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Though we may read this or know something about this, i have been brave enough to invest about 40% of my investing capital in a Blue Chip for "safety" and dividend purpose.
What to do?
Any better idea?
Extract:-
Avoiding the Certainty Trap
{Posted on September 10, 2015
Data availability is something of a double-edged sword in today’s financial markets. On the one hand, we now have a nearly unlimited supply of research, opinions, back-tests and historical simulations with which to base our investment views upon. On the other hand, the fact that we have more information available at our fingertips than ever before can lead to an over-reliance on how we use it to make decisions.
Over-reliance often leads to overconfidence, which is one of the best ways to go bust in the markets if you’re not careful. There are two arguments I see on a regular basis that show up as a result of data overload:
1. …because that’s never happened before.
2. …because that’s what’s always happened before.
The problem with this line of thinking is that it can lead investors to fall into what I like to call the certainty trap. It’s this all-or-nothing line of thinking that causes so many to constantly attach extremes to every single market move or data point they see. The beginning of the recovery or the end of the world is always right around the corner. The assumption is that we’re always either at a top or a bottom when most of the time the markets are probably somewhere in the middle.
The reason the certainty trap is so easy to fall for is because historical data can feel so safe and reassuring.
Look here, my data says that this has never (always) happened in the past. Surely this trend will continue. I’ll just sit here and wait for my profits to start rolling in.
‘Never’ and ‘always’ have no place in the markets because no one really knows what’s going to happen next. ‘Most of the time’ is a much more reasonable goal, because nothing works forever and always in the markets. If it did everyone would simply invest that way. I think a much more levelheaded approach is to follow the Jason Zweig 10 word investment philosophy:
Anything is possible, and the unexpected is inevitable. Proceed accordingly.
To disregard the potential for the unexpected is the height of arrogance and arrogance is rarely rewarded for long in the ever-changing markets. Don’t get me wrong, I’m not saying you shouldn’t take on high probability bets based on the weight of historical evidence and your current views. That’s exactly what you should do.
But probabilities take into account the fact that there’s always the possibility that we might see the minority situation occur. In fact the best you can hope for is a high probability for success because luck plays such a large role in shaping the outcomes in the markets. I’ve always liked the old adage that it’s better to be roughly right than precisely wrong.
My feeling has always been that historical data is a great way to view the inherently risky nature of the markets, but that doesn’t mean the data always does a great job at predicting exactly what’s going to happen in the future. Investors have to remember that market data does a much better job of forecasting potential risk than it does potential return.
There are no certainties in the markets. Otherwise there would be no such thing as risk.
Nothing works all the time. Otherwise it would never work in the first place.
There’s no room for ‘never’ or ‘always’ in the financial markets. Otherwise you’re sure to be surprised in the future.}
Is anyone surprised by the demise of LEHMAN BROTHERS, etc.....
Always must try to remember.
WB:-
1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.
Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.
NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.
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(16-09-2015, 07:13 PM)GiraffeValue Wrote: Ah I wouldn't want go into how other funds are doing, definitely not comparable. Retail investors have more edge, I can also pull out a few that got 18%+ CAGR for the past 3-4 years but again simple size is too small to be representative.
We can learn value investing, in two way. One way is to do it, and learn from experience. The other way, is to learn from other people experience. We need a long track record, to conclude a successful strategy. Learn from other, is the best and more efficient approach, but not many successful ones are willing to share candidly. I am very grateful to those are willing to share.
Anyway, I agree retail investors have an edge over the fund managers. We are free from "restrictions" imposed by investment mandate. We don't worry the liquidity of our fund, while fund managers do, due to investor redemption. Successful strategies should work equally well on both retail and institutional investors, most, if not all of the time.
“夏则资皮，冬则资纱，旱则资船，水则资车” - 范蠡
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Agreed that retail investors can have a huge edge. But, the pitfalls seem to outweigh the pros. Namely the lack of professional training (lack of time, have to focus on job, family etc), and not actually treating it like a business.
On the topic of buying net-nets/cheap stocks, Graham always emphasized its a "group strategy". Whether one or two stocks blow up or do badly don't really tell you whether its a good technique IMHO. Just like buying a free option that something good happens, with very little downside.
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