Crash Buying In Reverse - A Crazy Idea?

Lately, I had some free time on my hand, so I have been watching videos from local financial content creators on YouTube.  This is the first time I come across the concept of "Crash Buying", which essentially means to buy more of a stock/fund when its price drops to a certain level due to a market crash.

This behaviour struck me as odd, as this is the classical "catching a falling knife" scenario in standard finance.  While it is not flawed, this technique is non-ideal because it makes the following bold assumptions:

1. The stock/fund price did not fall because of permanent damage to its business;
2. The price eventually recovers above your purchase level;
3. One has sufficient dry powder to purchase meaningfully at each level;
4. One has the mental fortitude and discipline to buy each time the level is hit.

Here is an interesting thought experiment.  The graph below shows the S&P 500 Index during the COVID-19 pandemic after it dropped 10 percent (right-hand side of the chart is covered to simulate point-in-time):

At this point, do you have the courage to pull the trigger?  Note that the 10 percent drop was accomplished in a matter of *days*, not weeks or months.  So fast, so furious!  Questions abound: Am I crazy to buy now? Will it drop more? When will it recover?

Assume that you pulled the trigger, and the market continued to do its thing.  A plunge of 20 percent was hit:

Enduring the gut-wrenching paper loss, you wonder if you did the right thing.  At this point, more questions pop up: Do I buy more? Or wait? Is the market going to sink deeper?  So many questions!  So much uncertainty!

Like in a nightmare, the market continued to tank after your second purchase.  A drop of 30 percent was established:

Your account is now deep in the red.  You feel that you cannot take the stress anymore.  At this point, you are questioning the strategy.  Doubt clouds your mind as you ask yourself:Do I still deploy my dry powder? How much more pain must I endure? Is the world coming to an end?!

Image Credit: Google Gemini

So you see, it is NOT EASY to adhere to the Crash Buying strategy.  The fear can be destabilizing.  The pain is real as you provide liquidity to the market when institutional investors are scrambling for the exit.

I would like to propose an alternative framework, which may be easier on the stomach.  I call it "Crash Buying in Reverse", for lack of a better name.

The first step is to simply WATCH as the market crashes and burns.  We DO NOTHING until the price bottom is established, when the selling is all done and buyers start to tiptoe back into the market.

Wait until the market rises 10 percent from the bottom.  Then we deploy our first tranche of firepower:

Note that at this point, we still cannot be certain whether the market has recovered, or it is merely a dead cat bounce.  So we do not deploy all our capital.  Just a starting portion that one is comfortable with.

As the recovery takes hold, the market rises 20 percent from the bottom.  This is the point when we deploy our second tranche of firepower:

The market has lifted off significantly from the bottom.  Optimism is returning.  Institutional investors start to load up for fear of performance drag against the benchmark.  As more buying takes place, we continue to wait until the next level is hit - at the 30 percent rise from the bottom.  We then deploy our third tranche of firepower:

This strategy has a few advantages:

Firstly, it minimizes the guesswork of trying to pick the bottom.  We buy only when there is a clean sign of upturn.

Secondly, it eliminates the anxiety of waiting for the market to bounce back above our purchase price.  We are buying into strength.  If the market reverses downward along the way, we re-start the strategy from afresh.

Lastly, it follows the theory of momentum investing, where we bet that "winners keep winning".  In this case, the premise is that an up market will keep on going up unless acted upon by a downward force (think Newton's first law of motion applied to stock markets).

Fun fact: If you had bought at the 10 percent drop, you would have waited 93 days before the market recovered to your purchase level.  About three months, not too bad.  Then again, at the point of buying, you did NOT know how long you have to wait!

Now, I would like to categorically state that the above information is for education purpose only, and does not constitute investment advice.  I have not backtested this alternative framework against all crashes in history (though I am fairly sure this strategy does not require Panadol during execution).  As a fellow investor, I am just providing another perspective for your consideration.

Happy investing, my friends!

