What we can learnt from this market downturn

Image via Wikipedia Hope everyone have taken a lesson from this market downturn.

The Key takeaway :-
1) Diversify your investment. Don't put all into 1 or 2 stocks. Why risk it all on 1 or 2 stocks you can't even control. The management can do stupid things and its beyond your control. Whoever tells you to concentrate your investment and get rich? Warren Buffett? But he did mentioned that when he buys into a company, the first objective is to gain control and if not, he will get a significant stake enough to exercise pressure on the management. So, he had eliminated the factor that we small investors can't - direct/indirect influence on the management thru' his significant holdings.

2) Don't speculate, don't do short-term trading... but do monitor your investment at least monthly and rebalance quarterly or less frequently as necessary. In effect, this forces you to sell stocks that have run very high and buy into companies or assets that are underperforming but with potential to gain.

3) Please go and attend a course on understanding financial statements and buy some management books to read. Try to understand the management considerations of CEOs and you will know whether the company is operating good or not. Also, read up on management strategy ... at least try to understand what makes up competitive advantage, whether it is sustainable.

4) Debt level - this one is a killer for all companies (big or small). It is leverage and when times are good, it will be performing. But when times are bad, it will be disastrous.. So, monitor this one... In good times, when u see debt level too high... u will have to start thinking about what happens if the company cannot service or refinance its debt. Look at its interest cover, debt to equity ratio. Look at the annual cashflow and see whether the company is expending a significant of it on debt.

Get-Rick Quick Seminars or Die Trying

When I first started out doing investments, I had attended a few seminars of options, cfd, forex, stocks, properties that boast immediate profits or explosive returns of 500% etc etc. However, I have always doubted the effectiveness for the investors. But I never doubted the effectiveness for the trainer. The trainers are indeed making explosive profits and guaranteed RISK-FREE. Com'on, if someone can make 500% (or even 10%) a month consistently, he would either be managing a fund and High networth individuals would definitely be clamouring to invest in this type of gurus. You retail investors will not have access to them outright like with all other financial products or investments. So, why are they teaching? To spread the holy goodness to everyone as a way to give back to society? I seriously think Singapore financial regulatory body should start monitoring and regulating activities of this investing seminars.

For me, I will stick to verifiable sources of expertise like books written by gurus whose primary activities are what they are writing about.. Example, Donald Trump writes about real estate, his business is real estate and everyone knows a substantial part of his income and networth is in business, not training. Or when Peter Lynch writes about "one up on wall street", this guy manages a very successful mutual fund previously, he retired Freaking rich.. He does not depend on the training session for income or his networth. There are so many verifiable gurus out there in your library or bookstore and it costs much less.

Anyway, below is a comprehensive feedback by bloggers of the various investment seminars out there. Go check it out before you plonked your money into the courses.

jmot’s Blog

I am like many singaporeans trying to learn to trade by attending seminars since 2003 that sprung up like mushrooms. I would say I am cheated/mislead) by the seminar I attended. Basically the trainer go through theory but not really how to make money trading. After 4 years since 2003 I am still not making money, I find Trading is not a walk in the park and you can lose all your money as I have found out. I want to forewarn those naive singaporeans about those dangerous half-truth seminars where the trainer seems more a motivational speaker than a trader.

My criteria now for trading seminars is
1) the trainer himself managing a fund and has a verfiable track record
2) the trainer is not making most of his money selling seminars but from fund management
3) teaches trading systems not a generic bunch of options theory
4) Excellent post-seminar support and training, contactable
can offer a trading program that last months not just a weekend
(Trading needs not months but years to achieve proficiency)
5) Seminar attendents are making consistent profits from trading systems(Not trading theory) taught