Thursday, December 22, 2011

Why cash is a position and why letting inflation gets to you is crazy.

Dennis Ng, of Leverage Holdings, posted a good article on this issue.
Good for a read for anyone who's interested. Compared to him, I am ball-less 'coz he also short CDL in this article. This is conviction man..

Short term trading vs Investing, what's the difference?

Based on the Rich people I know, including myself, NONE of us become Rich or make millions from short term trading. We make millions by Investing, by Buy Low, Sell High based on Major Market Trends.

There are times we do NOTHING, and money sits there idly, (actually we purposely raise our Cash level to have Opportunity Fund). Becos to a Real Investor, there is a Time to Invest, and there is a time to Raise Cash and do nothing. eg. right now I have 70% of my wealth sitting in Cash.

I don't bother about inflation, becos when I deploy my Opportunity Fund, minimum returns I aim is 50%, so what is 5% inflation to me?

Becos when we invest, we don't invest like 1% to 5% of our wealth (that is what a prudent trader should limit max exposure to each trade), we may invest 50% of our wealth or even 100% of our wealth fully invested (but in different investments).

And we deploy our funds to make minimum 50% returns. So imagine, if a person has wealth of S$100,000. Investing 100% of it, and make 50% make S$50,000. While a trader has S$100,00, cap trading to max 1% to 5% of wealth to a trade, or only traded $5,000 and even if make 100%, only make $5,000.

So in this example, the Trader needs to have 10 winning trade to make as much money as the Investor making a 1 time investment. And what if the investor makes 2 rounds of 100%....well, then the trader is left further and further behind, since the Investor now would have S$300,000 (grew from S$100,000) and the Trader might have S$100,000 + S$10,000 or S$110,000 Wealth.

Trading is lots of fun, quite a lot of action, but really, look around at all the Rich people around, and you would realise that NONE of them make REALLY Big money from Trading.

Even Remiser King Peter Lim (a billionaire) cautions people that one can't make much money from trading when he was interviewed.

For me, I think overall market trend is down, so I shorted City Development at S$10 instead, of course price can rebound, but overall trend is down.

Last round, I shorted S$10.70 and bought back at S$9.20, then I waited for price to shoot up to S$10 and shorted it again, still holding on to my short position.

I'm unlikely to Long, buy any stocks for the near future as long as the overall Market Trend is down, not up.

Dennis Ng - When You Master Your Finances, You Master Your Destiny

Note: I'm just sharing my personal comments, not giving you investment advice nor stock investment tips.


YJ72 said...

understand from your blog that you had liquidated most of your stocks some time back and intended to acquire some properties. From Dennis' article, I got the impression that you feel that the market is on the down trend in 2011 and you are timing for a re-entry during a market low.

By any chance, did you form this view on your own or with advice from any bank? UBS is telling their clients that there is significant down side risk base on four Euro & US market scenario. I am buying UBS's view and keeping my fingers cross.

Wealth Journey said...

I never rely on views from one house. Actually, I don't really rely on their views nor that of analysts. I tried to sift out the facts and make my own judgement call.

And the facts can be sift out from news articles and opinions pieces by value fund managers, the different banks and most notably the views of "proven gurus" like Buffett, Soros, Rogers, etc etc.

Just to illustrate one of the epic failed calls, the conviction from one of UBS local investment strategy chief in 2009(before march) was residential prices sure will go down more. He did a wonderful presentation with all the facts and statistics and conclude the market is not ripe to go in. Anyway, the residential market went alive from April onwards and never looked back. Anyway, he wasn't alone in the bearish calls. Most analysts find strength in numbers. Rather be wrong together than wrong alone :)

Ironically, the one who informed me of the market upturn in April was the mortgage specialist working in SCB who deals with the mortgages.

A thing I note about analysts are they are too late to upgrade target prices and too late again to downgrade target prices. So I never relied on their buy/sell calls. I find my own intrinsic values of the companies I am interested in.

As for my own view now, I think stock market might be ripe for entry in 2012. As for the timing, we'll see.