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Money-making was a matter of luck: Ray Dalio

The Straits Times correspondent Sumiko Tan had a short lunch interview with Ray Dalio, billionaire founder of Bridgewater Associates, which is currently the world's biggest hedge fund.  You can catch the video below:



Over the short six-minute conversation, Ray Dalio remained candid and humble.  In his own words, he described how making money as a hedge fund manager was really a matter of luck.

The money-making part was a matter of luck for me, because it turned out that the game I liked to play is the markets, and happens to be if you play that game well, then it's very rewarding.

Ray Dalio

While I am not a professional investor, and I don't aspire to be one, I feel fortunate to be able to invest in the public equity market too.  I am lucky to be able to build up my portfolios, which will help to cover my expenses when I retire from work someday.

Hope you find the interview interesting too.

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A shareholder survives off the balance sheet

Over the week past the Lunar New Year, I was deeply immersed in the field of professional money management.

Not literally of course, but through literature.

I had perused several books written by seasoned fund managers, who possess more than a century's worth of successful investment experience in the stock market combined.

One of these books is titled, "Common Stocks & Common Sense - The Strategies, Analyses, Decisions and Emotions of a Particularly Successful Value Investor".

The author is Edgar Wachenheim III, founder, CEO and chairman of Greenhaven Associates, a value-based equity hedge fund with US$9.38 billion AUM.  From 1988 to 2017, Wachenheim had generated an average annual return of roughly 19 percent before fees for Greenhaven clients [source: CNBC].

This is no small feat, considering the graveyard of finance is littered with tens of thousands of failed hedge funds.  When an accomplished investor is willing to share his life experience in a book, one has to naturally pay attention to the lessons.

Indeed, it was an eye-opener as Wachenheim described his thought process on several of his investments, and preached the wisdom gained.

Here is one memorable quote from the book:

A shareholder makes money off the income statement, but survives off the balance sheet.

What Wachnheim means is that for an investor to know whether a company is rewarding, look at its income statement; but to know whether a company is risky, look at its balance sheet.

I wholeheartedly agree.

Investment outcomes are probabilistic in nature.  The extent of a gain/loss exists across a spectrum.  As investors, our foremost concern should be to minimize the left-tail risk of permanent loss in our capital.

Recall Warren Buffett's two rules: Number 1. Don't lose money; Number 2. Don't forget the first rule.

One of the best ways not to lose money is to NEVER invest in companies that have trouble operating as a going concern.  These are businesses leveraged to the hilt, but have no sustainable way forward to repay the debt, as well as companies stuck in a sunset industry and generating waning cash flows.  They are the "dying embers" of the corporate world - one last flicker before the flame goes out.

Examples are plenty.  Think automobile manufacturer General Motors, before it went belly up in 2009.  Think local water treatment firm Hyflux, before it filed for bankruptcy in 2018.  Or the 56 companies currently suspended from trading on the Singapore Exchange.

Shareholders of such firms face dim prospects of recovering their money.

While it may be tough to identify companies whose management are engaged in hidden, unscrupulous activities, the telltale signs of a fundamentally unsound enterprise are often visible in the balance sheet.

Granted, going through a balance sheet can be daunting for the layman investor.  If reading stacks of tiny digits makes your head spin and want to give up, allow me to point you to the three numbers on the balance sheet that I pay the most attention when researching on a company.

The first number is Total Liabilities, which indicates the overall financial obligations of the company as at a specific date.

These include borrowings (from banks and the debt market), undelivered goods and services, as well as all things payable (capitalised expenses, mortgages, money owed to suppliers etc).

Total liabilities can be subdivided into current and non-current (or 'long-term') liabilities.  Current liabilities are payable within one year.  Non-current liabilities are due after one year.  Regardless, they represent monetary burdens that must be resolved at a future point in time.

Here is an example from the most recent filing of a local listed company (let me call it Company X):

As seen above, Company X has a total liabilities of US$29.65 million as at 31 Dec 2023.  Keep this figure in mind as we explore the next number.

