In a departure from the how-to-invest series, I want to talk about something else today. Doing the how-to-invest series was harder than I thought, in terms of crystalizing my thoughts and doing so in an orderly manner - I know understand why i sometimes take 2 highways home when I can do without one hmm.
Anyway, I want to talk about being open with how I invest - specifically, the things that say to me don't do it, don't expose myself in public. I mean, expose myself to the public, if there is a difference nowadays.
Well, I was really half and half about starting this blog for a couple of reasons:
1. I was afraid of judgement and being told I don't know my stuff, and I should go back to where I came from (wait scrap the last part - that's just me reliving some random moments in australia hehe)
2. I was afraid that I might actually not know what I am doing and as a corollary to the above, I would be exposed as a dumbass with only sublime writing (or was it sublime writing dumbass)
3. I was afraid people who have difference viewpoints, will say their way of investing or trading is superior and value investing is dead, which again, is something like a judgment that I am wrong and should stick to playing video games. and sublime writing.
Well, thanks to a bit (actually, a lot) of Gary Vee, I realised it doesn't pay to care what the internet thinks of whatever I put out as long as I believe, am interested in, and care for it. The judgment of others - from people in my primary, secondary, tertiary, and workplace environments - don't matter as much as what I think of myself.
It might be obvious to you, but it is only obvious and powerfully true to me now that: as long as I strive to create value or give or help other people with the intention to see that they become better off, I should not give a damn if I am praised for this or condemned for that, only that I receive input into what people need from me.
To expand on this point, there are billions of people on this planet and I am but one person - if I can help someone else on this planet and made a difference in his/her life, to get them one step close to financial freedom - which I define as being able to choose to work because you want to, not because you need to - then that will make it worthwhile for me to know I have helped to improve someone's life, and in turn they could have improved their family's life. If I kept all this inside me, I would have missed out on potentially touching millions if not billions of people's lives - no matter how small - and all because I worry about what some stranger on the internet says about my not so sublime writing.
So, I guess my sharing today is the Internet is a great enabler for all of us. It has enabled us to get information, services, goods, people, at scale and at speed. It can connect you and I across the globe, and across time (you can read this anytime after I posted this - long into the future!). With this enabler, it is a worthwhile effort for anyone wanting to make a difference in people's lives, to just contribute whatever knowledge, skills, know-how, opinion because you never know how much of an impact you can make in someone else's life.
Like Arnold Schwarzenegger said as one of his rules, "Tear down that mirror. Tear down that mirror that makes you always look at yourself, and you will be able to look beyond that mirror and you will see the millions of people that need your help."
So yesterday we covered using Google + Youtube to gain a bit of background about our company, what does it do to make money, and how does it add value to its customers. I also said, in relation to the things we uncovered, there are things to take note of such as the ongoing trend of everything being more digital, the company being a SaaS business, and the customer portfolio; all which tells me the company is going with the trend, is a type of company I prefer to invest in, and them being able to support some big names in the world gives a degree of credibility I am very comfortable with.
So, going down the list for the main points of reference, I can go on to look at the quarterly and annual reports for a feel of the financial and non-financial details, direct from the company.
By the way, I know I arranged it like so:
1. The quarterly and annual reports.
2. The earnings call + transcript.
3. Google and youtube case studies
4. Other people's research.
But, feel free to go through the list however you want - the order does not matter, what matters is you understand the business and have the facts to build up conviction. Oh but, again be mindful of other people's research - I've said it a number of times yes - it bears to be cautious when reviewing the reviews of other people about a company as it is all too easy to get swept with their narrative.
Moving on, the quarterly and annual report.
Which one do you start with?
I start with the latest annual report since it's the one with the latest complete figures for the year, contains the management's discussion and analysis for the year, notes accompanying the accounts, basically it has everything that has happened throughout the year and references stuff from the previous years while providing some guidance for the next year - use the guidance as a benchmark against the quarterly reports in the next financial year to see how well the management is executing.
So in the annual reports, we want to look at several things
A. The chairman's statement
This is basically the chairman of the board giving you a debrief about the company's performance under the management team, the wins and the things that can be improved on, the status about ongoing projects and future endeavors, and also about external events affecting the company like Covid and other stuff.
