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

[winston]

"Losing is a learning experience. It teaches you humility. It teaches you to work harder. It's also a powerful motivator."

-- Yogi Berra

[winston]

TOL:-

And it was just last week that the "experts" were talking with lightning and thunder about the "Fiscal Cliff", as if it would be the end of the world if it was delayed by a few weeks or months ...

[winston]

How Smart People Make Dumb Financial Mistakes (so that it doesn’t happen to you!)

http://financialmentor.com/financial-ad ... takes/8577

[winston]

TOL:-

Looks like the world did not end today. And were you not frightened by all those documentaries about the end of the Mayan calendar ?

And what about Y2k ? Didnt all the "experts" tell you everything would stop working on Jan 1, 2000 ?

So what about the Fiscal Cliff ? There's now no shortage of "experts" on CNBC to frighten you.

Realistically, do you think that the US politicians would just let the economy collapse ?

[winston]

Watch out for 5 common investment mistakes By magdalen ng

Emotions can adversely influence our investment decisions and lead to irrational behaviour, according to a new study by Franklin Templeton Investments.

Many a time, one's emotional response is so instantaneous that one is unaware it is even occurring. And experts say a small little part of our brain called the amygdala may play a key role in our bad decisions.

It functions as the brain's early warning system, sending out messages of fear and anxiety to raise the alert of imminent trouble. This may cause us to regard negativity and pessimism as accurate.

Understanding our emotional state and putting plans in place before emotions take over can help prevent poor investment decisions.

The Franklin Templeton Investments report found five common mistakes made by investors, which can be easily avoided:


Loss aversion

This refers to the deep pain investors feel upon taking a loss and the lengths to which they will go to avoid that pain.

A study by psychologists Daniel Kahneman and Amos Tversky found that between a certain loss of US$3,000 (S$3,675), and an 80 per cent chance of losing US$4,000 and 20 per cent chance of losing nothing, more than 90 per cent of investors polled picked the latter, even though statistically it was the riskier proposition.

Since the global financial crisis- led market meltdown in 2008, many investors have been reluctant to buy equities out of loss aversion. They have preferred to remain in low-yielding vehicles that may deliver a negative real return after inflation.


Holding on to the past (Anchoring)

Stock markets reflect the tendency of investors to anchor expectations to a given price. For example, a stock will typically trade for a while within a given range, then trend up or down to a new anchor level and trade within that new range.

Investors adjust expectations to the altered price, which is why overly sharp gains or losses provoke discomfort.

The sensitivity shown to price changes may be largely the result of memory for prices paid in the past, and not at all a reflection of true preferences or level of demand.


Following the crowd

A modern example of how the herd mentality can go seriously wrong is the dot.com phenomenon of 2000.

While the significance of the Internet was real and enduring, many of the companies into which investors poured their money were neither.

So, following the crowd can be a precursor to market bubbles, as what begins as a natural inclination to join in the growth path of a company can end in losses as the euphoria of explosive price increases causes investors to lose their sense of judgment.


Availability bias

Rather than analysing all the relevant information, investors tend to rely on whatever data is most recent or emotionally charged.

This can cause them to overreact to market conditions, whether positive or negative, or invest in a stock simply because it has been heavily covered by the media.


Mental Accounting

Many investors practise mental accounting when they lock in certain assets for retirement, maintaining somewhat greater liquidity for controlled wealth accumulation, or allocating a smaller sum for high risk-high reward investments.

However, this compartmentalising means investors may also take unwarranted risks with their own money, or may be overly cautious with an inheritance.

Source: The Straits Times
http://www.straitstimes.com

[winston]

The 4 Things I Learned in 2012 That Could Save Your Portfolio By David Sterman

1. Risk-on and risk-off is all that matters these days

2. China still rules the commodities market

3. Lots of cash does not equal lots of deals

4. The bond market starts to turn

http://www.streetauthority.com/investin ... lio-460254

[winston]

I have been spending the day doing my After Action Review ( AAR ) on my 2012 trades:-
1. What did I do right and should continue to do
2. What did I do wrong and should try to improve on

My AARs are being written in the "AAR & TOL" thread.

Going forward, before I make any trade, I should make it a point to look at my AARs first.

Example:-
1. Did I have the right Position Size ?
2. Am I catching a falling knife ? Should I wait ?
3. Am I chasing the stock ? Should I wait for the pull-back first ?
4. Do I need a Percentage Stop-Loss ?
5. What's my Time Stop Loss ?

[winston]

5 Mistakes You Don’t Have to Make in 2013 By Richard Band

Here are five bloopers to avoid in the New Year. Correct your game, and you’ll be richer for it in 2013.

1: Listening to the Wrong Voices

Let’s cut to the chase. The biggest gaffe investors make is following the wrong advisers.

Certain traits can help you decide whether someone is worth heeding. Does the adviser build a logical case on facts or resort to sensational rhetoric? Does the analyst frankly acknowledge risks?


2: Trading Too Frequently

I’m not opposed, in principle, to a certain amount of tactical trading, particularly when a stock or a market sector becomes overextended.

But unless you’re a professional trader, glued to the ticker, you shouldn’t attempt to buy and sell in rapid succession. The profits are too small and too easily erased by random events (to say nothing of brokerage commissions and other transaction costs).


3: Inertia in the Face of Opportunity

This is the opposite of trading too much. When markets have been trending in one direction, it’s easy for investors to get too comfortable.

Make it a New Year’s resolution to fight off complacency. Surround yourself with advisers who scan the horizon for signs of impending change so you’ll be ready to act promptly.


4: Overpaying for Financial Services

5: Taxed to Death

On the investment front, earn as much income as possible from tax-exempt and tax-sheltered sources.


Nobody said it would be easy. But avoid these five errors, and you’ll lay a prosperous financial foundation for yourself in the New Year.

http://investorplace.com/2012/12/5-mist ... en=3879240

[winston]

The Cardinal Sin Of Beginning Investing — And How To Avoid It
Author: StreetAuthority

Action to Take –> If you come across a great investment idea, you have to do the legwork to verify that it is as promising as you suspect.

You would be surprised at how many stocks look like bargains or have growth plans that seem exciting, only to find later that there were some obvious problems beneath the surface.

http://www.yolohub.com/trading/the-card ... o-avoid-it

[winston]

"Experience is a hard teacher because she gives the test first, the lesson afterwards."

-Vernon Sanders Law