(This is not Turtle Trader or Trend Following blog.
All stock and strategy mentioned in this blog do not represent buy or sell. This is my digital diary to express my thoughts and opinions about the world of investing. Ultimately, you will be responsible for your own decision. Please consult your investment adviser before taking any investment position).
As usual, received $ 888 saving for the month of November 2010. Portfolio gains 22% since its inception. Sitting on almost 50% cash. Getting increasingly difficult to find places to deploy cash. I am neither bullish nor bearish. KLCI is valued above historical average. Now is selling at almost 19.XX times and pushing it above PE 20-22X will be very susceptible to reversion to mean.
Options that available to Turtle to deploy money:
1. Do nothing - put all money into FD 2.85% and wait for corrections
2. Deploy dividend yield strategy - REIT 8% and some other high dividend yield counters 4-6%.
3. Trade on lower liner/small cap - allocate up to 15% book value to this strategy. Retail participation seems to be at a healthy level. 27 - 35% of retail investor will spice up the market a bit.
If you watch this short clip before enter the trading floor everyday, I'm pretty sure that you can pysho yourself -- convince yourself that you are the god of Stock Markets. It will make you feel very confident to make a swing of 5-10% intra-day profits everyday.
I probably may NOT be very qualified to make a lot of comments because I do not have many actual experiences to share. Most of the following are from my brief venture into this approach(I quit because I don't feel the money I won justified my efforts and stress that I went through), imaginations, readings and also knowing a few people are who are from this school. By the way, instead of calling them gamblers, day traders, speculators and etc, I prefer to call them The Street Fighters(;-.
Strengths 1. Street smart, these guys are smart but just don't expect them to be a 1st class honor in Accounting -- instead of looking into IS and BS(Balance Sheet and Bull Shit) numbers, they can read your face like a book. They are the master of crowd psychology. They know who they can "eat" who they got to stay out.
2. Chart reading skill is in their blood. They have good trading system. In and out based on a system. Trust no one but computer(especially the Quant).
3. They react very quickly to news, breakout, trend-line, support, resistance, moving average, convergence, divergence, price-volume, correlation, etc.........It's all part of their system.
4. They know they are playing with fire, a lot of stuffs they bought are back by nothing. All they care is PRICE ACTION. It's price action that make them money, period!. The modus operandi is: You can make money in bull or bear markets but only pigs and sheeps got slaughtered.
5. If you can't tell what is the probability of moon will show up tomorrow, you are disqualified to be a street fighter. These guys are master of calculating odds, they only take odds in their favor. Real Street Fighter only care pay-off and the odds of winning.
6. Strong discipline of cutting losses and also taking profits.
7. Strong risk and money management. They know that they can be wrong, don't put all eggs into 1 basket.
8. Very comfortable with uncertainty. Love for thrills and speeds.
9. Be like a machine -- never fall in love with stocks. They focus on batting average. Natural sportsmanship, they can handle victory and defeat very graciously.
10. These SOBs are tough. They have very strong mental toughness. They will keep fighting and never give up.
11. Wide contacts and probably have some informer networks.
Weaknesses:
1. If you believe EMH(Efficient Market Hypothesis), for most of the time, price already reflecting the known facts. You are probably too late to catch after a long white bar shot up by 10%. For most of the time, if we are lucky we may have the last 2 puffs before things roll over.
2. For most of the average retail investors, picking and reading the charts, news feed, trading system is easy. However, trusting the SYSTEM without questioning them even though they are counter-intuitive for most of the time. The right golf grip actual feel very odds, so it's trading system. Trending system for example is very easy and simple to follow but taking emotions out and trusting the system is difficult. That's how 95% of people fail.
3. Riding on trends too long is dangerous because it can breed over-confidence, excessive leverage that bring most people down to their knees. I prefer young investors to lose 10 - 20 k at the beginning their Street Fighting career than winning 50 k. A guy or a gal winning 50 k will probably will start to play with margin - leveraging up in a big way. They can destroy what they build in 10 years in 10 days.
4. Forecasting future by looking at past price action? A librarian is probably the best Street Fighter on earth, just to borrow from W. Buffett.
5. Here is the catch-22. First you need to trust the machine 100% and allow no human intervention. If you intervene, then you are not trusting your machine 100%. If you allow machine and human intervention to co-exist then there is a possibility of machine or human emotions can betray you. Things will be very ugly if you know what I mean........
