Rogue One: Is Demo/Paper Trading a Mistake?
Imagine yourself being the manager of an airline company.
Would you allow a junior flight school student to fly a real plane for you, even though this student may have read and understood the theories on how to operate a plane?
By now, you may be thinking:
“Ridiculous, of course no!”
Hey, I figured the same too.
I’d throw this fella into multiple flight simulations and make sure that this flight school student is able to follow standards & procedures for a flight.
More importantly, I’d not want this soon-to-be pilot crashing my real planes if he/she can’t even handle landing the plane safely in a simulated environment.
Make sense, right?
I hope I have made my point of this article by now, but if not, here it goes:
Putting a junior flight school student into simulations is exactly the same as you going through the demo or paper trading phase when you first started investing or trading.
Essentially, you are doing yourself a HUGE favor by making sure that you can follow the rules and strategies consistently in a risk-free environment.
Here’s the thing:
At the beginning of your investing or trading journey, it’s not about making a lot of money. It’s not even about having a ‘feel’ with putting in real money into the market.
It’s about you having the discipline to follow the rules and processes and learn the foundation properly without additional emotional baggage.
Honestly, if you can’t land a plane safely in a simulated environment, what makes you think that you can land a real plane in reality – before crashing a few costly planes and hurting yourself (and others) badly in between?
I believe I’ve made my point clear.
p.s. Related Read: Here's What I’d Do if I Had to Start My Investing Journey All Over Again
Rogue One is a new weekly 1-min article series where I share my random thoughts and ideas.
How I 5x My Investing/Trading Experience with Every Trade I Take
Huge Warning: If you are here thinking of looking for a shortcut to milk money out of the market, this article is NOT for you.
However, if you are looking for mini-routine hacks to help deepen and internalize your learning, I think you will find this post surprisingly helpful.
Regardless if you want to improve as a long-term investor or a short-term trader, it will require skill development. Skill development though, demand for our time and experience.
For most investors and traders, one trade* typically transpires into a single moment of experience.
What if there is a way for you to turn a single trade into 5 times worth the experience. Interested?
*The verb ‘trade’ is used in this article to reflect a position that you take in the market, regardless if you are investing for the long-term, or trading for the short-term.
You will be surprised that there is no secret recipe here.
The key to amplifying your experience from every single trade you take is through a systematic post-trade learning routine, all of which I will share with you below:
You did your pre-trade preparation and took a trade – that was 1x experience.
As a long-term investor, you placed a trade after doing your overall research on the fundamentals of a company.
As a short-term trade, you spotted this breakout pattern and placed the trade.
Either way, these transpired into ONE experience.
For most people, their journey ended right there – time to go and enjoy a good movie time, right?
What else is there for you to do?
Make detailed notes in your journal – that’s 2x experience
For me, I will write down WHY I took a particular trade.
As an investor, what are the characteristics and risks involved in the company that I’ve just invested in?
As a trader, what is the if-then context and price action setup that made me took that trade?
Putting my trades down into a journal makes doubled my experience with that particular trade.
Discuss trades with like-minded people/community – that’s 3x experience
One thing that I like doing is to discuss the trades that I took with like-minded traders and investors.
These are the people and communities that, to a certain extent, understand how I make trading/investing decisions.
As an example, they might notice a certain part of the company’s fundamentals that I’ve missed out on in a financial report.
As a result, I can receive feedback on what I’ve missed or maybe a certain perspective that I’ve not considered in that trade – which is extremely helpful.
Visualize your trades – that’s 4x
I can’t emphasize how powerful this routine is to your experience accumulation.
Replaying a particular trade in my mind – what happened, what went right and what could’ve been done better, contributed to my growth tremendously.
Visualization helps in reinforcing the right habit & execution in my subconscious.
In return, this will make my execution better if there are any similar opportunities in the future.
End-Of-Month Review – that’s 5x
Many investors and traders have the impression that once a trade is taken then there’s nothing left to learn for the trade.
However, that’s clearly not the case.
For me, reviewing my past trades every end of the month/quarter has been extremely beneficial.
Reason being, it helped me to again reinforce the good trades that I’ve executed and how I can do better moving forward.
Now, I know what I can do better with my breakout trades.
No Money Lah’s Verdict – Multiply Your Growth with Systematic & Mindful Learning Routine
Now, I want to end this conversation by pointing out the obvious:
Investing and trading are not easy to master. More often than not, it involves a deep learning curve that’ll take time to develop.
