Lessons Learnt in 2014

[CityFarmer]

I am yet to conclude my 2014, and the corresponding review, but would like to share one of the small thoughts in 2014. I like Q&A style, thus I present it as a series of Q&As

Value investors know well a phase, "Focus On The Downside, And Let The Upside Take Care Of Itself". A couple of questions arises. Knowing their existence, will not automatically take care of the downsides. So what are the available means to "take care" of them?

There are many means, and the most important one is MOS. It is a well-known concept by most buddies here.

Should the MOS be the same for all stocks? The answer should be NO. Since the downsides are different between stocks, thus the MOS should be used differently on them. A unique MOS is derived after reasonably considered all the downsides of a stock.

Should the MOS take care of Mr. Market psychotic mood swings? The answer should be NO. It is difficult, if not impossible to "take care" of it. I often hear that no MOS is able to offset a crash of price. The statement is right, and MOS isn't suppose to do that either. MOS is a margin of safety for value, in case you are wrong on its valuation

Sorry for digressing in this thread, but how do you consider/calculate the downside of a stock?

Similar as the means to calculate the upsides i.e. using forecasts, assumptions, estimations, or even guesstimates.

[jjlim84]

lessons learnt in 2014:
1) No matter how undervalued a stock is, when negative or bear market sentiment comes (i.e. this time oil price drop), get out and take profit

2) Buy a good airline stock when oil price plunges

just my share of thoughts

[vesfreq]

Hi,

Just sharing my humble two cents.
1. I had my shot at equity back in 2008. At that time, I bought Citi when was like USD 2. And, I also bought into Fannie Mae and Freddie Mac. At a time when subprime was shadowing the financial markets, a friend also thought I was crazy. I bought Citi with whatever cash I had on hand. Citi went into various swings up and down, but I held with conviction. Disposed the shares, when it recovered much later on. This is the same lesson that many vb have shared. That is, have conviction in the counters that we are buying. Share price, like a business, is prone to "mood swings". One day of poor sales doesn't mean that one should pack bag and do something else. Like starting a business, equity investment calls for conviction and commitment. Thinking back.... I always remembered why I had the guts to put my money at Citi, because it is "too big to fail". Literally. I don't think I am perfectly right, but I believed and knew what I was doing.

2. Having (unwavering) faith is difficult. Unfortunately, life isn't like the fairy tales where you know the hero has to defeat the villain and all would end well. Many a time, discerning the fairy tale faith from reality is a difficult process, especially when its far easier to believe what we want to believe, instead of what we ought to believe.

3. Panic is a virus. Have you ever got a panic because your friend exclaimed about the tumbling prices? One friend wails that there is no more upside, hurry and pack to leave. We forgotten that panic is sometimes over nothing. Even in situations of panic, we have to make sound and rational decisions. Making decisions in haste and panic are often perfect recipes for more problems.

4. Management quality. I studied finance years ago and this is not new. As some buddies have mentioned, management quality matters. A few bad months or days doesn't mean the company is sh*t. Ultimately, its the quality of the captain and the experience of his crew that will move the ship in the right direction. But, when it comes to share price performing worse than expected, its just so human to say "lets ditch this ship and go to the next".

5. Popular opinions are not necessarily right. Having our own point of view matters above all. Not everyone would share the same views. I find that it matters more to form our own beliefs and framework, rather than try to prove or show others. Like driving, one style of driving may fit one, but not the rest. I love Ayrton Senna, but I can't drive like him. Still, I enjoy driving... except on a shoe string budget (without having to break my bank). The same goal can be achieved through many avenues. There are simple folks happy with a sunny and those who believe that the entry level is a 3 series. Everyone's opinions are bound to be different. And, as an individual, one has the right to agree to disagree. Whats there to be faulted. Be certain and have a firm foothold in one's views and opinions. That matters, especially when markets are in for a wild ride.

