Tuesday, April 29, 2008

Shall Turtle Trade?

I received regular comments from a reader. After he read my post yesterday, The King of Buy and Hold-Warren Buffet, Myth or Reality?, he suggested that I should trade instead of going the turtle way.

This turtle journey is to generate annual compounding growth rate of 10%. By the end of 15 years, I just want to accumulate a sum of RM 350,000. See my first blog for more details: Can Amateurs Beat Professionals? It is also my intention to demonstrate how frustrated it is for a guy with such a small budget to achieve the target, only $888/month saving???. It is also very tempting to churn, see my entries on performance pressure and capital allocation III.

But don't, I am very clear, by the end of 2009, I should have around $ 27,000. Achieving this target will be quite satisfactory to me but NOT very glamorous though. The first few years is mastering the discipline of saving money, resisting temptations and not making mistakes. It is characters building to master Rule No 1, Never Lose Money.

I just wanted to demonstrate why many believe in compounding power but have no staying power to finally seeing the flat curve rise to parabolic shape. To do that, you need to make zero mistakes for a long time. I believe many have read the power of compounding in many personal finance books, drop me a comment if you wish me to write a short entry.

The point I was hoping to convey yesterday was: very good companies are very hard to come by especially those who can outperform an index for a longtime. If you can find it, sell at a reasonable price, put down a big bet and keep it forever. Five were simply good enough, that's why it constituted almost 61% of Buffet marketable securities holdings. Let's not forget Buffet kept a lot of main street businesses for more than 15 years. Many have wrote what to buy but not many have think it through when to sell to reinvest. I will spend some time to elaborate this point later.


AC said...

Turtle, why I think trading works in Malaysia. There's sufficient company's that offers a certain margin of safety & the cost is low compare to US. I think Buffett will perform some trades here to increase his initial capital, if he has the same amount of money as in your portfolio now.

I'm not dismissing your way of investing but with the small amount that you have, you can certainly move it more easily than many funds. Buffet has done before, so can you.

Turtleinvestor said...

AC, thanks for your advice. I will stick to the turtle way.

AC said...

Turtle, what would you do if you find an investment that will give 6% within 3 months? Or you found an arbitrage trade that will yield you 3% in a month?

Will you sell your MUI & grab that chance?

Turtleinvestor said...

AC, my answer is still negative. However, I will respect others choice to be a trader privided they have the money, time, skill, and highly effective trading system. It is like smoking, most say they can control, in reality once they get started, they get hook, very very difficult to stop.

AC said...

Turtle, Buffett earned some money when he discovered arbitrage opportunity with a commodity (i think it's coffee) when he was working for Graham. He really did take the chance.

He did not only stick to equities. He's a businessman.

Turtleinvestor said...

AC, Yes Turtle is aware of that. If one has a small capital, Turtle would rather play it very safe. This is the only seed money Turtle has. Protect it at all cost even though the capital appreciation is very slow.

The other issue is circle of competency; Turtle will be very aggressive if it is something Turtle understands very well. Abitrage is not within his expertise.

A.Firdaus said...

turtle, came across your blog. interesting concept u have here of holding long to an investment. i'll follow your blog to see how things turn out.

But i believe Milton Keynes penned this, "in the long run, we're all dead".