1st Lesson: 90%+ of the stocks fall drastically during a real stock crisis.
This is probably why Michael Leong's advice is to sell all stocks during the onset of stock crisis. The cheap gets cheaper during stock crisis.
2nd lesson: The last-third of the stock crisis tend to be the heaviest decline.
This is pointed out by Kenneth Fisher in this book "The only three questions that count". And this salient observation repeated itself in Oct 2008.
3rd lesson: When quality stocks are not cheap, get out.
This is the lesson I have to learn the hard way. I should have left the stock market in mid-2007 when quality stocks and even sub-quality stocks (e.g. CG Tech) are expensive. I should not have bought into Contel at all. Many regrets here. Low quality stocks can become worthless.
4th lesson: Cash is the best when everything is expensive
A lesson related to the 3rd lesson. A lesson that I am still learning.
5th lesson: Always prefer quality businesses with low debt at low, if not reasonable, price
Quality means a) less cyclical businesses, b) high NTA to price and NTA is in mainly cash and properties, or c) market leader.
6th lesson: See further, Examine deeper
a) where will this stock be one to three years down the road?
b) what is the downside to this stock?
c) what are the factors that will lead to the price of this stock to increase?
I may add on to the above list if I have any more lessons to be shared.
2 comments:
Hi thinknotleft,
Thanks for your comment on my blog. I really appreciate such frank and honest opinions.
And yes I agree with the lessons you learnt - though for your 3rd lesson you could not have known over-valuation and when to leave. This is only obvious on hindsight.
Whatever the case, preservation of capital still remains the cornerstone of successful investing, and it will do us all good to always take this principle to heart!
Good luck !
Musicwhiz
Thanks for yr comments.
The 3rd lesson is not on identifying over-valuation. But rather, it is on not buying poor quality stocks even if it is cheap using simple valuation measures (e.g. PER), since poor quality stocks (or business) can be unprofitable and worthless in the long run.
Putting in another way, I should have a two dimensional margin of safety -- valuation measure (e.g. PER) and quality of/consistency in earnings, and instead of a 1-d margin of safety -- valuation measure only.
Yes, I will not know what's the best time to leave the market. I am suffering from hindsight bias when I write that "I should have left the stock market in mid-2007."
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