Did you watch Ted Lasso? yeah think of the chairman's statement as something like the post-match conferences with a truck load of journalists and Ted is there to address their questions and provide commentary on how the match went, what happened, what should have happened, and anything of note. Ted is the chairman, we are the journalists. Too bad, we can't ask questions directly like they can. Oh wait, you can! There's the AGM and depending on circumstances, you might just be able to direct a question to the chairman/CEO.
B. Management Discussion and Analysis (MD&A)
Still on the football analogy, while the chairman's statement is akin to having the team manager giving a debrief at the post-match conferences, the MD&A is like having the captain (CEO) of the team give you a rundown of what happened during the match.
You might thinking - why? what's the point? Isn't having the bigger dude (chairman) explain what has happened good enough?
Well no, you see, both the CEO and chairman sit at difference ends of the table - while both want what's good for the company, one is sat at the top (Chairman) looking over what the other (CEO) is doing, giving input, and also acts as a control/checks and balance to make sure le CEO is doing what is right for the company and in turn, the shareholders.
So, you can see the chairman has a more principal like role, while the CEO is like the teacher, in a highschool setting. One is on the ground doing the work while the other is up above watching those who work to make sure they work and do the right work.
As a result, both will have different lenses and difference ways of looking at things as they unfold over the year - the CEO who is on the ground will be able to tell you the challenges the company faces at an operational, tactical and strategic level as well details what he/she is looking to achieve over the next few quarters or years (Jeff famously says what they are analyzing this quarter, is a result of what they were focusing on a few years ago and by this time, they are already looking at what results they will be generating a few years ahead - by Jeff, I mean Jeff Bezos the extraordinaire at Amazon, who is well good at business. I'll leave it at that).
So the point about reading the MD&A is to know what went well, what projects the management has in the pipeline, the status of initiatives and projects from previous periods, the challenges they face and what you can expect the company to do in the coming quarters. Of course, it's always what they hope to achieve and the proof is always in the pudding - results speak for themselves.
In short, read the MD&A - take note of the:
1. status of the initiatives & projects the company embarked on quarters/years ago
2. the challenges which the management highlighted - you wanna see if these challenges become a big problem over the following quarters and more importantly, how the management deals with them. Adversity breeds tenacity or it doesn't.
3. the things which the CEO says they company will be doing in the coming quarters especially about new projects or initiatives. Beware the person who comes up with new ideas/things to overshadow what didn't happen as promised.
Really, it's just like football - all teams want to be numero uno; win the EPL, Champions League, FIFA Club World Cup. Some teams talk bigger than they play and it shows. Some teams talk less but play the best game and it shows. You just gotta see what they are actually doing vs what they say they are going to do/are doing.
Alright, I have to log out now but in the next part, still on the annual report,I shall talk about:
C. The financials (look at year-on-year % change, or 12 months to date):
- Revenue
- Gross profit margin - Net profit margin - Return on Equity - Free cash flow margin
In this post I shall be taking about the How of it all.
This will probably make up the bulk of Part 1. Preparation, since it's all about the actual steps you will need to do. So, Imma break this section into a several parts (yes, I know I need to have a better way to name different sections other than 'parts').
Ok, before we get into it, we've so far covered:
What is needed in the preparation for investing
You need to form your own investment statement; these 3 questions will greatly help you to do just that:
A. What does this company do to provide value to its customers?
B. What is the company doing right that translates into more revenue, more profits, more cash flow and ever growing market cap?
C. What needs to happen in the future, for the company to continue growing? What would cause the opposite to happen?
When
When do you need to prepare and review the investment statement?
Before investing and after each quarterly earnings/annual report is out.
Where
The main points of reference would be:
1. The quarterly and annual reports.
2. The earnings call + transcript.
3. Google and youtube case studies
4. Other people's research.
Right, so we're ready with the How. Christ, here we go with the snapshots - I'll be using PagerDuty (PD) as my case study since it's been a do-gooder in my books. I'll assume this is the first time I'm researching about PD, having heard about it somewhere in the Internet.