Hence, you will need all the feedback from the market to help you deepen your learning experience.
Good or bad, winning or losing, every trade is a learning opportunity.
In fact, every trade can be more than ONE learning opportunity. Using the methods above, and you can 5x your experience for every trade you take.
All you need to do is to just tweak your routine a little. For a 5x growth of experience per trade, I’d say the effort is pretty worth it.
Part of this article is inspired by the book One Good Trade by Mike Bellafiore. Bella is the founder of SMB Capital, a proprietary trading firm in New York.
He is one of my favorite trading coaches that I follow online which has been giving back tremendous value to the online trading community.
I found that some of his approaches to trading improvement, which has inspired me to implement and write this article, are equally useful in one’s investing journey as well.
StashAway Simple Review: The Fixed Deposit (FD) Killer?
After it’s launch in Singapore in late November last year (2019), StashAway has finally launched StashAway Simple to all Malaysian users today!
Now, if you have read my StashAway in-depth review earlier this year, you would know that my minor rant about the robo-advisor is not getting StashAway Simple readied to all Malaysian users back then.
So, what exactly is StashAway Simple?
Simply put, StashAway Simple is the company’s alternative to conventional financial vehicles like the Fixed Deposit (FD).
What Makes StashAway Simple so Special?
In my opinion, there are a few things that make StashAway Simple stands out among conventional financial vehicles like FD:
- Earn a projected return of 2.4% per year. (p.s. Maybank 12-month FD rate is at 2.10%)
- No minimum balance required – you can start using StashAway Simple at any amount, anytime you want (this is really StashAway’s trump card).
- No lock-in period like FD – deposit & withdraw anytime you want.
- Zero service + platform fee! The only cost involved is a (very) minimal fee of approximately 0.165% charged by the underlying unit trust manager.
p.s. the fee is already been taken account in the 2.4%/year projected return, so don’t worry about the fee affecting the return. :)
- Shariah Compliant.
p
Where Does Your Money Go When You Invest Your Cash in StashAway Simple?
When you put your money into StashAway Simple, they are essentially invested in money market instruments that are extremely low risk.
If you are curious, the underlying money market fund of StashAway Simple is the Eastspring Investments Islamic Income Fund.
Is StashAway Simple Risky?
Every investment comes with its own risk.
That said, StashAway Simple is rated 1.8% under the StashAway Risk Index.
In other words, investing in StashAway Simple is just as risky as putting your money into FD – which is extremely low risk.
Should You Use StashAway Simple?
You should definitely consider using StashAway Simple if:
(1) You are looking for a better Fixed Deposit (FD) alternative for your savings.
Hate the high barrier of entry of FD? Dislike the long lock-in of FD?
I think you will love StashAway Simple.
(2) You are building up your emergency fund.
Looking to start building your emergency fund where you can have quick access to your money?
StashAway Simple is a great choice for you!
(3) You are looking for a place to park your cash while waiting for an investment opportunity.
If you are an investor that is currently parking your assets in cash, waiting for an investment opportunity, StashAway Simple is a solid place for you to place your cash.
Competitors
StashAway Simple solves a crucial headache of high-barrier of entry & long lock-down period of the conventional Fixed Deposit offered in the market.
To be honest, if StashAway Simple was to be released in Malaysia earlier this year, it would be a no-brainer for me to recommend this straightaway to people.
However, in the highly competitive space of financial technology and innovation, a 6-months period can change a lot of things.
A rise of new competitors in the space is one of them.
Introduced in April this year, BIMB’s Best Invest app allows investors to invest in its BIMB Dana Al-Fakhim money market fund from as low as RM10.
Since the underlying asset of both StashAway Simple and BIMB Dana Al-Fakhim fund are equally money market instruments AND both provide almost similar flexibility (low barrier of entry), they are without a doubt the closest and best solution for people looking for an FD alternative now.
p
No Money Lah’s Verdict: Simple is the New Breakthrough
With the rise innovations in the financial solution space, it is refreshing to keep seeing new, innovative products from robo-advisor platforms like StashAway.
In many ways, in the financial services industry, simple is indeed the new breakthrough that the consumers need.
Personally, I have always enjoy using StashAway to complement my investment style and I have long waited for StashAway Simple to be introduced in Malaysia.
Now that it is finally here, I am super excited to give it a try and I highly suggest you to check it out too!
Related: Read my full review on StashAway HERE
This is What I’d Do if I Had to Start My Investing Journey All Over Again
I started to expose myself to the world of investing as a university student 5 to 6 years ago.