The second number is Cash and Cash Equivalents.  Cash is self-evident.  The 'cash equivalents' here refers to highly liquid instruments that can be easily converted to money.  These include money market securities, banker's acceptances and even short-term government bonds.

This figure sits in the Assets section and is usually the first item on the balance sheet.  The position of this number at the very top speaks volumes of its importance.

As seen above, Company X has cash and cash equivalents of US$52.05 million as at 31 Dec 2023.

If we compare the first and second numbers, we can see that Company X is more than capable of repaying its total liabilities using its cash coffer.  (As for why Company X is keeping so much cash and not returning a portion of it to its shareholders, this is a different discussion altogether.)

The third number to take note is Total Equity.  This item is found below Total Liabilities and comprises shareholders capital, treasury shares, reserves and retained earnings/losses from previous fiscal years.

Think of total equity as the money left after selling all assets to repay all liabilities of the company.  You wouldn't want this number to be negative.  If it is, the company is in serious trouble.  I would suggest to give it a miss.

As seen above, Company X has a total equity of US$56.38 million as at 31 Dec 2023.  It doesn't look bad at all, but notice Company X has accumulated losses that is nearly as big as its total liabilities.  One wonders what the heck the management has been doing to the business all these years.

Based on these three numbers, we can compare the company versus its peers and against history.  Throw in net income from the income statement and we can work out a slew of ratios such as the return on capital etc. These metrics should give you an approximate idea on whether this company is relatively healthy and capital efficient, or not.

A full study of the balance sheet is beyond the scope of a mere blog post.  If you are keen, a decent accountancy textbook should help.

There are other interesting aspects of the balance sheet that warrant further elaboration.  (Footnotes, anyone?)  However, I hope this basic introduction has made the balance sheet a little less intimidating for you.

Here's to your survival (and prosperity) as a fellow risk-conscious shareholder.

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Are you prepared for the downside?

Over the Lunar New Year long weekend, I had time to do some reading.  I had borrowed a stack of books from the public library on my favourite subject (no prize for guessing what it is).

After completing the first two books, I noticed a common theme among the writers.  There was an emphasis on effective risk management and protecting our portfolios against the downside.

The downside here refers to the huge loss in our portfolios during a bear market.  An effective risk management strategy proposed by the authors entails selling down one's positions at the onset of the bear market.  This ensures that we retain sufficient cash to tide over the period and take advantage of the subsequent recovery.

Truth be told, I have never thought about squaring my positions just because we are entering bear territory.  The only times I have sold stocks are when:

(1) doing portfolio rebalancing;
(2) the company's fundamentals have deteriorated permanently; and
(3) the valuation of a stock is overstretched in a bull market.

The rationale for selling (as argued by the authors) is capital preservation.  Acting decisively at the cusp of a crash is crucial.  Markets can fall swiftly.  If there is no preset plan to liquidate equity positions into cash, investors can see their net worth vapourize as the market drops 10, 20 or even 50 percent!

Moreover, the recovery period is uncertain.  It may take years - decades even - for our portfolios to regain the original value.  Perhaps never.

The authors cited the Great Depression in 1929, Oil Shock in 1973-1974, Black Monday in 1987 and the Global Financial Crisis (GFC) in 2009 as examples of how bear markets had decimated the wealth of a great many investors.

Log chart of the Dow Jones Industrial Average (source: Macrotrends).

In our recent past, one can find examples too.  During the Asian Financial Crisis in 1997, the Straits Times Index (STI) lost 62 percent from its peak of 2127.99 points to a low of 805.04 points.  After the dot-com bubble burst in 2000 and the SARS epidemic in 2003, the STI sank 55 percent from its peak of 2608.48 points to a low of 1170.85 points.  During the GFC, the STI plummeted 62 percent from its peak of 3831.19 points to a low of 1456.95 points.  There were plenty of smaller market declines in-between.

Having a systematic plan to reduce position size as the market starts to plunge can help overcome investor paralysis due to shock and stem the losses.

On the surface, it sounds like a sensible plan.  But I still have doubt.