At this stage, I'm just a blank slate
So, first step: Google and Youtube PD. I know nuts about the company, and I only want to know what does this company do and how does it make money doing whatever it is doing.
Youtube
I usually go youtube first because chances are there is someone who has already done the research legwork or better yet, a video from the company itself about itself and its products/services.
Remember: Don't get suckered into the story/narrative - try as best to be objective and look at the facts of the company!
Awesome, first result on Youtube and right there is a primer on the PD platform by the company itself.
I've included that video here too so that you can also watch, try to absorb and understand what PD does:
So, from the video, I gather they help organisations to resolve issues in their operations, which used to be quite manual since an issue would have to be manually reported by either customer or someone using the service/product, then that issue will have to be looked at by someone and then he/she will have to manually assign the right person(s) to resolve that issue.
Think of the times when you had to submit a support ticket (if you ever did) and the wait times between each interaction with the support staff - I remember in the 2010s that could take up to days! In today's landscape, time is a scarce commodity and this is where PD adds value.
So, PD steps in by automating the above process quickly, and also:
1. provides 24/7 support - being always online
2. connects individuals and teams across the organization so that issues can be resolved quicker, findings of an incident can be shared with everyone, best practices can prevail because of this collaboration.
3. collects signals from all points of the organisation - that means, whatever the device, app, program, service that is being used in the organisation, a data point from that will flow into the PD platform where it will be aggregated with all other signals to detect if there is an incidence and better yet,
4. to predict if any incident may occur, and direct resources there before it happens or as soon as it happens - this possible with them using machine learnings, collecting all those signals and having a good analytics to make sense
So just by looking up youtube, we've gotten this much of a background! And there are more videos out there we have not touched yet !
Next, Google. I'll usually google *Company Name* + Wikipedia coz Wikipedia does a good job at summarizing stuff !
Ok so we can see PD is in the business of "SaaS incident response platform for IT departments." Great, cool, awesome, nice but wtf does that all mean?
Well, we'll just have to google incident response:
Another google result gave me another one:
Right, so the definition we get from googling it is that an incident an attack or breach of a company's systems which is likely to be its networks and everything inside it; an incident response then is how the company handles said incident.
So, with this preliminary research, we can safely say:
PD is a SaaS company which provides an incident response platform for IT departments. Copy pasting from earlier, PD provides automation for incident response and also:
1. provides 24/7 support - being always online
2. connects individuals and teams across the organization so that issues can be resolved quicker, findings of an incident can be shared with everyone, best practices can prevail because of this collaboration.
3. collects signals from all points of the organisation - that means, whatever the device, app, program, service that is being used in the organisation, a data point from that will flow into the PD platform where it will be aggregated with all other signals to detect if there is an incidence and better yet,
4. to predict if any incident may occur, and direct resources there before it happens or as soon as it happens - this possible with them using machine learnings, collecting all those signals and having a good analytics to make sense
Ok, so we now know what the company does (incident response) and how does it add value (automation, predictive analytics, greater collaboration between teams for better outcomes).
At this stage, I already have some thoughts:
1. As the worldwide trend is moving towards digitalisation, that will mean more parts of a company will be online for more and longer - which means there will be increased number of incidences or events. So, the IT department will be more crucial now ergo PD will shine here.
2. SaaS companies are high growth, and share singular characteristics like high FCF margin, high GPM, increasing revenue growth % - for me, I have been investing in these companies so these metrics are something I am familiar with and know what to look for; it is within my - as Buffett says - circle of competence, and I feel comfortable knowing what to look for and look out for.
3. I did not include a snapshot above, but there are some notable customers in PD's stable (is it right to call your customers as part of your stable? Hmm) like Zoom, priceline, DropBox, Yelp, Evernote, Okta, Shopify and even Xero - some of these you may have heard or even used them and all of them are pretty big names.
Ok, you shouldn't solely just go with name drops but think about it, these are big HUGE companies with elaborate operations spanning the globe and across many industries, and they trust PD with the sanctity of their operations. That's some food for thought there.
Ok, so you now have some background info to go by and some facts you can use too. Alright, I shall continue with the other 4 methods next!
