Showing posts from July, 2007

Book Review: Don't Believe Everything You Think

This post is a review on 'Don't Believe Everything You Think: The Six Mistakes We Made in Thinking' by Thomas Kida. It can be borrowed from NLB (at 153.42 KID).

As explained in the title, the book highlights six thinking mistakes:
1) We prefer statistics to story.
2) We seek to confirm
3) We rarely appreciate the role of change and coincidence in life
4) We can misperceive our world
5) We oversimplify
6) We have faulty memories

Overall the book is quite interesting. It touches on the above six points and also other aspects such as the use of science (eg hypothesis testing in statistics) to overcome our thinking mistakes. It is rather readable to me and I do detect certain overlapping materials with Taleb's "Fooled by Randomness" and "The Black Swan". This is not surprising given that Taleb draws a lot of materials from psychologists.

Before I end this post, maybe I can briefly share how these points can be relevant to investing. Pt 1) explains why listed com…

Been Raising Cash

Last week, I have quite a number of trades. Besides buying Hongwei and one other stock before the selldown, I have also disposed two other positions on Friday so as to raise cash.

I have sold my positions in China Precision, C&G Industrial and SP Chemical. Even though China Precision and C&G Industrial are considered to be still undervalued by me, the degree of undervaluation is lower compared to my other positions, in my opinion. Also, I sell them to raise cash, which I have started to do since the last Mar selldown.

The act to raise cash serves a psychological purpose, which is to show that I have taken action to reduce losses in case the market corrects further. In other words, the act to raise cash is to reduce regret aversion. Or in chess terms, you can call it a prophylactic move to avert regret.

The act to raise cash may also help if the market corrects more. I will have the cash to purchase more undervalued stocks. Nonetheless, this may backfire at times if the market rec…

What is your motive for investing / trading?

Buffett has mentioned that an investor should be animated by greed but not be controlled by it. Van Tharp, in Schwager's Market Wizards, said that movitation in making money is not an important trait in expert traders. Martin Pring, in Investment Psychology Explained, noted that great investors and traders invests/trade because they love the investing/trading, and not because of the money.

What is your motive for investing / trading? Is it because of the money or is it because you love investing? If you have not examined your motives thoroughly, you may wish to examine it again.

Personally, I started to invest due to the motivation to make more money. However, slowly and slowly, I realise that investing allows me to profit from ideas. I can expose myself to (new) ideas, synthesize or combine a few ideas, test them through the markets and in the process, gain feedback from the maket. This process of coming up with new ideas, testing the new ideas by staking one's money on it and …

Insights from The Black Swan: Pt1

At present, I am re-reading some chapters of The Black Swan (TBS) by Nassim Taleb. In my first reading of TBS, I find it more philosophical than Taleb's last book 'Fooled by Randomness'. Which is why I did not dare to give a review. I do not want to review something I do not fathom.

I find TBS more provocative than other books. TBS may, at some point, trigger some thoughts of mine which will link TBS concepts to my real life investing.

In a previous post, I mentioned that TBS highlights the rear-view mirror or restrospective problem. That is, humans tend to theorize the past based on ex-post results. For example, historians may use the actual occurance of World War I (WWI) to highlight that the events before WWI can be used to predict WWI. This is a form of rear-view mirror theorizing as one looks for possible explanations for something that have happened, and one likely would dismiss randomness as one of its causes. (Research using bond prices indicates that the market did …

Acheiving Competency in Investing (and maybe, trading)

How can one acheive competency in investing?
1) Read
2) Think
3) Practice
4) Repeat 1), 2) and 3) every week, every month, every quarter and every year

The above four steps, in my personal view, are the basic steps to acheive competence. This is also what I have been doing for the past few years to improve my investing skills.

While it is amazing how much I can learn by doing the four steps, I am amazed by the commitment one needs to do the four steps. You can always try out these steps and see if I am lying on the commitment required.

To get you started in step 1), I shall list down a few books that are important, regardless of whether one is an investor or a trader. Just ignore the titles and read them.
1) The Winning Investment Habits of Warren Buffett & George Soros by Mark Tier
2) Trade Your Way To Financial Freedom by Van K. Tharp
3) Way of the Turtle by Chris Faith
4) Enhancing Trader…

The Government giving a Black Swan?

The government has given us a black swan today. The markets falls cascadingly when the development charges increase from 50% to 70%. And the most badly hit was the Sesdaq.

It's a pity that there is no put warrants on Sesdaq, else I may have bought some yesterday. I was looking at STI warrants yesterday, but I did not buy.

Euphoria turns to pessimism. Contel drop back to my purchase price. I do hope it drop further, so I can bear to buy more. I also hope some of my targeted stocks drop, so I can also buy more.

While I am fully vested in the market now, I do have spare funds and borrowed funds left unused. I do use a little leverage which is less 15% of my funds. This leverage has been lying in the bank some months back as I cannot find many bargains since the last Feb/Mar drop. Probably the leverage can be put to use soon. Maybe I should see if I can get more leverage. I don't know.

In the more deeper June correction last year, I manage to find better bargains such as CG Tech at 26…

Deja Vu Again

Today os a day where most stocks went up a lot. Today is the day where Sesdaq hits 300, giving a year-to-date return of 111.5%!

Today is perhaps a lucky day for me too where I just bought Contel at an average 0.242 and it has hit 0.275 in two days. My last purchase was at 0.285 today. Contel is a stock that I have missed out. I should have bought it earlier. It was an ommission mistake

Interestingly, I have also corrected a mistake by doing a one-day contra or selling what I had mistakenly bought yesterday. The mistake is due to faulty analysis.

But I think tomorrow or the morrows after that may be worse. The optimism is a bit too high, too high for my comfort. However, I suffer from over-confidence. I do not really want to sell, as the stocks I am holding are not near my valuation yet.

I do not know whether this is a bad move in not selling. However, I know that I am 100% in the stock market now. I am also underperforming Sesdaq by around 25%. Probably my returns will be better if I have…

A Regret and some trades

I shall post some of my recent trades here. However, first I will state a regret or maybe an error of mine.

Recently Shanghai Asia has rose to near $0.30. As I have posted sometime ago that I have sold Shanghai Asia and thus I have missed the run from low $0.2x to near $0.30. This is my error in not being able to be more patient.

My impatience or psychological weakness may have shone again as I sold Jardine Strategic when the STI drops around 50+ on a certain day. On the other hand, the sale was made as my strategy is to raise cash when market starts to fall. The cash raised will be handy to pick up bargains if market fall becomes a market correction. So far, Jardine Strategic has risen above my selling price. I am not certain whether I am willing to buy it back at the current price given my caution for high margin of safety. I would prefer to buy when it's at below $13.

Besides selling Jardine Strategic, I have also sold part of my Global Testing position. The sale of Global Testing…