After some reflection, I figured out why.

Firstly, the authors perceive themselves as stock investors, and not company shareholders.   They seek to profit in the market by buying and selling stocks - any stock - as long as there is an adequate risk-reward ratio.  Replace 'stocks' by any item with supply-demand dynamics and it makes no difference to these folks.

"The stock is NOT the company", as one writer effuses.

On the other hand, I see myself as a participant in the growth of the company, with the aim of reaping future rewards as the business prospers.  The stock market is merely an entry point.  The share price is the participation fee.

Coincidentally, Amazon.com founder Jeff Bezos also agrees that the stock is NOT the company.  In his experience, the stock market does a poor job of reflecting actual business performance.



Secondly, the writers seek to maximize capital gain and minimize capital loss.  To them, no stock is worth holding forever.  In fact, there should be no sentiment involved.  (Rightly so, because the endowment effect can cause one to be blind towards selling the stock when it is warranted.)

Conversely, I take an active interest in understanding how the executives are steering the company.  I think about whether the current business strategy makes sense.  There is satisfaction in seeing profits earned every fiscal year.  A recurring dividend payout is the fruit for placing the right bet.  As long as the company continues to generate free cash flow, there is no reason for me to renounce my ownership, come bear market or whatsoever.

Legendary investor Warren Buffett assures us that by choosing the right companies, the portfolio will take care of itself.

That said, the authors did bring up a good point - capital is key for every investor.  You cannot invest if you don't have the money.

As the cliché goes, it takes a 100 percent return to recoup a 50 percent loss.
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During a recession, which often occurs in tandem with a bear market, investors face a double whammy.  They may lose their income (due to retrenchment, business failure etc) at a time when the stock market is in the dumps.  Liquidating the portfolio at this point is possibly the worst thing to do.

So how can one avert such a calamity?

My personal 'effective risk management' is to strengthen my financial wellbeing in totality.

Firstly, I have emergency funds set aside.  I lead a low maintenance lifestyle, so my rainy day savings can last me several months.  Secondly, my equity portfolio is only a subset of my wealth.  I have my Singapore Savings Bonds which I can liquidate for cash as and when required, albeit with a one-month lag.  Thirdly, I am on track to fully repay my mortgage loan this year.  After which, I will be debt free with a secure roof over my head.  (It is hard to be made bankrupt when you don't owe any creditor.)  Lastly, I have my CPF monies and insurance policies to cover healthcare costs and to purchase an annuity.  I also have a company pension plan that is currently vested in a money market fund, which I can liquidate if needed.

Selling my shares will only be my last resort when I have exhausted the above.

Thus, I believe I am pretty well prepared for the downside.

One last point: If I sell my stocks and don't have an equivalent effective 'risk on' strategy to get back into the market, I will surely miss the subsequent upswing.  While not guaranteed, time has shown - again and again - that the equity market does eventually recover and continue its upward trajectory.

By investing only in fundamentally strong, healthy companies, I am optimistic that my equity portfolio will emerge from any financial crisis unscathed.  Selling optional.

Are you prepared for the downside?

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Steady Sam vs. Genius George - Why capital matters in investing

Being able to identify winning stocks is a valuable skill in investing.  There is no lack of investment newsletters out there purporting to share potentially profitable trade ideas, albeit on a paid subscription basis.

However, there is another factor in the investment equation that is seldom mentioned, or conveniently left out.

That is: a LARGE CAPITAL BASE is also required for creating meaningful cash impact in your portfolio, not just the rate of return.

In other words:

Capital $$$  x  Rate of return %  =  Portfolio cash impact $

In fact, knowing how to amass capital should be the Number One lesson for every retail investor.

Let me explain why.

If you are a salaried worker like me, your investment capital will have to come from your savings, which is taking income minus expenses.  (Lucky you if your capital is a lump sum from inheritance!)

Most jobs offer an annual increment, so your wage goes up every year.  With a bigger paycheck, many people tend to upgrade their lifestyle, for example, from taking Grab to owning a car, from staying in a HDB flat to staying in a condominium, from short overseas trips to extended vacations.