So today, still on the topic of preparing your investment statemet - we now move on to the Where
Where would pertain to places you can find this info for your investment statement
The main points of reference would be:
1. The quarterly and annual reports.
2. The earnings call + transcript.
3. Google and youtube case studies
4. Other people's research.
1. The quarterly and annual reports
These can be found on the company's investor relations website - the actual reports.
I've heard some people tell me reading the annual report or even quarterly reports can have an effect as pronounced as a couple of sleeping tablets, so if you find yourself nodding away, just make sure you get these key points:
A. The chairman's statement
B. Management Discussion and Analysis
C. The financials (look at year-on-year % change, or 12 months to date):
- Revenue
- Gross profit margin - Net profit margin - Return on Equity - Free cash flow margin
- Current and Cash ratio
- Debt to Equity ratio
D. Risks to the business
Of course, I really recommend you read through it but baby steps is better than no steps!
2. The earnings call + transcript
These can be gotten from well, just googling them - often you are able to watch the live or recorded earnings call from the company's investor relations but some companies tend not to keep them on the server so your next bet, Google, will direct you to one of the many financial news sites that keeps a copy of the transcript and/or audio of the call.
Keeping up with the earnings call will be KEY to you being on top (or bottom, if you prefer) of things and be able to make decisions on the go about your investments.
Why? Simply because the bulk of your initial work will be derived from the annual reports and youtube videos which explain what the business of the company is all about, how do they make money etc. Then, the quarterly earnings calls are when the management briefs you directly about the comings and goings in the company, provide updates about past efforts and the results of ongoing initiatives. In the earnings call, you also get to hear from analysts from various fund houses, investment arms etc who will often have very targeted questions about certain parts of the business and the performance of the business. I highly recommend listening/reading the earnings call/transcript just so that you can better understand the business, be aware of metrics and factors these stock analysts raise to the management - which can be useful, or not to you but knowing about them is surely better than not knowing (because, it's better to know what you don't know than not knowing what you don't know), keep abreast with the business performance ie are the metrics being met or is the company's performance not keeping up to your expectations?
3. Google and youtube case studies
Well, this should actually be the first point la haha since it's always easier to digest content in bite-sized or short videos vs reading a wall of text in the annual reports.
Ok, so you googled and youtube-d the company you are interested in, this should give you somewhat of a crash course about company ABC; what does the company do, the management team, the business in the last couple of years or since IPO or even before IPO, the external factors affecting the business, as well as developments within the company (R&D, notable employees etc).
The main thing I would like to highlight is that for all the articles, research and videos produced by these various helpful guys, is that most will have an agenda, a narrative, a purpose, a biasness to the company because think about it: If I have a vested interest in company ABC, would it be natural for me to tend to point out the good things more or highlight the facts which support my investment statement? So, take the facts, and fry the emotions that they invoke in you (Did I just say fry the emotions? Jeez this coffee is real strong). Do your own due diligence by cross checking whatever OPINION they put out. Don't just take what someone on the Internet said, at face value. Heck, fact check whatever I write too.
Like it is said in a buddhist sutra:
"Don't blindly believe what I say. Don't believe me because others convince you of my words. Don't believe anything you see, read, or hear from others, whether of authority, religious teachers or texts. Don't rely on logic alone, nor speculation. Don't infer or be deceived by appearances. Find out for yourself what is true and virtuous."
I'm not a buddhist but I thought that quote is pretty cool and practical.
4. Other people's research. Like what I said in the previous point, take whatever the research with a pinch of salt. Trust me, when you read someone's case study and the narration that has been written - which is essentially a story and we humans do like a good story - is so compelling that it makes you go, "Fuck yes, this is the best thing since toast bread and butter", emotions will tend to overrule logic, and in investing you want to avoid that as much as possible. Gut feeling and emotions have a place but logic should always prevail.
The goal of reading up on other people's research is twofold:
1. They would have done the prep work and gotten all the important info and facts ready, and presented to you nicely.
2. When you read multiple research from difference people, you can get a sense of whether or not this particular dude/dudette is just shooting from the hip and doesn't know what he/she is talking about OR this person really knows his/her stuff and it would be worthwhile to follow them/he/she.
