The other day, my friend recounted an incident, which I am also habitually guilty of committing.
It was earnings release day for the local banks (DBS, UOB and OCBC). Both DBS and OCBC beat Bloomberg consensus, and their stock prices rose on market open. UOB missed consensus, and its stock price tanked.
My friend decided to go long on UOB. He submitted a Buy order at a Limit Price of $29.00. UOB stock price declined to as low as $29.20 and rebounced, ending the day at $29.99. My friend missed his chance.
It is a common phenomenon. We decided to trade, made the choice on a price, put in the order and...missed. Sometimes, it is a blessing in disguise as we get a better price the following day. But other times, the stock follows a V-shaped trajectory and soars away.
It makes me wonder: since we have already arrived at a trade decision, why do we get so fixated - or in psychological parlance, so anchored - on the entry price?
Perhaps it is in our nature to be attached to nice, round numbers. Perhaps it is the precise figure that our discounted cashflow formula puts the intrinsic value to be. Or perhaps, we simply choose a number that we feel is right.
Instead of taking whatever the seller is offering at market price, we opt to join the long bidding queue and wait. When our bid gets hit, we feel 'smarter' having bought at a lower price than others.
I find it worth reflecting whether getting UOB at $29.00, $29.20 or $29.99 truly makes a difference in the grand scheme of things.
Consider this: UOB paid 60 cents dividend in August 2021. It will pay another 60 cents dividend on 13 May 2022. If all goes well, the bank will repeat paying the same DPS semi-annually. So the difference between these entry prices will be recouped in a year. But the possible regret of having missed a purchase may last for years.
Nowadays, I try not to get too hung up on my buying or selling price. If I had decided to trade, I will queue my orders before market open at one tick away from the previous close. I usually get hit at 9:00am, only to find later that the stock had climbed higher after I sold, or dived lower after I bought, but RARELY ending the day at the price that I had queued for.
And I have learnt to accept it.
Sometimes, I will login around mid morning, check the bid/ask quotes around that time, and put in an order to get filled. Why mid morning, you ask? Because that is when I have free time from my work. No other reason.
The real return comes from holding the shares over the long term. If it was a good decision, it does not matter if we gained $10 or $11. In our minds, we will feel equally proud having made the purchase. If it was a lousy decision, it does not matter if we lost $10 or $11. In our minds, we will feel equally remorseful having made the purchase.
Better an approximate hit than a precise miss. Better a shareowner than a spectator. If we give ourselves flexibility in our trade entry, we will breathe a little easier and be happier investors.
It was earnings release day for the local banks (DBS, UOB and OCBC). Both DBS and OCBC beat Bloomberg consensus, and their stock prices rose on market open. UOB missed consensus, and its stock price tanked.
My friend decided to go long on UOB. He submitted a Buy order at a Limit Price of $29.00. UOB stock price declined to as low as $29.20 and rebounced, ending the day at $29.99. My friend missed his chance.
It is a common phenomenon. We decided to trade, made the choice on a price, put in the order and...missed. Sometimes, it is a blessing in disguise as we get a better price the following day. But other times, the stock follows a V-shaped trajectory and soars away.
It makes me wonder: since we have already arrived at a trade decision, why do we get so fixated - or in psychological parlance, so anchored - on the entry price?
Perhaps it is in our nature to be attached to nice, round numbers. Perhaps it is the precise figure that our discounted cashflow formula puts the intrinsic value to be. Or perhaps, we simply choose a number that we feel is right.
Instead of taking whatever the seller is offering at market price, we opt to join the long bidding queue and wait. When our bid gets hit, we feel 'smarter' having bought at a lower price than others.
I find it worth reflecting whether getting UOB at $29.00, $29.20 or $29.99 truly makes a difference in the grand scheme of things.
Consider this: UOB paid 60 cents dividend in August 2021. It will pay another 60 cents dividend on 13 May 2022. If all goes well, the bank will repeat paying the same DPS semi-annually. So the difference between these entry prices will be recouped in a year. But the possible regret of having missed a purchase may last for years.
Nowadays, I try not to get too hung up on my buying or selling price. If I had decided to trade, I will queue my orders before market open at one tick away from the previous close. I usually get hit at 9:00am, only to find later that the stock had climbed higher after I sold, or dived lower after I bought, but RARELY ending the day at the price that I had queued for.
And I have learnt to accept it.
Sometimes, I will login around mid morning, check the bid/ask quotes around that time, and put in an order to get filled. Why mid morning, you ask? Because that is when I have free time from my work. No other reason.
The real return comes from holding the shares over the long term. If it was a good decision, it does not matter if we gained $10 or $11. In our minds, we will feel equally proud having made the purchase. If it was a lousy decision, it does not matter if we lost $10 or $11. In our minds, we will feel equally remorseful having made the purchase.
Better an approximate hit than a precise miss. Better a shareowner than a spectator. If we give ourselves flexibility in our trade entry, we will breathe a little easier and be happier investors.
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