Well, my ultimate masterplan back then was to crush the market like peanuts and make hell lot of money with it.
(p.s. Obviously, that intention did not end up well for me.)
It took me a long, long time before I eventually discover my sweet spot and investing style (more on this in future articles).
Looking back, I always wonder if I could have been much better with investing (and with money) if I were to put every piece of the puzzle in the right place – one by one, step by step.
Depending on how you look at it, this article can be more like hindsight, or more of a reflection.
But my goal for this article is simple:
If you are totally new and are thinking about getting started, I hope this post will be of great guidance & insight for you.
With that, this is what I would do if I were to start over my investing journey from zero:
Step 1: First, I'd learn about personal finance & build a strong habit around money
New investors be like:
Harr… but I just want to find the best stocks to buy wor…
Yes, boring, I know.
But this is exactly what I would do FIRST if I were to start over my journey, because honestly:
Who cares if you can spot the best stocks to invest in when you have no savings to invest?
Who cares if you have attended the best investing course when you still struggle to pay off your credit card debt every month?
Looking back, instead of splurging on food & entertainment in university, I would start tracking my finances and have a more consistent savings habit (regardless of how little it could be).
I’d also build a stronger foundation & understanding around money (ie. Financial independence, compounding effect, asset & liability) by reading more personal finance (not purely investing) related books.
With all these financial knowledge and habits in place, I am sure that I’d be in a better position to start learning how to invest at the age 21 years old.
Step 2: Instead of asking “What Stocks to Buy?”, ask “What Skills Do I Need?”
“Which company should I invest during this crisis ah?”
“Is now the right time to buy into the shares of XXX yaa?”
These are without a doubt the most asked questions by investors on investing forums, telegram chat & FB groups.
Looking back, I wasted my fair share of time indulging in discussions like these.
If I were to start again, I’d definitely spend NONE of my time consuming any content like this.
Instead, after building a sound financial habit, the next thing I’d do is to learn the skills needed for me to build a solid foundation in investing – be it from books or a mentor/coach.
Some crucial fundamental skills include, but not limited to:
- How to extract important data and information from a financial report?
- How to develop a set of investment rules on when to buy & sell?
- How to construct a decision-making framework & thought process?
- How to make independent investment decisions without succumbing to headlines and unnecessary news & content?
Can you see how these skills above, once mastered, will be able to answer your ‘What stocks to buy’ question?
Nowadays, most new investors yearn for shortcuts and/or the easy way to make money from the ‘exciting’ stock market – all without considering putting effort into building their foundational skills.
But hey, I get it. That was me once upon a time too.
Just telling you that, if you are new, you might really wanna consider building a solid foundation first before risking your hard-earned money.
The only short cut in sustainable and successful investing is effort and hardwork.
Step 3: Setting my initial vision with investing
If I were to start my journey from zero again, I’d want to spend some time constructing a vision for my investing journey: a sort of picture-like vision of the outcome of investing in my life.
This is the stage where I would learn more about different financial stages in life (eg. financial independence, abundance) and set a vision to motivate me to keep honing my skills.
Now, you may disagree with me, but I would not set a fixed goal at this stage (eg. Financial independence by 30 years old).
Reason being, as a university student, there is simply no way for me to know what kind of circumstances I would be upon graduation. Hence, any form of fixed estimation is really inaccurate at best.
That said, as a start, having a conceptual understanding of what’s possible (eg. vision towards financial independence) is important and should not be overlooked.
However, it should also be noted that our lives will change as we move on to different stages in life – hence it is essential to be flexible with the vision and ultimately discovering our goal along the way.
Step 4: Hone my skills in a simulated environment
Learning the fundamental investment skills & knowledge is a thing, but it doesn’t mean that it is the end of the journey.
In fact, it is only the beginning of the journey.
So, what I would do is I will set up a simulated investing account via platforms like Bursa Marketplace so I can test what I’ve learned in a risk-free environment.
Now, this could be a very boring stage for many. I used to do it (and gave up) too back then as there is no fun at all buying stocks in a simulated environment.
But if I were to start again, I would spend at least 6 months to a year in a simulated environment so I am sure that I can follow my entry and exit rules consistently whenever needed.
No fun, I know. But I’d cut short a lot of my learning curve if I persisted with the practice 5 years ago.
Step 5: Opening a Live Account (Finally!)
