School of Hard Knocks 02 (Jan 10 - Jan 13)

[winston]

10 biggest investing blunders

Just because these mistakes are big doesn't mean they're obvious. Being aware of related costs and keeping your goals in mind will help you avoid the traps.


By Bankrate.com

We asked experts to weigh in on some of the most common mistakes investors make, and while it's easy to see that chasing hot stocks (the most frequently cited mistake) would be an exercise in futility, they reported other less obvious pitfalls to watch out for.

There are never any guarantees when investing, but avoiding these 10 missteps will better your chances of success.

1. Mismatching investment with goal
2. Discounting fees
3. Letting investments languish
4. Paying taxes
5. Failing to strategize
6. Misreading the label
7. Neglecting research
8. Putting it off
9. Ignoring your portfolio
10. Getting emotional

http://articles.moneycentral.msn.com/le ... spx?page=1

[winston]

Do you go through a Check-List before you invest ?

This little-known activity will save you a fortune as an investor From Dan Ferris in the S&A Digest:

If you read Atul Gawande's Checklist Manifesto, you'll be entertained and you'll discover a tool few investors use, but ought to at least consider. It's a quick read, too, less than 200 pages.

The book is filled with stories about checklists saving lives and preventing disasters in the aviation, construction, and medical professions.

In the operating room, the first item on the checklist is for everyone in the room to introduce himself and say what his job is. Then, they all agree on exactly what the procedure is, including making sure they're operating on the correct side of the body, on the right organ, etc. After they're done, they count the number of sponges so they don't leave one in the patient.

The last story in the book is about a man whose vena cava, the main vessel returning blood to the heart, was accidentally torn during a routine surgery. The patient's life was saved by a pre-surgery checklist. The list included making sure there was enough blood available to keep him alive if the vessel was torn.

The book also contains a section on investors like Extreme Value reader and hedge-fund operator Mohnish Pabrai and his friend Guy Spier. Both men use extensive checklists to prevent them from making investment mistakes.

It makes sense for investors to use a checklist, because investing can be a subjective, complicated affair. The checklist can help you quickly handle tasks that, though dull and apparently easy to get right, might just save you from making a big mistake.

For example, every now and then, somebody buys the wrong stock because of a discrepancy in the name of the company or the ticker symbol. I remember this happening years ago, when I recommended a stock called Gold Fields. There were two companies by that name. The one I recommended did well, but some folks wound up buying the wrong one, which didn't do as well.

The most important thing on a value investor's checklist is an answer to the question, "Is there an adequate margin of safety?" If you can't answer with a resounding yes, you don't buy. I have a watch list of stocks I'll buy if they get cheap enough. They're all good businesses, but they're not good investments until the price is right... so I wait. If you're a momentum trader, you'll have a different checklist, but you should definitely think about using one.

If doctors need to check for those kinds of errors, you and I could probably stand to take an extra minute to make sure we're buying the right stock, among other basic aspects of investing.

[millionairemind]

Today's a pretty free day for me. So I tot I share a lesson on looking at congestion area, failed breakouts as well as not arguing with the market.

Here's the chart of a recent trade I took in Jan.

On Jan 5, with market still in an uptrend, I entered a position in Yanlord at 218 after it bounced off its 6 month support at 212 and was looking nice and dandy. It was going into a congestion area around 220.

On Jan 6, it broke out on huge vol, hit a high of 225 and then closed around 219. Since it might take a couple more days to break out of the resistance area, I tot I give it a few more days.

The next 3 trading days it hovered around 218-220 while always attempting to push past the 220 resistance area.

On Jan 12, I saw that it broke down from 217 support and there was a huge sell down at 216. Looking at the volume, I realized that I was being played for a sucker by the BBs who were also using charts cos' they were distributing the stock. I cut out that day at 215.

What I did not do is to turn around and short that counter cos' the market was still in an uptrend. Little did I know that the sell down was going to be fast and furious over the next few weeks.

It is currently at 1.60.

If you just look at the FA, the earnings are great from the quarterly reports and you would never have guessed that there are problems brewing (with the interest rate increase from the central gahmen). If I just base on FA alone, I would have lost a bundle of money.

But of course one can argue Y I took the trade, cos' I know at that point of time that the downside support is 212 and the upside is more than 3X the losses

That's my free lesson for today that comes at a loss to my pocket haha... tot I share this with you guys here.

[Musicwhiz]

Thanks MM for sharing.

If I may say something, I had read many reports of China's real estate heating up and getting a little frothy. So it's a matter of time before the Govt took some action. If you are an investor in Yanlord or any other China real estate company for that matter, one would be able to sense that prices were getting out of hand (and thus fundamentals) and reduce your position accordingly.

That said, this is all theory cos I was never vested in Yanlord. But case in point is that understanding the industry does help one to make more informed decisions, regardless of chart action.

[Aspellian]

Thanks MM for sharing!

One point to note about Yanlord. During the market uptrend, it barely moved.
When market turned into correction, Yanlord has the -ve catalyst of China raising interest rate. Its a beautiful shorting target.

Next time must be more in tune and flexible and quick-witted to know which are ideal shorting targets.
- weak chart movements (when market uptrend barely move)
- macro-environment and something NEW (negatively) - ie. raising interest rates, bubble bursting
- market in correction (ideal time to short)

[millionairemind]

A bro - Say is say, like very easy hor ....

Just joking la..

This is the fun part, all things are based on hindsight. The only protection we have against the market is always cut our losses short.

MW - The chart action is the sum of all thoughts (and actions) from the participants. This includes FA, TA, father's , mother's auntie's, sweepers, cleaners etc...

It is based on the understanding of "wisdom of crowds" and market being forward looking.

If its not the case, Y did the market start rallying last year in March when it was all bleak and gloomy?

To each his own again. Nothing right or wrong.

[iam802]

A bro - Say is say, like very easy hor ....

Just joking la..

This is the fun part, all things are based on hindsight. The only protection we have against the market is always cut our losses short.

I agree with this.

Saying is easy. But, the execution is very tough.

Just stepping away (cutting loss) is a good start.

It is fair to say that not everyone's mind can adapt to the changing situation that fast.

[Poles]

hindsight = hokkien say....za a zhai, house also throw in....

[kennynah]

I agree with this.

Saying is easy. But, the execution is very tough.

Just stepping away (cutting loss) is a good start.

It is fair to say that not everyone's mind can adapt to the changing situation that fast.

i oso agree with you it can be diffficult...and so, the need to simultaneously enter the corresponding cut loss order along with the entry position... if one is just starting out, it should be in autopilot...

[Aspellian]

A bro - Say is say, like very easy hor ....

Just joking la..

hahahha!! you should know me that I always make "saying" the easiest part of investment! If "saying" and hindsight commentary also difficult then jia luck liao - very demoralising lei!!!

so trying to put my "saying" and transform it into better performance! hohoho!!

Let's learn from each other's "saying".