This is known as lifestyle creep.

If you are disciplined enough to stick to a simple lifestyle, and use the excess money to invest, you can build up a sizeable portfolio over time and enjoy a comfortable retirement, even when you are just an average investor.

Let me illustrate this by introducing you to two fictitious characters: Steady Sam and Genius George.  Steady Sam and Genius George are of the same age, and have just begun working in the same profession with the same starting salary.  Both of them are inspired to achieve financial freedom, and have amassed $10,000 each to start off their investment journey.

After one year on the job, Steady Sam manages to save $5,000 through frugal habits.  Genius George is less diligent with his money, but manages to save $4,000 nonetheless.  Additionally, both of them are given a salary increment of $500.  (They have an annual bonus too, but it is used to pay income tax, so the net amount is negligible.)

So far so good for both Steady Sam and Genius George.  However, this is where their financial paths start to diverge.

Steady Sam is contented to stick to his current lifestyle, and invests the $5,500 ($5,000 savings plus $500 increment) into his portfolio.  Steady Sam is only an average investor.  His portfolio earns a return of 9.58% per annum, equivalent to the annualized gain of the S&P 500 Index over the past 30 years (from 1993 to 2022, source: Motley Fool [here]).

Genius George, on the other hand, invests his $4,000 savings, but spends his $500 increment on a new iPhone.  (This model has periscope camera!)  That said, Genius George is a brilliant investor with the Midas touch.  He is the Asian version of Warren Buffett.  His portfolio earns a superior return of 13.57% per annum, equivalent to the annualized gain of Berkshire Hathaway over the past 30 years (from 1993 to 2022, source: Berkshire Hathaway 2022 Shareholder Letter [here]).

The same situation repeats every year - Steady Sam saves $5,000 while Genius George saves $4,000.  Both of them get a $500 salary increment.  While Steady Sam invests his savings and increment, Genius George invests his savings but splurges his increment.  Steady Sam's portfolio earns the standard market return of 9.58%, while Genius George's portfolio earns the superior return of 13.57%.

Where do they stand after 10 years?  Here is a look.

After 10 years, Steady Sam has invested a total capital of $77,500.  His portfolio is worth $130,205, representing an overall gain of 68 percent.  Meanwhile, Genius George has invested a total capital of $46,000.  His portfolio is worth $107,447, representing an overall gain of 134 percent.

Genius George is so proud of himself.  He has grown his investment by more than two-fold!  But notice at the end of 10 years, Steady Sam has a BIGGER portfolio value than Genius George.  In terms of wealth, Steady Sam is ahead, though Genius George has probably led a more exhilarating life.

Let us extrapolate further.  Assume the same situation recurs every year for 30 years till their early retirement.  While Steady Sam and Genius George are capable employees, they remain unappreciated and do not get promoted or any significant pay bump.  They only get the same increment year after year.  The portfolio returns remain the same.

Will both of them be able to retire as millionaires?  Let us find out.

At the end of 30 years, Genius George's portfolio has grown to $1,762,389 after investing a total capital of $126,000.  Steady Sam's final portfolio value is slightly lower at $1,607,835 after investing a total capital of $372,500.  Both Steady Sam and Genius George have comfortably reached millionaire status through the magic of compounding.  However, Genius George has managed to overtake Steady Sam in wealth by the 27th year of their investment journey.

Now, I hear you ask, "Hold on a minute. At a mere 4% excess return and one-third of the capital, Genius George can enjoy an extravagant life and still end up richer? What is the catch?"

The catch becomes evident when you think in terms of PROBABILITIES.

Consider this: what is the likelihood that you can earn a superior return of 13.57% consistently every year like Warren Buffett for 30 consecutive years?  On the flip side, what is the likelihood that you can save an extra $1,000 ($5,000 - $4,000) plus an incremental $500, and invest this amount consistently every year for 30 consecutive years?