Now’s the time to finally worry about which brokerage account to open!
Or better, time to make some big money! *wink* *wink*
But is it so?
In the hindsight, what I would do as a beginner (regardless of my initial capital) is to set my intention right when opening a live account.
Instead of treating my initial few hundred bucks account as my immediate runway to become a millionaire, I would work on my ability to execute my plan/rules consistently without worrying about the returns as much.
By doing so in a small live account, it would build a very solid psychology foundation for me to handle my live account as it grows in the future.
Simply put, I would take my initial years of live investing journey to make mistakes and gain experience – not so much on making huge gains.
Step 6: Continuous Reflection & Self-Discovery + Receive feedback
Remember that I talked about setting an initial vision in Step 3?
Now, with more experience in the market (and assuming I already graduated and started my career), I’d start to find a more solid goal and focus in investing.
This is because, by this stage, I would be more familiar with my financial commitment. Hence, it is easier to calculate and come out with a proper financial goal and action plan.
It is also time for me to start reflecting and discovering my own investing style to accommodate my other commitments in life.
At this stage, joining a community of like-minded investors (not a general Facebook/Telegram group) is hugely beneficial. It serves as a great & efficient way to leverage on great investors' insights and receive feedback to accelerate learning.
No Money Lah’s Verdict
As I write this article, I am fully aware of my own investing style – income investing (article coming soon).
That said, I honestly think that if I were to follow the above steps diligently when I first started investing, I’d be discovering my preferred style much sooner.
But the journey of investing doesn’t end at Step 6.
As both life and market are dynamic, it is a must for me to keep refining my skills and goals as I continue in my investing journey.
Anyone that says that they’ve known and learned everything is just another egomaniac with little time left in the market.
Ultimately, while I may not be able to time-travel to change my journey, there is one thing that I can do:
Focus on the right mindset, strive to keep improving, and most importantly, stay humble.
Rogue One: Being Right in The Market
I used to have a bad tendency of wanting to be right in life. Sometimes, I still do.
In a debate, I want to prove my point right – and someone else’s opinion wrong.
In the stock market, I want to be right in the market direction so badly – that being right made me happier than making returns.
But here’s the thing:
This can work both ways.
Whenever I'm proved wrong in a debate, I felt ashamed.
Whenever the market doesn’t go in my favor, I felt frustrated.
The emotional baggage that I carried from trying to prove myself right is suffocating.
Here’s a lesson that I learned the hard way:
We live in a world that makes up of different personalities & agendas.
We invest in a market that makes up of different perspectives & emotions.
In the market, your opinion doesn’t matter. The market moves however it wants. The market is always right.
The key here is not trying to be right all the time. Rather, it’s having the humility to accept the lessons from different outcomes that’ll ultimately benefit you in the long run.
Be open with being right, AND be equally open on being wrong. There is more money to be made when you embrace both sides of the coin.
Rogue One is a new weekly 1-min article series where I share my random thoughts and ideas.
How to Build Your Emergency Fund?
An emergency fund is one of the least discussed topics in personal finance. Yet, it is the most crucial aspect of our financial life that will save us in times of unexpected crisis, if prepared well.
In spite of Covid-19, if you are still earning an income, you should really consider to start building the foundation of your financials via an emergency fund.
Typically, most people would opt for Fixed Deposit (FD) to build their emergency fund. That said, if there is a better alternative in town, would you be interested to learn more?
What is an Emergency Fund?
An emergency fund is essentially the money that you allocate on the side in case of unexpected financial emergencies like unemployment or a loss of income.
As a minimum, one should aim to build a 3 to 6 months’ worth of emergency fund (ie. 3 - 6x Your Monthly Expenses).
Now, it is crucial for us to understand the mechanism around an emergency fund:
It is not about growing the fund like what we do with investing. Rather, with an emergency fund, we are trying to preserve the value of your emergency fund so it doesn't lose its value with time.
p
Where to Place Your Emergency Fund: Money Market Fund
Money Market Funds are funds that invest in low-risk assets such as government securities, treasury bills, commercial bonds, and other highly liquid securities.
This means that unlike stock market investments that are generally volatile, the low-risk assets in a Money Market Fund is relatively stable & consistent.
Reason being, most assets under a Money Market Fund have a maturity date where it almost always ensures a return.
Normally, most assets under a Money Market Fund matures in 1 year or less. This ensures the liquidity of funds that allow you to buy and sell relatively easily.