6. Too obsessed with tools will be no difference from Graham purist. Just numbers and charts and news feed, rumors, etc ...... without understanding business, reasoning, cause and effects are not sustainable for a long period of time.
7. Large amount of money requires a lot of trading ideas, a lot of trading ideas will lead to two possibilities (a) over-diversification (b) over-trading. I have my doubts that one can beat the market by this approach without leveraging or taking concentrated bets. Taking concentrated bets and not back by anything solid is not for the faint heart.
I am doing my part as a Penangnite to promote Penang a bit. This is a big exhibition displaying a lot of exotic cars commonly seen in Kuala Lumpur such as Lamborghini, Ferrari, Porshe, etc.....but not so common to be seen in Penang. That shows how Giam Siap(kedekut) Penangnites are.
The organizer is expecting 60,000 people will turn out today Oct 23 and tomorrow Oct 24. Perhaps the old fashion persuasion will work........Girls.......
These pictures were taken in 2008(I had better reveal the source in order not to get into trouble. http://www.zerotohundred.com/2008/auto-features/babes-of-mean-machines-2008/).
It's has been a while I did not touch on the investment philosophy.
Sun Tzu said:
Know [the] other, know [the] self, hundred battles without danger; not knowing [the] other but know [the] self, one win one loss; not knowing [the] other, not knowing [the] self, every battle must [be] lost.
The obvious that everyone knows is know the enemy and know yourself, hundred battles fought hundred wins. But what is less obvious is this
Not knowing the enemy but know yourself, the winning rate is only 50%. In his words, One Win One loss.
Translating this into practical investing. We must know what kind of investors out there just like knowing major martial arts out there. What are the strengths and weaknesses of each school? I like what Bruce Lee said you have to balance between instinct and control. Too much of control then you are too scientific then you are turning yourself into a mechanical man. If you push yourself to the other extreme on instinct then you are just too unscientific.
We ought to know that each type of investing school has its own strengths and weaknesses.
Let's start with Value Investing.
Strengths:
1. Attention to details especially on accounting(quantitative side) 2. Analysis driven 3. Value rationality rather than emotions 4. Patience 5. Strong discipline sticking to a set of principles 6. Self knowledge 7. Generally introvert allow them to be away from crowd to be independent thinker 8. More interested in the thinking process rathar than answers/solutions 9. Hands on -- going to the source rather than depending on secondary analysis
Weaknesses:
1. Too theoretical 2. Unable to connect theoretical numbers with business reality. Lack of qualitative analysis. 3. Could miss big pictures especially on macro development will affect micro events 3. Too rigid and sometimes miss big opportunistic profits 4. Patience sometimes come at a very high opportunity cost 5. Poor market timing due to buying and selling based on valuation 6. Too focus or specialized give birth to blind spots -- missing a large new trend. 7. Buying too many stocks without knowing the business intimately especially Graham purist(buy whatever fit your screening criteria) 8. Too skeptical of everything ended up buying nothing
It's nice to see so many value stocks are being re-rate now. It's also imply that rational investors find that many stocks are stretching the limit, based on a number of valuation metrics.
One of the biggest mistakes of retail investors is selling out too fast because they have been sitting on losses or non-performing for too long. If we have some value stocks in our portfolio, we should hang on to the ride for a while -- either to maximize gains or minimize losses.
But we also need to pay attention not letting too much greed getting in our way because a big move in value stocks tends to attract momentum players. At some point of time, this group of players will know how to cash out based on their technical assessments. A savvy value investor will need to know when to cash out. I missed twice 25% cash out opportunities on my MUI since 2008. I am going learn to be smarter this time round. Have a nice weekend.
(The Edge Malaysia, Oct 20) NEW YORK: World stocks and commodity prices fell sharply on Tuesday, Oct 19 after China, the engine of growth in an anemic global recovery, raised interest rates for the first time since 2007 to curb its booming economy.
Wall Street also was hit by fears that U.S. banks might be on the hook for billions of dollars in souring mortgage bonds, driving stocks to post their biggest loss in two months.
The dollar rallied broadly on China's unexpected 25-basis-point rate increase, a move that could mark the start of a more aggressive phase of monetary tightening in the world's fastest-growing major economy.
First the markets condemned China for not taking strong actions to tackle property bubble. When China got serious and raised interest(unexpectedly), the market got scared thinking that would slow down the emerging economies.