It is hard to pin an exact number to the odds, but our gut instinct tells us that the second scenario is probably more achievable than the first.  After all, saving money is within our control, investment return isn't.

Capital matters in investing.  Keeping lifestyle creep in check and investing the excess cash can make a big impact to your portfolio, instead of striving for an elusive superior rate of return via brillant stock picking.  In the game of life, emulating Steady Sam is a far easier feat than emulating Genius George.

No subscription required too.


PS: If you are keen to get behind the math, you can download the Excel file [here].  Notice I did not take inflation into account, but since it would impact both Steady Sam and Genius George to the same extent, it does not matter in the comparison.

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When investing, it is okay to...

One morning while I was riding on the MRT train, I caught sight of a lady wearing a green tee-shirt with the following words printed on the back:

"It is okay to pause and relax. The most productive thing you can do is to rest and rejuvenate yourself."

Whoever coined the phrase must be worldly-wise, though I suspect it is the nifty advertising slogan for some product brand.

Nonetheless, it triggered a wave of self-reflection within me.  With the benefit of hindsight and maturity, what are the things I will do now, which I was hesitant about before?

Somehow, the stream of thoughts landed on the topic of investment.  I recalled my experience as an investor over the past two decades.  If I could travel back in time, I would like to teach my younger, rookie self about three things that are okay to do when it comes to investing.

These are the three lessons:


1. It is okay NOT to know everything about a company.

It is important to understand the financial health of a company before buying its stock.  However, there ought to be a limit as to how much research one needs to do before arriving at an investment decision.  If one insists on learning everything about a company first, information overload is bound to occur, which can cause analysis paralysis.  Moreover, if you dig deep enough, confirmation bias will always lead you to find reasons to buy - or not buy - a stock.

Legendary investor Warren Buffett has advised us to only evaluate companies that are within our "circle of competence".  Sadly, I am guilty of committing this transgression.  I have invested in companies where I do not have complete knowledge and are beyond my expertise.

One example is Nanofilm Technologies International (Nanofilm).  Nanofilm specializes in coating technologies.  To be precise, they do Physical Vapour Deposition (PVD) and Filtered Cathodic Vacuum Arc (FCVA) coating.  Nanofilm is also involved in nanofabrication as well as hydrogen energy solutions.  Nanofilm is founded by ex-NTU professor Shi Xu, who is still the Executive Chairman of the company today.  Even though I have an Engineering background, I have absolutely no idea how PVD and FCVA technologies work, what other competitor systems are out there, or how big the market size is.  From this aspect alone, I should have kept a wide berth from this stock.

However, I have reviewed Nanofilm's financial results.  The company has been able to generate a ROE above 10% over the past few years.  Nanofilm has also maintained average gross margin above 40%.  It is also in a net cash position.  Hence, this is a stock that passes my screening criteria.

Granted, due to the slowdown in China's economy, Nanofilm has faced headwinds in its most recent financial year, which diminished its profitability.  Thus, the stock has been brutually sold down by investors.

1-year price chart of Nanofilm Technologies International.

That said, nothing so far has caused me concern to change my investment decision.  I believe the company is still in good shape and will be able to make it through the downswing before improving its earnings again.

So here is Lesson #1: I may not know everything about Nanofilm, but what I do know is good enough for me to decide on owning a stake in the company.


2. It is okay to cut loss and move on.

Historical data has shown that only a small group of super investors are able to achieve market-beating returns consistently year after year.  For the rest of us, we are better off investing our money in low-cost ETFs and holding them till retirement.

So why do I still engage in active stock picking?

The main reason is because I enjoy the process of analysing a business.  I like to find companies that are able to profit their shareholders handsomely over time.

Needless to say, I do not have a perfect track record of picking multi-baggers.  There have been times when the original investment decision looks smart, but as circumstances change, the company is no longer attractive.

One example is SATS Limited (SATS).  This company is no stranger to many Singaporeans.  SATS provides aviation catering as well as gateway services at several international airports and Marina Bay Cruise Centre.  SATS also deals in commercial catering and air cargo handling.  If you have eaten a meal onboard Singapore Airlines, you would have eaten food prepared by SATS ground staff.