Money Market Fund vs Fixed Deposit (FD)
(1) Competitive Return
Money Market Funds generally pays a return of 3.0 – 3.5% annually. On the other hand, FD rates have been hovering in an average of 2%.
(2) Better Liquidity
Money Market Fund is generally more liquid than FD. This means that there is no lock-in period and you can deposit and withdraw whenever you want.
(3) Lower Barrier of Entry
Not only that, a Money Market Fund also has a relatively low barrier of entry compared to FD. This means that you can start investing in Money Market Funds from as low as RM10 and still enjoy the returns.
In comparison, there is a relatively high cap for FD deposits that ranges from RM10,000 to RM100,000.
What are the Risks of Investing in Money Market Funds?
Investing in a Money Market Fund is not without its risks, although it is quite minimal relative to the stock market.
(a) Interest Rate Risk
Interest rate risk refers to the impact of interest rate changes on the valuation of fixed income securities.
Essentially, when interest rates rise, fixed income asset prices generally decline. This may lower the market value of the Fund’s investment in fixed income securities, which will affect the net asset value (NAV) of the Fund.
The opposite may apply when interest rates fall.
(b) Credit/Default Risk
Credit/Default risk refers to the ability of issuers of fixed income assets (eg. a company’s bond) to make timely payment of interest or profit.
This means that if the issuer faces any challenges to make payment, it may impact the value as well as the liquidity of the fixed income assets of a Fund.
To manage the risks involved, a Money Market Fund will normally opt for high graded bonds and securities. This means that the chance of default will be relatively low and hence ensure peace of mind.
All in all, Money Market Fund’s investment in low-risk assets ensured it’s stability, making it a great FD alternative to build your emergency fund.
That said, please be reminded that it is NOT a capital and return guaranteed vehicle as there are still some risks involved in it.
3 Money Market Funds Options
There are many money market options out there, varying in fees and deposit amount. For the options below, I am going to share with you 3 options out there which is suitable for most people.
The first money market fund that I think is a great option for most people is the BIMB Dana Al-Fakhim (Money Market Fund) via BEST Investment App.
Its low barrier of entry of just RM10 is the reason why I would recommend this to most people that are looking to build their emergency fund via money market.
To start, just go ahead and install the BEST Investment app on your phone (select Do It Yourself --> BIMB Dana Al-Fakhim), and start contributing to your emergency fund.
Install BEST Investment app HERE.
p
The reason why I feature Opus Money Plus Fund is due to its overall fee structure that is lower than other money market options out there.
Typically, most money market funds have a management fee of up to 0.5%/annum. In contrast, Opus Money Plus Fund features a maximum management fee of 0.35%/annum.
p
The final option that I am featuring here is Phillip Capital Money Market Fund.
The reason for this feature is because I am personally having my emergency fund parked with them.
That said, when it comes to ease of access, Phillip Capital is the least friendly one as it requires applicants to still fill up physical forms to open an account.
4. StashAway Simple (Updated 15/6/2020)
Newly launched in June 2020, StashAway Simple comes into the scene as a reliable alternative to Fixed Deposit (FD).
For an in-depth review of StashAway Simple, click HERE.
Money Market Funds Comparison
No Money Lah's Verdict
Hopefully this article gave you a good idea on how to get started to build your emergency fund!
Do you have any other suggestions on where to place your money for an emergency? Share with me below! :)
p.s. Already have an emergency fund in place? Wanna kickstart your investing journey for a new (& consistent) income stream?
Scroll below for more info!
Rogue One: Why You'll Not Make Money From that Hot Headline Stock?
Excited about the latest & hottest stock in town that everyone is talking about on Facebook groups, investing forums, and live webinars?
“Argh! I could’ve made 15% if I bought into that stock a few weeks ago when it was at RM1.00!”
Then, you either have a good whole day of self-blaming for not buying into that stock ‘a few weeks ago’ OR you rush in to chase the price in hope that you can catch the remaining up move of the stock.
Isn’t this familiar, kind of like a Déjà vu?
Because you have likely experienced it last week, and even the previous month too – how did that turn out for you?
Stocks or news that make it to the headline & social media, well, takes time to appear on the headline.
By then:
Skilled day-traders that know how to read price action & order flow have taken advantage of the move.
Experienced investors with foresight about the value of the stock have already secured their positions months before this headline.
When everyone in town is crazy and talking about a stock, you are probably too late - timing, mindset and skill-wise - into the party.
Rogue One is a new weekly 1-min article series where I share my random thoughts and ideas.