Then the market got desperate buying back stocks, find an excuse that the Fed is reaffirming that the US economy will have a modest growth.
They got panic again this morning when they saw this headline which was in-line with what the expected yesterday.
(Bloomberg, Oct 21)Asian stocks fell for a fifth day, the benchmark index’s longest losing streak since May, after China’s economy grew at the slowest pace in a year. The dollar strengthened against 11 of 16 major counterparts.
The MSCI Asia Pacific Index lost 0.4 percent to 129.22 as of 1 p.m. in Tokyo. China’s Shanghai Composite Index slumped 1.3 percent. Standard & Poor’s 500 Index futures were little changed. The dollar surged to 81.83 yen in Tokyo before paring gains to 81.09 yen, unchanged from late yesterday in New York. The dollar was at $1.3918 per euro from $1.3964.
Stocks fell as data from China’s statistics bureau showed the country’s economy expanded 9.6 percent in the third quarter, the slowest pace from the same period a year earlier. The dollar appreciated after the Wall Street Journal reported that U.S. Treasury Secretary Timothy F. Geithner said the major currencies are “roughly in alignment,” suggesting there’s no need for further weakness in the greenback.
The US dollar begins to rebound, a sign of fear is coming back a little bit.
When I said 2 days ago I will take a break until the first week of November, there were 3 reasons I do that :-
1. Risk and reward is not attractive at this level. Anyone buying KLCI at 1,500 will have an expectation that it will go up to 1,700 or 15% earning growth for 2011. I would expect that we will have some growth in 2011 but the rate of growth will be slower than 2010 for sure.
2. After making a new high, I want to see how strong is the support when the market pull back a little bit. If the market is able to absorb about 5-7% pull back without much problem, then taking some fun trades will be fun.
3. It's very difficult to make money when we markets are volatiles. When winners and losers are canceling each other, the nett gain will be very limited. Sometimes we have to let go some gains in order to avoid many losses(unnecessarily).
I probably still have not answered why after first or second week of November? Volatility should reduce quite a bit:-
1. market strategies will project strong Q3 into 2011. I believe Q3 '10 will have best ever quarterly results for 2010. The real sell-off will be in Q1 2011 when they see Q4 results of which I think will be a lot weaker than Q3 '10.
2. political uncertainty will be resolved.
3. Last 2 months of the year are typically more favorable to equities.
Market research firm Birinyi Associates went back to 1945 to take a look at how the market reacted to different mid-term elections. What the market research firm found was that, yes, stocks do tend to rise in the months just before and right after midterm elections. But, surprise, surprise, what actually happens in the elections, not just the fact that they are held, does make a difference.
In general, Birinyi found that going back to 1962 stocks jumped nearly 10% in the two months before and three months after midterm elections. But in elections when there was a change in the majority in either the House or the Senate, the market did considerably worse. In the six midterms going back to 1945 where there was a switch in the party in power in Congress stocks rose just 6% in the five months around the election. What's more, when the majority switched from Democrats to Republicans, the stock market did even worse. Take a look at the chart at the top of the post. When the donkeys became elephants, stocks tended to fall. The market lost 6% when Republicans took power during Truman's presidency, and 4% when Republicans took over the majority in 2002. The Gringrich-lead 1994 Republican take-over of Washington produced a lackluster 3% stock market return.
So will this happen again? I think it might. A lot of strategists have been explaining past positive midterm results and why Republicans are a good thing for the market by saying that gridlock is good. Markets and companies perform best when Washington gets out of the way. And a do-nothing-Washington might be the best when the economy is good. But at a time when we have lackluster economic growth, and a ballooning budget deficit to deal with, we need all the help we can get, even if that help comes from Washington.
My comment I generally do not like to predict market direction based on stuff like this. But I know it will have some impacts on the market because they hate uncertainty, especially whenever there is a major change of control.
If you look at the chart, 2002 was the only year that market losses since 1945. Why? The market fears that Democrat is blocking whatever market friendly programs by Bush.
Coming to this time round, there are two ways of looking at it. If Republican wins, the market may perceive that they can stop some of Obama ambitious and crazy programs, that may boost the market confidence further. Quite a number of people really dislike Obama now.
However, if the economy is truly weak and intervention is necessary and Democrat is losing influence, recovery will be a lot weaker. Hence a weaker stock market later. Me? I will be taking a break from the market until the first week of November if you know what I mean -- sitting on the fence. Historical data has no meaning to me now.