Being humans, it difficult to manage that emotional side of us. The greedier side of us isn't easier to manage. 2014 had been a year of good learning for me. At least, it was growing and outgrowing certain things. I am thankful that reading the forums have contributed to a lot of learning and blessed with the good health to explore the markets and still enjoy a cup of coffee.

[BlueKelah]

lessons learnt in 2014:
1) No matter how undervalued a stock is, when negative or bear market sentiment comes (i.e. this time oil price drop), get out and take profit

2) Buy a good airline stock when oil price plunges

just my share of thoughts

1) sentiment is fickle, you may miss sudden upsides
2) everyone is doing same thing which means might be too late to the party.

via Galaxy Tab S with Tapatalk

[corydorus]

I traded on SIA when i first heard the news about the oil drops (happens before except less drastic from experience) but due to lack of conviction i have to sell it for coffee money. I could "Whack" larger as well but no, is not my style today. It went further up but i am please on my reasoning to go in and out.

[Temperament]

I traded on SIA when i first heard the news about the oil drops (happens before except less drastic from experience) but due to lack of conviction i have to sell it for coffee money. I could "Whack" larger as well but no, is not my style today. It went further up but i am please on my reasoning to go in and out.

But if you short Keppel Corp you will be caught. Just like long S I A is based on the the same logic on the drop of oil prices only, i supposed.

Trading is "Hit or Miss you must run (aka cut loss or take profit). Then wait for opportunity rinse and repeat. Understanding is one thing, excecution is another. i found it not suitable for myself because i find it hard to keep on running so "fast". Of course some people are good at it. We need all types to have a market.

[CityFarmer]

It seem timing the market still a popular "technique" in VB. May be a timely reminder of the followings, by favorite gurus of Warren Buffett, Peter Lynch, and Jason Zweig.

Warren Buffett
"Our stay-put behavior reflects our view that the stock market serves as a relocation center at which money is moved from the active to the patient.­"
"We continue to make more money when snoring than when active."
"The only value of stock forecasters is to make fortune-tellers look good."
"My favorite time frame is forever."

Peter Lynch
"Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves."­
"I can't recall ever once having seen the name of a market timer on Forbes' annual list of the richest people in the world. If it were truly possible to predict corrections, you'd think somebody would have made billions by doing it."

Jason Zweig
"Whenever some analyst seems to know what he's talking about, remember that pigs will fly before he'll ever release a full list of his past forecasts, including the bloopers."
http://www.cbsnews.com/news/the-smartest...et-timing/

[Temperament]

WB
{Buffett is no market timer. He looks at valuations. That much is obvious. He always gives his viewpoints of the *valuation* of securities and markets, and he never makes predictions about *when* the market will change. He doesn't have to, because if he is right about the valuation, then it will lead to a good investment return regardless of whether he gets the timing right. However, when the market gets really out of whack, it *appears* as if he is timing the market because severe over- or under-valuations are not a stable situation.}

As Buffett once wrote:

“We try to *price*, rather than *time*, purchases. In our view, it is folly to forego buying shares in an outstanding business whose long-term future is predictable, because of short-term worries about an economy or a stock market that we know to be unpredictable. Why scrap an informed decision because of an uninformed guess?"

Unquote:-
From the above and from what he did in 2008/2009, do you consider he is in fact a Market Timer too?
And what he bought in 2008/2009 not all of them turns out right. And he usually bought very heavily at this times. And also usually at his dictated terms. Alas, only he has the clout because he is very, very, very loaded and knowledgeable about the market.

[MOV]

For me, few points below summarized my year:

1. Knowing when to sell is as important (if not more) than knowing when to buy.

2. 90% of market trading hours are noise, so stay invested for that 10% of huge jumps in your stock picks.

3. Have conviction in your analysis and stay invested.

Have a good year ahead, thanks for all buddies sharings.

[Musicwhiz]

Having conviction is important. Finding the right companies to compound your money is also important.

I agree it is our job as business analysts to "price" the company and appraise it properly, so that we are cognizant of the cash flows it generates and the value it brings.

Remember that companies should be treated as assets, not inventory.

Happy New Year to all!