2020 Massive Selldown: Hold or Cut Loss?
So we are here. This is indeed a massive sell-down.
In 3 weeks’ time, the massive sell-down managed to wipe out all 2019 gains of the Dow Jones Index. At home, our dear KLCI index has also dropped close to 20% since the start of the year.
To give you a perspective of how strong the magnitude of this sell-down is, picture this:
It just took 16 days of move in our current S&P 500 sell-down to reach what the 2008/09 Global Financial Crisis managed to achieve in 200+ days.
—
The Key Question Now: To Hold on to Your Investments, or to Cut Your Loss?
Now, this is a tricky question to answer.
First of all, for the whole context of this article, I am assuming that you are facing a paper/unrealized loss from your current positions.
In my opinion, this question needs more than an irresponsible short ‘Hold lah the market will recover’ or ‘Just cut loss lah’ respond like most content and posts you are seeing out there on social media.
It is also extremely irresponsible to sugarcoat the question and be overoptimistic at this moment.
Instead, it deserves a more comprehensive writing that includes multiple perspectives of different investors’ contexts.
This is what this article is all about, and this is the least I can contribute to the investing community as a creator (and a developing investor & trader) at times like this.
A quick disclaimer beforehand: This is by no means an absolute Buy/Sell/Hold advice. This is just an article from a random dude so please seek a professional financial planner’s opinion before making any decision.
With that, let’s start.
—
Which of these Descriptions Suit You Better?
Context 1: The Legit Long-Term Investor
It has already been part of your plan to hold your investment (single stocks/the whole portfolio) through this market climate from start – way before you enter this trade.
You feel minimal mental pressure and anxiety seeing your investments tumble more than 20-30%, or even 50% as it is in your game plan to hold through times like this.
These people are the group of legit long-term investors that really know what they are doing and have total confidence with their plan. If you are in this group of long-term investors, there is no reason at all for you to cut loss because holding through this market climate is part of the plan.
For the others though, it is common to think that you belong to this small group of legit long-term investors. If that’s the case, I want to challenge you to ask yourself:
P
-
- Did you decide to go ‘long-term’ on this investment BEFORE you enter this trade, or AFTER you experience this crash?
- If this sell-down is not a sign for you to exit, then WHAT is your exit plan?
You SHOULD have an exit plan, and it should not take longer than a minute for you to figure this out because your exit plan is already been set before you enter a trade.
-
- More importantly, can you sleep peacefully knowing you are down 20-30%, or even 50% on your investments?
P
If you felt any sense of doubt or uncertainties in while answering my questions, you are NOT in this group of legit long-term investors.
—
Context 2: The 99% That Need to Cut Loss
Now, if your ego is not in the way and you are humble enough to admit that you have never really thought about an EXIT PLAN for your current investments, stopping the bleeding and cut loss is the way to go.
Now, let me elaborate a little on this 99% of people that need to cut loss:
P
- Your Pre-set/Mental Stop Loss level memang Got Triggered Already from this Sell-Down.
- You DID NOT have an exit plan in place BEFORE you buy into this particular investment/share.
An exit plan could be something like ‘If the price drops below X, I will cut loss”, or “If fundamental shows a decline in profit for X quarters, I will exit.”.
- You got into this investment after watching or reading a video/post from a stock investment Facebook page.
Actually, you are kind of still waiting for these Facebook forums/pages to tell you whether to continue holding or to sell.
- You cannot handle the mental stress of a 20-30% move going against you.
Which is absolutely normal because we all are humans, and everyone has a very different risk tolerance.
—
To be Clear, It Takes (a lot of) Courage to Cut Loss
You have my full respect already if you are still reading till this part as most people would have gone into a full denial mode after experiencing such paper loss – I salute your courage.
Remember, unlike what most content and posts are saying out there, there is nothing wrong at all to cut loss if your Stop Loss is long triggered AND/OR you realized that you have been doing this whole investment thingy wrong from the start.
Better to take in this lesson and start afresh with a more proper mindset, right?
Read: How to Recover from a Slump?
—
Why Cut Loss/Sell?
Having been through the mental challenge to Cut Loss, I understand that “Just hold on lah the market will recover long term” is the most soothing sentence that one seeks to hear at times of paper/unrealized loss.
However, I feel there is a need for me to break the false hope and tell you why ‘Holding On’ may not be the best action for most everyday investors:
(1) Psychology and Mental Stress
If you never have proper prior experience with the market and never knew what you have been doing all this while, it will be very hard or you to hold through this downturn.
