Taking risks

Throughout our lives, it is normal for us to take some risks, whether consciously or unknowingly. If the risk we took turns out to be a bad choice, the severity of the consequences is relative to your individual unique circumstances.

The way I personally weigh the risk as far as investment decisions are concerned is by asking myself the questions, 'If i turn out to be wrong, what is the very worst that could happen?' and 'If I turn out to be right, will it make a significant impact in my life financially?'. 

Its a buy for me if the answers are;

1. If the very worst that could happen is that the investment tanks, I sure better find an investment that pays me dividends while waiting for the market to reprice it again, presuming the company bought has been assessed and re-assessed to be a great business and unlikely to go to zero. In contrast, going to the casino and making a risky bet involving large amounts where your money can literally go to zero, I personally avoid. 

2. There is a high possibility that the investment is a 'multi-bagger' (at the least double, but ideally between 3x up to 10x). Conversely, if the risk taken will not lead to any positive life changing financial impact, then why adopt the risk in the first place? 

To be sure, everyone needs to come up with their own model based on their own unique situations. 

Global economy grinds to a halt, Covid-19 rescue package and is the worst over?

The Covid-19 virus shock triggered one of the fastest and sharpest market corrections in history, with global stock markets sinking about 30% in a matter of weeks.

Wall Street's "fear index" (VIX) at one point, surged to a record close of 82.69, exceeding the previous peak of 80.86 reached on 20 November 2008 (during GFC). This extreme, unprecedented volatility could be reflective that the markets are anticipating a global recession and the risks of a potential economic crisis have increased.

Recent data suggest that as segments of the global economy are synchronously shut down, the global recession might be a very deep one. The US, Canada and other European countries have reported a spike in claims for unemployment benefits.

Meanwhile, the daily number of confirmed Covid-19 cases continue to rise globally. How successful will the "circuit-breaker" policies be, in bringing the global pandemic under control? There are also concerns of a second wave of imported cases.

Is this a buying opportunity?

Savvy and experienced investors do not let a bear market go to waste and will certainly view this as a wonderful opportunity to buy quality businesses (shares in companies) at cheaper valuations during this virus induced sell-off.

Panic selling 09 March 2020

Today is the STI's worst trading day since Oct 2008, where investors/traders rushed to sell everything. The catalyst? Oil rout and covid-19 fears! The STI is technically into bear market. It was literally a sea of red in the equity markets today.

It is in times like this, if you did your homework, you choose the right stocks and have the nerve to buy some, fortunes could be made when eventually the stocks turn around and turn north. If you want to do well, stay stoic and adhere to your investment principles and plan. So...what's on your watch-list (shopping list)? 

Crash course in investing for a friend

My friend wanted to start investing which I welcomed and decided to share the following with him (in no particular order);

# Only buy shares of companies that you can hold indefinitely and later sell for a profit at the time of your choosing, rather than because you 'need to'. Put another way, don't invest capital you cannot afford to lose. Markets move up and down so you don't want to be in the position of needing to sell while share prices are depressed. We want to buy low and sell high, taking advantage of market gyrations, and we need the time and patience!

# Your core holdings need to be companies with a minimum 1Billion market cap and pay dividends of at least 4% so you can get paid while holding (especially if you get stuck in a down cycle). The PE ratio should ideally be below or not deviate too much on the higher side from the PE ratio of the STI index (currently ~12). An 'undervalued' company is one where the price to book ratio is below 1.

# In the market, you have the psychology- fear and greed. To simplify, when people are fearful, they sell (which drives the price down), and when people are greedy, they buy (drives price up). This may be easier said then done, but to be successful, one must buy when the market is overly fearful/pessimistic, and one must sell when the market is overly greedy/euphoric. Just think, wouldn't you much rather buy your BMW car if it had a 50% discount!? Hence, throughout history, the best times to buy shares in good companies were in times of crisis or a semi crisis. It is impossible to time the low, but you can accumulate using dollar-cost averaging strategy during the down cycle. In short, it is buying in tranches through time to average the cost price of the shares in the company you bought.

Currently, using the stock screener on the SGX website, the following companies fit the criteria above;

Date: 06Sep2019

Would I immediately go out and buy all the companies above? No. But it would be on my watchlist and when valuations become extremely attractive (market corrections/crash), I'd look to add to my portfolio indeed!

Legal Disclaimer: This is not an investment/trading advice or recommendation. The above content is for informational purposes only. Please seek the opinion of an expert or do your own research before making any investment decision or action.

How to do I prevent disappointment, frustration or anger?

I struggled with this throughout my whole life, both in my personal and professional realm. The main reason is because I upheld a high standard and expectation in my relationships with people, be it with family, friends, colleagues, professional advisors, contractors and so on. Whenever, they did not meet my expectations, I took a very black and white approach, which was to totally disconnect from them (except for family) while holding on the baggage of disappointment, frustration or anger. Between my late 20s until now, I believe that I improved significantly in this facet of my life. I essentially adopted a new approach as outlined below;

-Give people 20% buffer (to make error, mistake, time allowance), as they may not meet your expectation all the time, much less exceed it-

You see, the thing is, all people have their own stress and challenges in life. This is to say, we're not always at our best version of ourselves. Being aware of this, I believe it is important to factor this in or account for it when dealing with people. As long as they are effective, responsible, and accountable 80% of the time- this is satisfactory. Nobody is perfect, and just as people have shown grace when I may not be at my best, I too need to be graceful back to others. This approach has proven to make my life filled with more happiness rather than filled with burdens and stress.

High on life

Richard Branson, the well-known billionaire of Virgin group, said something to the effect, "You either stick your neck out and do something and have an amazing life, or sit on the sofa and watch other people do it".

We all should reflect on this, if haven't done so already. If you are 20 years old, you'll be 30years old before you know it (in what may seem like a blink of an eye), and then 40 years old, 50 years old and so on. Every single day counts and if we aren't choosing every day to do something amazing and choosing to be high on life, we just may be full of regrets when the inevitable final day arrives.

 

Philosophy and Wealth

"Of course I do not forbid you to possess it [wealth], but I would have you reach the point at which you possess it dauntlessly; this can be accomplished only by persuading yourself that you can live happily without it as well as with it, and by regarding riches always as likely to elude you." Letters by Seneca (Stoic Master)