3. Also, following on the previous point, you can corroborate the facts too - basically just fact checking but communal, if that makes sense.
So other people's research is really just a subset of Point 3 but I felt that I had to underscore the importance of detaching your emotion when you read someone's research - don't blindly believe in the facts and story that your emotions get swept in the possibility and big picture. Your own due diligence is your protection against bullshitism and its results will form your conviction, which in turn will help you be successful in stock investing.
So going back to the how to invest series: Part 1. Preparation.
We covered what it is you will be preparing: the investment statement or investment thesis.
To summarise, with an investment statement,you should be able to explain what does the company do to provide value to its customers, what is the company doing right that gives it a good performance (more revenue, more profits, more cash flow and growing market cap), and what needs to happen in the future, for the company to continue growing, and what would cause the opposite to happen?
So in this post, we will be going through the when of it all.
So, you should ideally prepare the investment statement before you invest - I mean, without it there's no conviction for you and conviction is the name of the game here.
Then, after you invest, you need to rcontinually follow up with the company's developments every quarter & annually ie read up on its quarterly earnings call transcript and/or listen in on the call, and read up on the annual report too. A good tip here is to list down projects and initiatives which the management has disclosed either in the quartelies or annuals. That way you can objectively see if the company has been able to deliver on their promises, and if there are setbacks, you can see how the management responds/mitigates this eg do they sweep it under the rug and not talk about it, give regular updates on why there is a delay in implementation, if they made a mistake did they own up,say so and share what they learned and how this will be reflected in future endeavors.
BUT of course there are always exceptions - i.e. for stalwarts (a type of company - I subscribe to Peter Lynch's 6 types of companies and I'll talk abit about that in another post) like your Nestles and Microsofts. You would have bought and used stuff from these companies over your lifetime and essentially have a subconscious ranking for these companies - so, I would not say you don't need to prepare one, you do but chances are half or more of the work has already been done by virtue of you being a consumer and experiencing how well their offerings are, and you also would have been able to benchmark it against their competitors - so in this case, when you see their shares on a decline but their performance is still up to par with their upcoming products/services still excellent, and there is a favorable margin of safety, there is no harm in building up a position. Of course, please exercise portfolio management and never go all-in. And also make sure you follow up on the quarterlies and annuals. Just because a company has been a stalwart for the last 20 years, doesn't mean there isn't a chance they might slip up on the 21st.
During the course of investing, and it is a long course - it doesn't end after a month, a year or even ten years. My end goal is to never be out of the stock market ever, and to have a stake in a company that will continue well after I am gone - but that's the dream.
Well, because of the long time frame - which I hope will span your entire lifetime - investing can be sometimes a lonely experience and being lonely with your thoughts can sometimes be not a good place to be in - especially when things in both personal and professional life do not agree with each other. Well, more often it is the professional life that gives me problem.
One such time is now - December 2021, when the stock market is going through a correction, crash or whatever. I mean, look at the fear and greed index:
When the needle is in the furthest left section, it means there is a lot of fear in the stock market and what do people usually do when in fear? They sell and right now they looking like they gonna sell more although not as bad as March 2020 which is like what, an index of 10 or 11?:
I can tell you a couple years ago I would have sold everything, curse the stock market, never to touch any form of securities anymore, thinking the global financial markets are just big corporations, multinationals and governments playing with people's money. But that would be the wrong thing to do!
If you read any investment 'guru' advice or warren buffett, peter lynch, or ken chee (no guesses where I got my chops from), they practise the maxim, 'be fearful when others are greedy, and be greedy when others are fearful' (granted it is a buffett saying and I might have paraphrased it incorrectly). This is certainly a good time to buy the stocks of great companies which you have conviction in, provided this current correction is not related to a decrease or degeneration of their fundamentals.
Think of this time or anytime the stock market has a big decrease as an impromptu sales or the great year end sales for thanksgiving/christmas - coincidentally, there is a phenomenon observed by peter lynch where Oct to Dec is typically a period you see share prices go down - one reason, apparently, is that a lot of funds sell down alot, post reporting so that their performance the next year would be a positive one, coming off the back of a lowered performance.
