My Investing Journey: Hypothetical situations 4 comments
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Sometimes I wonder how my investing philosophy and methods would have been different had I started out on an alternate path. Many newbies lament that they are completely lost where they try to invest in the stock market from a standing start: opening the trading account is the least of their problems (brokers are only too eager to help), after that they wonder where to find out more information about the various stocks, what are good ones to invest, how to read charts and number-crunch the financial statements etc. I read this all the time in the online forums, increasingly in recent months as more and more people realise that investment and not savings is the best way of growing one's nest egg for the future.
I myself started out on a blank slate 6-7 years back, with no-one to seek ready advice from (my friends were not the stock market type). I sometimes read of forumers on online forums claiming that they have "Masters" to teach them the ins and outs of trading, and it sounds great to have a mentor to guide the greenhorn investor/trader up the learning curve. If I had a sinseh in my early days I probably would have found the going less tough. There are however a few issues that one must note with regard to having a mentor to guide oneself: firstly, the quality of the mentor is by no means assured, and this is especially dangerous for the newbie who has no way of telling good from bad; secondly, the quantitative and technical aspects of the stock market eg. how to calculate EPS, NTA, the various operating ratios etc can be taught, but (especially for traders) the "stomach" for risk and money management cannot be imparted --- some things can only be learnt and internalised through experience and actual market participation; thirdly and most importantly in my mind, the "Master" is usually able to teach things from one single set of perspective, which may be adequate in black-and-white subjects like the sciences but may subject the newbie to tunnel vision in the highly subjective field of investing/trading where there are no fixed laws/rules of nature and various situations are highly contextual and subject to good judgment which favours the "fox" who can see things from different angles and weigh probabilities rather than take absolute positions.
Obviously I'm being a bit Ah-Q here because I'm trying to see the half-full glass, or the advantages (retrospectively) of not having somebody to learn from in my early investing days; however learning about the stock market from scratch is, in my mind, really not that difficult nowadays. The penetration of the Internet has democraticised the spread of stock information, and information asymmetry is probably less than at any time in the past. In addition to books, online investing sites like Investopedia and MarketWatch were highly educational in my early investing days, and I also got a feel for the Singapore stock market through online forums where there was much sharing in the early days (I was lucky there.... nowadays there's probably less sharing). Indeed, the online forums, if one learns to sift the wheat from the chaff, are the single most useful resource for the newbie because one can learn the subject matter from different "Masters", hence exposing him to different perspectives (see "Using Online Forums").
What if I had started out in the financial industry instead of in a totally unrelated profession (engineering)? For one thing, my focus would probably have been different. Brokerage analysts would be more familiar with the market technicals, such the big buyers/sellers, market depth, associated technical charts etc, by virtue of their easy access to all these facilities. I would think the overall effect would be to inculcate a shorter-term focus and a trading mentality, by virtue of their better market timing. I myself have tried three or four times to pick up technical analysis in detail seriously, once in my early days, once following my Global Tech debacle when I was re-looking my investment approach, and the most recent after the CAO debacle, where I was not directly involved but had heard traders claim that technical analysis could easily have predicted the coming scandal. However till today my buy/sell timing is often terrible, which is why I prefer to take a medium-term investing approach. Those with analyst backgrounds, like Gallen from the KelongStocks blog, are much better stock-buying timers. At the same time, a trader's mentality typically include risk management techniques such as cut-loss which would probably have taken away most of my big wins.... up till today I believe that such risk management techniques often lull the trader into a sense of complacency that dissuades him from researching or thinking too deeply about his stock picks ("if the stock doesn't perform, I can always cut loss"); I have my own risk management methods but I have developed a bigger stomach for sustaining losses in anticipation of bigger gains.
Secondly, I wonder if I would have had as great an interest in the stock market now if I had started out in the financial industry. Somehow, churning out research on companies day after day as part of routine work would probably have taken the fun out of things way early in my career. Bearing the brunt of criticism from retail investors who suffer from drawing the short end of the stick would probably have been even more deflating. The journey from casual interest to mild obsession over these years has been a more rewarding one for me.
Ultimately, as the saying goes, there are many ways to skin a cat. Thinking about these hypothetical situations is interesting but at the end of the day the best way is to integrate past experience to build a competitive advantage. For me, it is simple: search harder (for good stocks) than everybody else, read more (about emerging trends) than everybody else, think more deeply (about business fundamentals) than everybody else.