Cavalry charge

Ques: What is the quickest way to be a millionaire?

Ans: Start out by being a billionaire and invest in the stock market.

I would be lying if I told you it doesn’t pain me to look at paper losses. However, the desire to learn is so much stronger – to create a stream of passive income. Ever since I started working I have invested in the stock market with portions of the money I have saved from my salary.

In many occasions, I failed to create any paper gain. The stock market is like this beast that cannot be tamed, and it cannot be bent to one’s will. Paper gains made in months or years could be wiped out in a matters of days or months.

As time passed, my patience is stretched even further. At the beginning, each counter that I’ve bought may probably last a few weeks or months (the most) – before I sold my positions. Now the longest I have held on to a single counter is 5 years plus coming to 6. In fact, for the past months & year, I have been reading up more on companies than actually adding on to my portfolio – less trading, more thinking.

The type of stocks I buy has also changed: from speculative penny stocks (most unheard of), to well known blue chips (which I didn’t read much into), to dull boring defensive companies with high growth strong balance sheet (with thin trading volume). There was a post I did not too long ago, thinking about what stocks will thrive in the bleakest of times (read here). I have invested in SMRT, ISOTeam and Colex stocks. So far ISOTeam and Colex are some of the remaining counters in my portfolio that still retain some paper gain.

On the up side, the amount of dividends which I have collected,  has been increasing over the years.

There is this blog post by Singapore Man of Leisure which I find interesting: Don’t fire until you see the whites of their eyes!

Basically, there is an anticipation among investors for the STI to drop further. To pounce once levels reach lower, and where margin of safety is much higher. Some bloggers have set STI target levels to invest their war-chest proportionally.

Coincidentally, if you read the news nowadays, the trading volumes have been very low (read here) – it has been low for a long time (if I am not wrong. Probably one of the reason why SGX reduced the board lot size in Jan 2015 – read here). The fear is there, but what probably lingers more strongly is the sense of anticipation (of a crash).

It’s time to do absolutely nothing. (read here) To quote from the article (see below):

How you respond to this week’s extraordinary market volatility should be a function of how your investment portfolio is structured.

If you have a sensibly diversified portfolio, with holdings of cash at reputable banks, and investments in high quality businesses with little or no debt bought at prudent valuations, and perhaps an allocation to real assets like productive real estate or gold, then what are you really worried about?

Actually, prior to reading the post by Singapore Man of Leisure, I always have this thought at the back of my mind about the battle scene from Braveheart – the Calvary charge (click here); whenever I think of the stock market these days.

Here the English heavy cavalry is pitted against the weaker Scottish infantry (although technically it may be in accurate – The Battle of Stirling Bridge was a huge ambush, not a set piece battle in the open field. Wallace hid his men in the woods). Anyway, in the movie, William Wallace kept telling his men to be steady and hold, and wait for the right moment to spring the surprise attack (simple pike walls to bring down the horsemen).

I guess it is no secret that the US will be raising interest soon – could very well be this month (the days of QE infused market rallies may be soon gone). In addition to this, there seems to be a myriad of not so good news:

• Greece bailout (still a problem),
• Depressing markets (Russia in full blown recession & Brazil also in recession),
• China slowdown and currency devaluation,
• Commodity multi year slump,
• Our neighboring Asian countries problems (Debt levels in several Asian countries, such as China, Malaysia, Thailand and South Korea, are higher than they were before the Asian financial crisis of the late 1990s),
• Currency devaluation in a lot of Asian countries (which in the past triggered the Asian financial crisis),
• Markets have been rallying for years – time for a recession.

If you are a normal retail investor (with limited / small available fund), these issues may seem like the ‘Cavalry’ charging straight at you (with the US raising interest rate somewhere in front). Overwhelming and pretty scaring, I must say (and made doubly scary if your paper losses keep increasing by the minutes / hours / days / months).

“Successful investors tend to be unemotional, allowing the greed and fear of others to play into their hands. By having confidence in their own analysis and judgement, they respond to market forces not with blind emotion but with calculated reason. Successful investors, for example, demonstrate caution in frothy markets and steadfast conviction in panicky ones. Indeed, the very way an investor views the market and it’s price fluctuations is a key factor in his or her ultimate investment success or failure.” Seth Klarman

“The key organ for the stock market is not the brain, but the stomach,’’ Peter Lynch

Maybe using the analogy of a battlefield – it takes a very strong sense of conviction, rationality and above all, guts to overcome this “Cavalry charge”.

Steady and Hold…..