Monday, January 09, 2006

My Investing Journey-Caution In A Bear Market 2 comments



(P.S: Sorry for any disturbances the advertisements above may have caused you)
I often think that it was a lucky coincidence that I entered the stock market after it had crashed from its peak. That was in April 2000, when there was a massive correction that would set the scene for the multi-year bear market that started with the dot-com crash, and punctuated with a series of unfortunate events such as the Sep 11 terrorist attacks in 2001, the Enron, MCI Worldcom and Tyco scandals that triggered a loss of public confidence in corporate governance, the uncertainty over the US-Iraqi war in 2002 (when would it start?), and then the Asian SARS crisis in 2003, which would on hindsight turn out to be the market bottom.

I say I was lucky because it is better for a newbie to see the dark side of investing before seeing the sunny side. More seasoned players have said that investing is just like any other discipline: you have to pay the tuition fees to learn and acquire experience, and therefore the earlier you start paying the dues in your investing life the better, because less money is at stake. Another way of looking at this is that as in a battlefield, one learns to heighten his senses and keep alert, rather than suffer the fate of an irreversible termination.

I liken the stock market to a battlefield, and this is what it exactly was in the wake of the dot-com boom. By the end of 2000, most tech stocks had halved from their peak prices, and this gloom was across the board, afflicting banks, shippers, property developers and manufacturers. Hopes of a New Economy had dissipated as dot-com after dot-com burnt out their cash while jittery venture capitalists and investors rushed for the exits. Many saw their "investments" in tech stocks turn out to be speculative bets which were wiped out in the futile battle against the law of reversion to the mean.

I think the default psychology of the newbie investor is, contrary to popular opinion, one of apprehension-induced caution that is conditioned from years of nagging from elders that "stocks are dangerous and should not be meddled with". Coupled with the gloom pervading the market, I did not venture beyond the blue chips in my first few purchases (I have already mentioned CWT as my virgin purchase --- in and out within a week with a little blood lost to the broker).

GLCs (Government-Linked Companies) are the best-of-breed among the SGX-listed companies. On the risk side, they will almost never fail, given the solid backing of their parent (Temasek, and therefore your average Ah-Kong Ah-Ma money); on the returns side, they have strong relationships with government agencies and therefore often get plum contracts with good margins. In my first baby steps even as the stock market came crashing around me, I utilised this little insight of mine to some profitable effect (Actually, probably every Singaporean has this insight, so it wasn't that deep after all. A corollary of this is that you can have a thousand valid insights, but if you don't act on them with conviction it is useless).

After recuperating for a month following my brief encounter with the CWT bloodletting, I gathered my equivalent of one month's salary and bought my next two stocks at one go: one lot of NOL and one lot of Sembcorp Industries.

(to be continued...)

 

 

2 Comments:

Blogger Raymond said...

Hi Daniel,

It has been quite interesting reading your blogs.
I only recently found your blog so I didn't catch your encounter with CWT. I noticed it had been removed from your blog. I'm interested in knowing, so am wondering if you could repost it.

7/31/2007 12:27 AM  
Blogger DanielXX said...

Hi Raymond,
It's in one of the first articles of the series titled "My Virgin Trade" so don't expect too much ;-)

The link is:
http://mystockthoughts.blogspot.com/2005/12/my-investing-journey-my-virgin-trade.html

I found out that my navigation link to this article was wrong, so thanks for alerting me to it. I've corrected it already. You can use the navigation system on the sidebar to view the various articles under each section.

Cheers,
Danielxx

7/31/2007 6:19 AM  

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