfalls include front-running, rumor-driven tradings, egoistic tradings and over-tradings. Investment decision-making is best done away from the maddening crowd, whether real or virtual.

Alas, we have seen many stocks going up these days just because they were mentioned in the press or surfaced in the rumor mills. This is only possible when the market is made up of many inexperienced players and too much money floating around. These newbies would pound on any bit of information or rumor to get into a trade. If they don't wise up quickly, they will suffer, like lambs to the slaughter.

Nonetheless, there are still some good stocks for investing purpose. Take the time to read the lengthy research reports and do your homework. Always, aim for a decent return of about 15-20%. If someone promise you an investment that could double your money, you better walk away quickly. In investment, our enemies are always greed and fear.

5 comments:

lai said...

Well timed write up, Alex.

I learned the hard way, due to temptation obviously and the so called 'crowd conformance' mentality.

Sadly, they are many system out there which people subscribe religiously to get rich quick.

In the end, i only listen to what my parents teaches me which is old school hard work and perseverance and also to have full faith in the Power above to make me a better and wiser person.

FrankKer said...

Thank you, Alex, for sharing this article.
Indeed, there are many hard lessons to learn along our investment journeys. Keep learning and improving is the only way to make the journey fruitful.

追光者 said...

hello Alex, i been follow your blog for sometime.

i study KGB recently and i learn that it financial status getting better, i just need some confident level of this and consider a buy....

do you have any advise? thank you.

Alex Lu said...

Hi 追光者

You are right.

KGB's financial performance has improved substantially in the past 6-9 months.

Reading through the company's Commentary on Prospect suggests that the company will do well. Its business of providing engineering services and general
trading specifically in the provision of ultra-high purity gas and chemical delivery systems solutions seems to be pretty exciting.

However, its financial position is a bit worrying. It has debtors totaling RM95m on a revenue of about RM194m.

Its gearing is relatively high at 1.3 times. While current ratio at 1.6 times is good on first look, the high debtors collection period is a concern.

KGB is certainly worth close tracking.

追光者 said...

Thank you, Alex...