So, this post is really just to tell you I used to be afraid when the market has a huge correction and all my stocks experience wild swings - usually wild drops. But, now, having gone through the cycles and having my hand held through the ups and downs, I fear no drop but the drop in companies which I did not do my homework about. So, it all goes back to buy what you know, make sure you know what you are buying.
Right now, my portfolio is at a -0.64% and I expect further decreases since this looks like its just the beginning. I've already started to buy more to average down - I just do dollar cost averaging, instead of going by margin of safety, because I feel the need to do something every month or I might just do something stupidly big and big stupidly after a few months of just doing nothing.
Good night. All the best. May the peaks take you as high as the troughs can pull you down, and may you and I get better at navigating about them. Or not, you can just do sell puts and sell calls to do a decent 20% p.a but that's just me side tracking. Don't do it if you don't know how or why.
It is said adversity breeds tenacity. Well, only if the adversity does not wipe you out.
I do think there is some truth to that statement, especially when you encounter a stumbling block or fall to one of life's many and varied challenges.
The fact that you're reading this on this blog means this particular phrase will deal with things mostly in the investing world. And yes, adversity does breed tenacity if you do not get wiped out in the stock market (reminder: never be 100% fully invested if you can help it or if there are not good deals i.e. market crashes or severe corrections).
So how do you make mistakes in investing? I can tell you that mistakes are commonly attributed to being too emotionally driven that one misses the facts for the potential which a company may/may not have and certainly may/may not be able to live up to (Luckin Coffee in NYSE (or is it just OTCMKT now?) for one, DWAC in NYSE for another), followed what others told you (for me, it was KAB in KLSE) and did not verify for yourself (for me again, this was GCB in KLSE), off about valuation (for me, too optimistic about HARTA in KLSE in 2021! my goodness), FOMO (for me, it was CRSP in NYSE after watching that netflix documentary - I thought this was a technology which will fly off the shelves), no conviction (also CRSP coz I only watched the documentary but did not have knowledge about that industry and certainly did not understand the factors that will affect the performance of this company). There are many drivers but the key thing is if you done your due diligence by researching and understanding the business of the company, ascertaining if external events relating to the company are favorable or not, and are satisfied that the management knows what they are doing, a lot of the mistakes I mentioned above can be avoided. The stock market is not a crystal ball or some blackbox you put money in and expect riches to come out. It is a participation in the growth of a company, and in effect, to participate in a nation's economy as well. The better the company does, the better that its workers and customers become!
Ok so maybe how do you make mistakes is not the question- rather, how do you define a mistake in investing? Certainly, it is not by whether a share price is up or down the day after you bought a share. Rather, it is more about the business and whether or not it has lived up to the investment statement you have crafted, is the management able to manifest what they've said they wanted to do a few quarters ago? If the management is/was able to do what they said they would/are going to do, the results of that will be reflected in the quarterlies or annual reports. If not, you'd see the signs: gross profit margins beginning to decrease, return on equity starting to shrink, net profit margins thinning out faster than your uncle's hairline (I don't know how I came up with that), current and cash ratio dipping below 1, debt increasing (maybe the company ain't doing too well and needed a cash injection to keep things running while they figure out how to survive); the chairman statement starts to fill with many jargons, filler words to convey a sense that everything is under control, like a fire blanket providing protection against a flame albeit for some moments..ok so I think you get it, there are a number of red flags to spot when a company is beginning to go hero to zero. Even then, it bears remembering that it is NOT YOU who made the mistake, it is the company that couldn't live up to its promise and potential. Don't beat yourself up when you see your share going tits up (or down? I can never understand that phrase). Investing is a cycle, sometimes you are up, sometimes you are down, sometimes you make the wrong choice, sometimes you make the right choice - you don't need to be right on all bets or at all times either.
By failing or making mistakes, it is the best feedback you can receive because you now know there is something you can improve upon! And you don't fail when you make mistakes - you fail when you give up and walk away, because your chance at reflecting on what went wrong and how to ensure that wrong does not happen again, is gone. In effect and in some metaphysical way, walking away from a setback is really just you just setting yourself up to fall again in the future when you meet the same challenge but manifested in a different setting/person/task/activity. So, I think, it is best to fix something when presented with an opportunity to do so lest you keep encountering it in greater intensity later on in life.