By now, it should be clear that this sell down is NOT a normal pullback/correction. The magnitude of this global sell down is at its historical record.
The downturn and sell down like what we are facing now challenge the mental state and psychology of even the most experienced and prepared players in the market.
It is easy to say ‘Hold through the downturn and wait for the recovery’ but how many people, especially those who’ve been in the market without prior knowledge and experience can handle the emotional and financial pain from holding a sharp falling knife?
p
(2) ‘This Company is Too Big to Fail’ Myth
To clarify, most market (at least the index) does recover and trend higher after a recession, no doubt about that (just look at the S&P 500 and our very own KLCI).
However, it is foolish to say that any company will survive and recover from a massive selldown/recession.
If there is anything that the world has learned from the global financial crisis, it is that even giants fall.
And even if they do not fall, some may not be lucky enough to recover from the crisis (picture below).
(3) The Silver Lining: Cutting Loss is actually Preparing You for the Long Term (Opportunity Cost)
If you have been ‘investing’ without proper knowledge and processes, or via Facebook social media tips for the past years, you are not actually ‘investing’.
You have been gambling all these while.
“But man, I made money!”
Well, to be honest, anyone can easily make quick bucks in the longest bull run in history.
That said, a bearish sell-down requires a whole lot of psychology and different skillsets from an investor. Market movement and price action in a bear market are fundamentally different compared to a bull market.
Hence, in scenario like what we are facing right now, cutting loss might actually be a good thing for you in the long term. Consider this:
You are now holding a portfolio/share value worth RM50,000 with an RM20,000 unrealized loss – and you’ve built this portfolio up based on tips from some investing and Facebook forums, alongside some vague understanding towards the market.
Instead of holding on to a mistake, why not cut your loss then and there and make use of what’s left of your capital to learn the proper way to invest?
Invest a few hundred or thousand ringgit and equip yourself with proper investing knowledge and processes and store your remaining bullets (cash).
If you can survive this sell down and learn the proper method, you can (AND WILL) be able to live to fight (invest) another day.
—
No Money Lah Verdict
To be clear, as the market develops, I am also learning and picking up new lessons and skills as well.
That said, as I am writing this, I have come across many close friends that have approached me for opinions and thoughts.
This made me realized that many people have, in fact, been ‘investing’ in the market without proper mindset, knowledge and fundamental skills, which motivated me to write this article:
There is nothing wrong to HOLD, IF that’s your game plan.
And unlike what most content and post are suggesting on social media, there is ALSO nothing wrong to CUT LOSS if your stop-loss levels are triggered. (or if you memang do not know what to do all these while and was just blindly following tips on social media)
The point is to protect your mental confidence and what’s left of your capital.
The market DOES NOT care about your EGO.
The market DOES NOT care about your need to be RIGHT.
Again, as long as you can protect your capital and confidence, you can always live to fight (invest) another day.
The Hard Truth: Why You Shouldn’t Care About What Stock Investment ‘Influencers’ are Buying on Social Media (Especially at Times Like This)
So, the inevitable has happened.
With the fear and pressure from Covid-19 pandemic and drop in oil price, the market has gone real bad.
As an example, Dow Jones has just dropped by 20% from its previous peak and entered a technical bear market earlier today.
At the same time, for the first time since 2008/09, the VIX (Market Volatility) Index had a daily close above $53. Also known as the Fear Index, this means that the market is generally in fear and expects huge volatility moving forward.
In short, just like the story of ‘The Boy Who Cried Wolf’, the wolf has, in fact, arrived at our doorsteps.
p
At times like this, it is not rare to see (more and more) social media stock investment gurus/influencers posting about the stocks that they are accumulating at low for ‘long-term investment’.
However, I am of the opinion that these posts, if not conveyed properly (as discussed below) are deeply irresponsible and you SHOULD NOT be taking 99% of these posts seriously.
If you have been consuming the content from these stock investment gurus/influencers for tips to get over times like this, this is the cold, hard truth that you need to hear:
-
99% of These Posts DO NOT Tell You the Whole Picture
Yup, I know that this stock investment guru has posted about accumulating Tesla at low. Perhaps, this guru even shared about why and how he entered the trade.
But this post only covered 1/3 of the whole investment plan.
Do you know their exit plan? Do you know the If/Then statement that the guru has in mind should certain changes in fundamentals happen? And more…
—
-
Do You Know How Long is this ‘Long-Term Investment’ Going to Be?
