30 May 2013

Stop Screening the Market Price of Stock Market

In this post, I want to share with you about the reasons why we should Stop screening the market price of stock market daily. After a couple of weeks doing such "superman's tasks", I was totally overwhelmed. I realise no matter what decision I made, it will be wrong in a short period of time. No matter my decision was sell, hold or buy, I am going to be disappointed if I keep screening the market price movement.
No one can sell at the highest, nor buy at the lowest prices. Although most of us know about this philosophy, few of us can truly understand and practise it in our daily basis. This post records "the true" that wakes me up from doing useless activities of screening market price daily. It reminds me to focus on the most controllable tasks in the future.

Opportunity or Trap

In stock market, there are lots of opportunities and traps. Opportunity brings money into your pocket in the future. On the contrast, trap takes money out from your pocket. When the market price of a particular company drops 20%, for instance, it can either an opportunity or a trap. It will be an opportunity, if the depreciation was simply due to rumours or panic (EQ) of investors. However, it could be a trap, if something bad is covered by the insiders. In other words, the amount of uncertainty determines the amount of potential profits or loses.

Stop Screening the market price

Indeed, in every minute, opportunities and traps are interchangeable in someway of the stock market. As a result, we will be overwhelmed if we often stare at the market price movement. We will be overwhelmed when "opportunity" appears and then disappears in front of us in minutes or days. The stock market tends to let us feel useless and helpless.
Yes, indeed. We, retail investors, are very useless and helpless to catch up those abundant opportunities in the stock market. Nonetheless, it does not mean we are incapable of earning money from the stock market.

The wisdom of value investing strategy

As a value investor, I do not earn money from catching those "opportunity". Instead, based on value investing strategy, my brave and patience often get the ultimate rewards. My courage is built up based on my valuation homework. My homework shows that with sufficient patience, I will receive a reasonable rewards from my investment.
When my valuation indicates that the market price is undervalued, it is my "opportunity". It cannot be denied that the amount of "opportunity" that I have is very "tiny" compared to what I mentioned in the previous section. Nonetheless, these few "opportunities" are sufficient for me to maintain > 10% compound annual returns, plus a bonus of a very good night sleep daily. So, should I adapt or adopt new investing strategy in the future? Personally, I think I should simply sharpen my value investing strategy for larger scale of investment when my capital is growing in the future.
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Written by: Xaivier Chia

P/S: The above sharing is solely based on personal insight and information that believed to be reliable. Your valuable feedback are very welcome.



Kirk Meyer said...

There are additional risks to carry over into the rate at which had you discount future cash flows produced by the firm's assets.Of course,the higher the risk,much better the discount rate and as well as lowered the value of the firm.

Xaivier Chia said...

Indeed, investment deals with future. Future is full of uncertainty. Uncertainty contains risk.

Generally, valuation is merely based on historical data, experiences, and extensive assumptions.

Since certain risk is unavoilable, what I currently practise is to take action systematically once my initial assumption is no longer valid.


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