So, the big question how do you overcome challenges in investing? Like my analogy between fishing and investing, what do you do with the fish that got away? You have to let it go, but also understand was there anything you could have done in the moment to catch/reel it in, and what could you have done before hand to maximise the chances of capture?
In investing terms, that means:
1. You really gotta let it go - something bad happened but you didn't die, you survived to invest another day. Be wiser and be better the next time round.
2. During the moments/periods when you first noticed things were not as usual with the company, what was your initial reaction - was it to ignore, or to hope for the best, or find out what's going on, or right away: sell/hold/add? Each reaction will likely tell you how much conviction you had in the company in the first place
To ignore and to hope for the best is at best, a lazy man's strategy and at worst, a speculator doing unspectacularly (see what I did there). There's this thing I used to do and I am sure you do it too: the share has tumbled from $10.00 to $5.85 - its fundamentals are really not fun anymore and I know I should sell away but I won't, at least not until it goes back up to $10.00 coz that's when I can recover my capital. Well sir, I can tell you from my experience and others who have shared with me, as soon as that thought enters your head, the share magically does not move at all! In fact, it will continue to further tumble as if following some twisted law of attraction in the markets. Or, it will rise but only up by a small margin every now and then as if giving you a sliver of hope that the share market listens to you. Such is the law of no-one-owes-you-anything in the share market. The stock doesn't know you own it (Peter Lynch) and is not obligated to return to whatever levels you bought it for.
Going to find out what's going on - if any recent developments had a direct impact on the company's fundamentals - is the de factor thing to do (at least it is for me..well it is NOW haha) and should inform you of the next steps, namely buy,sell,hold. If you are really on top of things (I'm not really on top, and on time most times - for stocks I mean), you'd already know which of the three to do, buy on the dip to average down, hold because the stock hasn't reached the margin you want, or sell quick to rotate into something more promising or hold cash if there's nothing good.
3. After you got over your mistakes, reflecting on what went wrong and what can you do right the next time is really one of the hallmarks of being a human, in that we are ever moving forward. When you fall, you just gotta get up and move forward. In investing, if you want to improve, it can be as simple as setting aside 15 minutes a day to check on any news or developments in the companies you invested in - if there are a lot of time, well good! You've got more materials to go over during the weekend. It can also be as complicated as having a checklist of sorts when looking at the financial section of the annual report; it is long and hard to swallow in one go (that's probably the title of someone's sex tape) and having a checklist to only look at certain figures and ratios (the really important ones - i mean you don't need to know the petty cash amount changes y/y right?) will help you to focus on what's important, financially for the company and leave you more time to analyse stuff like the MD&A - management discussion and analysis - and risks portion of the annual report. It is usually the subjective things that play a bigger role in providing clarity about how a company is doing and how well its past plans are manifesting. In short, find out what was lacking in your initial approach - was it not enough time or understanding in analysing the finances, did not go through the quarterly earnings calls/transcripts, missed out on other developments not covered by the quarterlies or by the company's IR, did it take too much time or energy to research about a particular part about the company, or was it difficult to always keep updated with company news?
Sometimes, well for me, it is most times, it is the emotional side of things that have made me do some real wtf moves. Like, seeing my portfolio turn red - every single stock with drops in the double digit %, not knowing why and worst of all, not knowing how to react - it is as Peter Lynch puts it, "In the stock market, the most important organ is the stomach. It's not the brain". In the face of adversity, you gotta calm yourself down and not act out of instinct but out of logic. Easier said than done but that's something everyone who would like to put investor in their instagram needs to be able to do (yes, I put "investor" in my instagram..ok maybe it's "investing" but same same no difference). The most important thing (and takeaway if you didn't read any of the above) here is to not let your emotions dictate your actions but to let it flow first, and then use logic to go through what has happened, find more information to substantiate what has happened and then decide logically. After that, sleep on it and if you still feel like doing what it is you decided, go ahead. Really, the solution is just sleep on it.
