Let’s get straight to the point. The most basic rule of successful investment is to
“Buy Low, Sell High”
After years of investing, I still find it very difficult to buy and own shares when the price is low. It is not as easy as it suggests!
Warren Buffet has famously added two strong quotes to support that evidence.
‘When it rain gold bring our a bucket and not a thimble.’
Warren Buffet on buying in huge bulk when low priced.
Buy when everyone is fearful and sell when everyone else is greedy.
Warren Buffet on buying good quality shares in times of turmoil.
How many people you know have actually bought their favourite stocks at a low price easily? It’s easy to understand the theory but extremely difficult to put it into practice. End of the day we are human being with emotion; fear an anxiety always gets the best of us.
1. Everyone is Fearful, so are you.
When oil dropped to as low as $20 a barrel everyone feared so badly and started selling selling selling. It felt like the end of the world back in Feb 2016. Many of us oil and gas workers stood and watch the turmoil unfold. We were worried about our jobs, mortgage, car loans and company pension.
PROBLEM: When this dreadful news is broadcast via the papers, tv and internet, it is natural just to curl into our shell. We try to ensure our property, liquid cash is intact and untouched. Emotions get the best of us and we end up worrying about our financial situation and forget about the golden opportunity. UK top Fund manager Nick Train once said, if we can filter out the noise (aka news) we can see a clear picture.
Personally, I always take a lot of journal notes electronically via my personal Evernote. Then refer when everyone is fearful to clear the noise.
SOLUTION: My advice for this is to stick to the fundamentals. Personally, I always take a lot of journal notes electronically via my personal Evernote. When I read about a company I take notes during the good times, the basic economic moat, business values and future opportunities. I also take a note of company intrinsic value on my ticker app and alert when the price drops to my expected target. In times of hardship, I will refer back to the notes and re-read about the company during good times, compare and then decide if I should invest. This way it will clear all the unnecessary noise.
2. Missed Opportunity
PROBLEM: The rearview mirror is always clearer than the front view. After the recovery phase of a certain company stock or indices, we always look back and regret why we didn’t buy or buy more. We always give excuses on how busy we are at work or at home. Looking back we may most likely be watching Game of Thrones or playing games on our phone at that very moment.
- Set a ticker alert if movements move more than 5-10% in a single day
- Ensure your account always have sufficient backup cash. If foreign currencies make sure you actively buy when the currency is cheap.
- Download Google app on your Android or iPhone. This app will always give you news on your favourite search ticker or stock.
- Stick to the companies you know
- Buy in stages/steps to ensure the average is balanced out
3. I bought too soon and ran out of Cash!
PROBLEM: It is extremely difficult to identify the bottom barrel of a stock correction, dip or financial crisis. Its natural to simply regret and slap ourselves when we buy shares and to find out that’s the share price is still dropping two weeks later and incurring 10% loss in the process. Worse of all, we ran out of cash to buy more at a lower price. Perhaps we become more fearful because we are so obsessed with the 10% loss.
- Buy in stages. Never deploy your money all at once. Even if you did buy at near bottom barrel and still have spare cash left, you can still buy in the upward trend.
- Try to deploy the popular reverse head and shoulder trend to identify a potential drip and breakout recovery later. This is a simple tug of war between buyer and seller.
4. Fear of the Bubble again.
Many experienced investors do remind themselves of the various bubbles and financial crash they have experienced. The fear of losing of 40-80% portfolio over a short period can be quite scary. i.e 2000s dotcom bubble. 2007-09 financial crisis etc. The current most discussed bubble is the ‘BitCoin bubble’. The bubble prediction started when bitcoin was sitting at £1500. This week bitcoin rocketed to $11,000 in less than a year. Why preach the end of the world when you can enjoy the journey?
SOLUTION: If you fear the bubble you will miss the aggressive bull run before the bubble pops.
- Never be too greedy and take always profits with One Night Stand shares.
- Remember that a good bull run will always end. It’s like a good holiday will always end in misery on the journey home. Enjoy while it last.
- Buying good quality companies will always stand the test of time. A diversified portfolio is the absolute basic key fundamentals to ensure your portfolio is well equipped with rebounds.