As legendary hedge fund manager Ray Dalio told Tony Robbins: “It’s almost certain that whatever you’re going to put your money in, there will come a day when you will lose 50 percent to 70 percent.” It pays to remember that if you lose 50%, you need a subsequent 100% return to get back to where you started. That math is tough.
Truth be told I haven’t been investing much in shares these days. I did continue to purchase some from time to time. Having said that, I remain heavily invested in shares (I did not sell, or off load what I have accumulated).
To some, I could be missing a great opportunity. It could be a great time to be picking up stocks on the cheap. Kind of remind me of those people rushing to buy stuffs at Robinsons (Orchard) over the weekend (as there is a Sale).
Having seen the days when I have ‘lost’ much more (percentage wise), I have never really been able to call the exact bottom of any market crashes. How low is low? How long will it last? Yes, for these couple of days, the STI Index has been breaking new lows.
STI sinks to 2012 low after Asian market bloodbath (read here)
STI sinks to lowest level in over 4 years (read here)
Is the lowest in 4 years, really low? Maybe next week the news would be “STI sinks to lowest level in over 6 years”.
Look, I am sure there are many more experienced investors out there whom have seen and experienced much more (or worse). There will always be this group of investors in their 60s+++ who have many decades of investing experience (think people who are Warren Buffett and Charlie Munger’s age). And on the other end, we have newer investors who are experiencing their first major market drop. So you might end up with two extreme group of people, first group thinking that this drop is ‘peanuts’ and on the other end, this second group of people thinking that this is “IT” (start of an Armageddon), or inversely, this is a golden opportunity to pick up stocks on the cheap. And trust me whatever it is (and which group you are more affiliated to), the media / news is not helping much.
So back to the statement by Ray Dalio, there will come a day when some of us will lose 50 to 70%. Personally, I have not seen my portfolio drop that low before, and I do not hope to see it (in my lifetime). However, individual stock wise, I have experienced major drops in specific shares for prolong periods (years..). And it is never a good feeling.
If I had that kind of feeling over a few stocks, think of the Japanese who had experienced decades long subdued market performance (and who had invested their hard earned money in Japanese equities). Not years.. decades!
The thing about stocks (which is really surreal) is that you have access to the daily price of the stock (which may or may not reflect the true value of the company). Why is it surreal? Cause, technically the value of a company doesn’t really fluctuates every few seconds / minutes / hours / days / weeks / even months. And most of us have been guilty of constantly checking the stock prices of the stocks we invested in.
Yes, stock market is one of the most democratic invention even, it allows the man on the street to buy a share of listed companies (which would have been otherwise almost impossible, or only accessible to high net worth individuals or hedge funds). It might even be the closest thing we have that tell us the ‘value’ of a company. However, the indirect consequence is that, it made us (the very person who invest) our own worst enemy. Sometimes having too information may not be such a good thing.
You contrast that with other forms of illiquid investments such as property investment or startup investment (whereby you typically can only sell your shares after 7 to 12 years). In most years, you are likely to be unaware of the daily price of your investment. Unless you have really hyper hardworking real estate agents quoting you prices for your property or if you constantly surf online for the prices of other similar properties near where your property is situated. In most situations you are blissfully ignorant of the price…
For those of us who are used to stock investing, not knowing the ‘price’ of your investment for 7 to 12 years can be quite a scary thing. You can wake up, 12 years later, and find out that it is worth next to nothing. In today’s internet age (where information is just a click away) – it is almost impossible not to know.
I was reading this post about Startup investing, and I find this paragraph relevant:
I’m in startups for the long game. In some capacity, I plan to be doing this 20+ years from now.
The reality: If you’re spending your own money, or otherwise not banking on management fees, you can wait for the perfect pitches, even if it takes years. It might not be the “best” approach, but it’s enough. To get rich beyond your wildest dreams in startup investing, it isn’t remotely necessary to bet on a Facebook or Airbnb every year. If you get a decent bet on ONE of those non-illusory, real-business unicorns every 10 years, or if you get 2-3 investments that turn $25K into $2.5M, you can retire and have a wonderful quality of life. Many would argue that you need to invest in 50-100 startups to find that one lottery ticket. Maybe. I think it’s possible to narrow the odds quite a bit more, and a lot of it is predicated on maintaining stringent criteria; ensuring you have an informational, analytical, or behavioral advantage; and TIMING……
I’m a fan of funding ballsy founders (which includes women), and I want many moonshots to be funded, but here’s the reality of my portfolio: as I’ve signed the investment docs for every big success I’ve had, I’ve always thought, “I will never lose money on this deal.”
The “this will be a home run or nothing” deals usually end up at nothing. I’m not saying such deals can’t work, but I try not to specialize in them.
So back to stocks.. so yes, who knows, maybe 3 years later when I look back, I might regret not buying now (this could turn out to be the market bottom). I shouldn’t have ‘slack’ and do other stuffs. Or 3 years later, the market reached an even lower low, which by then I could have just started buying.
Frankly I am not even sure if procrastination is a term relevant for investing. Procrastination – for trading yes. Or if I am Marty McFly in Back to the Future, and can accurately know for sure what the market will do in the next few months, then yes.. procrastination is relevant. Eg. If I know the market is going to turn and have a multi year bull run from next week onwards, I better start buying now.
For the very human me (with no special powers to foresee the future): When it comes to investing… hmm… I am really in no hurry.
My idea of ‘working hard’ in investing is really about reading all I can on the companies (esp. those I am invested in or would like to invest in). And I spend as much time as I can on reading whatever news I can get hold of. Put it in another way, I really think a lot of the different scenarios, before I actually press the buy or sell button. You know like those people who really take a longgggggg.. time to make a move in chess (sometimes my 7 year old son doesn’t like playing chess with me – cos I am too ‘slow’). Occasionally, for very long periods, I have no idea on how to proceed (geez.. sound like a struggling artist).
Of course I might be ‘working too hard’ on investing. Mohnish Pabrai has a simpler method. He is unabashed about Cloning the moves by other successful investors. (read here) However, if you have read about his method, checking out what others are buying is just the first step, subsequently he does a lot of research on those companies which he is interested in or have some knowledge in.
Also I also need to be comfortable with how much I am willing to put in equities. Shares is just one form of investment. Cash as ‘un-sexy’ as it is (earning next to negligible interest) is essential. If I am low on cash, and the stock market tanks (or bottoms) – well too bad, I missed my chance. But opportunities will come again. I will not put my emergency money into stocks just because prices are really cheap. The stock market always surprise me, and it can really go a lot cheaper. I am really glad I don’t have a boss as manic depressive as the market (too much excitement for me – my life is really boring FYI). Don’t ever be in a hurry to jump into any opportunities (life is really unpredictable, esp. in investing).
From another perspective, in investing, you get to set your own boundaries.
You can totally don’t invest, invest 10%, 20% etc or even up to the point of borrowing money to invest (Contra trading). Sometimes your past experience might help in setting boundaries (esp. when you have paid some really expensive lessons), so you know really how much You can reasonably risk, and be able to sleep soundly at night. Trust me after paying so much for those lessons, you would really do a lot of homework afterwards so as to reduce your failure rate. For newbie investors (who haven’t really had any paper losses before), this might be a bit difficult.
So to wrap this post up, yes, as pessimistic as it may sound, sometimes, it pays to remember that if you lose 50%, you need a subsequent 100% return to get back to where you started. So don’t rush.
A Pen Quotes 