“I am holding this long-term.”
But how long is ‘long-term’ for this guru? Did he/she mention the timeframe at all? How long is this guru going to hold this investment?
Weeks? Months? Years?
Even so, without knowing the basis of the investment plan, do you have the courage to hold these investments if the price keeps tumbling after you follow this guru’s entry?
—
-
YES, You are Going to have a Different Risk Tolerance Compared to this Guru
This guru/influencer that posted this stock that he/she just got in may have the patience and risk tolerance to hold through a 20 – 30% further drop in price.
But can you do so? Can you handle the mental pressure of price going against your favor for even, say, 10%?
Know your investment plan: Do Your Homework and Due Diligence.
—
-
Heck, Some of These People May Not Even Know What They are Doing
The irony is, it is much easier to write and spread bullshit investing ideas and concepts nowadays via social media platforms.
Spot for Facebook and IG pages that ONLY show off about how much they’ve earned – this is the biggest red flag that you should stay away from these pages or individuals.
Instead, What Should You Do?
-
Formulate Your Own Investment Plan
If you have any prior (proper) experience in the market, learn to be independent and formulate your own investing plan.
What’s your entry plan? What’s your exit strategy? What’s your If/Then statements if X or Y happens?
Having all of these processes done properly will give you the confidence on when (and when not) to take action and stick through your investments at tough times.
Shameless Plug: For those who are not familiar, I share about how to formulate your own investment plan and processes in my upcoming REIT Investing Workshop. Details HERE.
—
-
Focus on Reliable Passive Investing Solutions
If you are not familiar with how to manage your investment actively, definitely check out reliable passive investing platforms like StashAway and Wahed.
These platforms use financial algorithms to invest on your behalf and rebalance your investments according to the market situation.
(p.s. I highly recommend StashAway for the general public, and Wahed for those who are looking specifically for Shariah-compliant passive investment.)
—
-
Focus on Wealth Preservation
Of all, make sure you have enough cash flow while not simply pouring them into the market based on tips!
Once you learned how to formulate your investment plan, this cash will act like bullets for you to take advantage of when the time is right.
—
No Money Lah’s Verdict
Stay calm, stay rational, and be healthy.
The Cheetah and How a Struggling Trader/Investor can Learn from It
Many people that traded and invested in the stock market (or any market, in this case) experienced great volatility for the past few weeks.
Some made a kill, nailing their yearly return goal in a week. For many, though, it was an overwhelming time filled with emotions and anxiousness.
You are (were) probably in the red. You are (were) probably underperforming. You are (were) probably beating up at yourself for this outcome.
The reality is, this is a path that every investor and trader MUST experience in his/her journey. The difference is how one handles this hurdle that makes up to an amateur and a consistent investor/trader.
How to Climb Back Up from a Slump?
To be clear, it is NOT EASY to recover from a slump. Mathematically, it is hard (eg. a 50% drawdown will take a 100% gain to breakeven). Emotionally, it is even tougher to get back on track.
In times like these, it is crucial for one to go back to the BASICS.
Stop looking around Facebook groups and investing/trading forums for tips for the NEXT big opportunity.
Quit those groups if needed – these are noises that hardly contribute to your recovery anyway.
The point is, stop making investing/trading so complicated and difficult.
Back to the Basics
What are the trades that work the best for you? Make a list and focus on only taking these trades for time being – with smaller size.
If you are a long-term investor that has just dumped your holdings due to panic and fear, look into your investing process – have you followed your entry & exit strategy? Do you have one? Work on them one by one.
The point is NOT to remake your losses immediately. Rather, it is for you to rebuild the mental confidence towards yourself FIRST.
The Cheetah
“The cheetah, while the fastest animal on the African plain and can outrun any of the prey it feasts upon, always chooses to go for the young, weak or sick.
Once identified, it attacks with laser-guided focus and effectiveness. It is only then that the kill is most likely. That is the epitome of a professional trader.”
This is one the of most resonating trading analogy that I’ve come across lately in an article by Mike Bellafiore of SMB Capital (one of my favorite role models in trading).
As extraordinary as a cheetah is, it still focuses on the most basic kills which are also the most effective ones.
Likewise, the goal for us as an investor/trader is not to try to be smart and predict whether the market is bottoming. Rather, it is to understand our strength and take the best opportunity with probability in our favor.
Know your strength. Go back to the basics. Be a cheetah.