When I first invested in SATS, the company had very healthy margins and a low debt burden.  Unfortunately, the COVID-19 pandemic grounded air travel to a halt and SATS suffered a massive loss during the period.  The company had to retrench staff and withhold its dividend so as to conserve cash.  These are understandable measures for the firm to survive through the crisis.

But when SATS acquired Worldwide Flight Services at a hefty price tag of 1.3 billion euros (S$1.9 billion), the company had to issue new shares and take on significant debt, which changed the financial health of the company.  Despite the recovery in international air travel, SATS has yet to turn in a profit.  With a heavier debt burden and inflationary costs eating into its margins, there is no guarantee how long SATS will take to return to the same level of profitability in its golden years.

The market is aware of SATS' predicament.  The stock has been stuck in the $2+ range for some time now and has not been able to recover to the height of the $4+ range in the past.

5-year price chart of SATS Limited.

When a company's situation has changed significantly, it is imperative to review whether your original investment rationale still holds.  If it does not, then the stock should be sold.

In December last year, I sold my position in SATS at a loss.  It was a painful decision, but I figured it is way better than having to pray continuously for the day when SATS can achieve positive shareholder return again.

So here is Lesson #2: When things have changed for the worse, don't dither and hope for a miracle.  It is okay to cut loss on your investment and move on.


3. It is okay to be a lonely investor.

Singaporean investors are a dividend loving bunch, and S-Reits appeal to many people for their high yield.  It is common to find fellow retail investors holding the same S-Reits in their portfolios.

On the other hand, our local small caps are not well covered by broker analysts and liquidity is low most of the time.  If one has found a highly investible candidate, chances are nobody in your social circle knows about it, let alone holds it in their portfolio.  Hence, there is no comfort of the masses to speak of.

Either one ends up as an astute investor when the price soars after market recognition of its hidden value, or one ends up as a fool for buying a dud that remains rangebound in price.

Given the above outcome, will you still consider investing in small caps?  Will you still want to be a lonely investor?

For me, I have decided long ago to go on ahead and invest in the small caps anyway.  This is why you will see a few lesser known entities in my portfolio.  Even if the stock fails to garner public attention, as long as the company remains profitable and financially strong, and the management act with shareholders' interest in mind, I will gladly park my money in the stock.

And this is Lesson #3: Trust in your own analysis and buy the small cap stock.  It is okay to be a lonely investor.


I hope you have found some food for thought from the three lessons above.  I know my younger self would.

Thank you for reading.

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Don't throw caution to the wind for S-Reits

The financial world - broker analysts in particular - have turned bullish on S-Reits as a horde.  You can read about their upgrades [here], [here], [here] and [here].

What's with the sudden exuberance?

The answer: Words.

Literally.

Post the 12-13 December 2023 meeting of the U.S. Federal Reserve, Federal Open Market Committee (FOMC), a press release was made.

Here is a snippet from the official statement:

"The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run.  In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent.  The Committee will continue to assess additional information and its implications for monetary policy.  In determining the extent of any additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.  In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans.  The Committee is strongly committed to returning inflation to its 2 percent objective." [emphasis mine]

If you have read the above paragraph attentively, you will notice that the Fed did NOT say, "That's it, folks.  We are done jacking up interest rates.  On the other hand, we will start cutting interest rates in 2024. Bring out the champagne!"

And yet, the financial world chewed on the announcement, consulted the stars and reacted as if the rate cut is a sure thing.

Granted, the Fed's latest dot plot, which shows the interest rate projections of individual FOMC members, highlighted the possibility of 75 basis points easing in 2024.  But we ought to remember that these are merely projections and not set in stone.

Interestingly, the Minutes of the December meeting [here] showed that the FOMC members had gone through the trouble to choose their wording carefully, so as not to cause the animal spirits to run amok:

"Members generally viewed the addition of the word 'any' to this sentence as appropriately relaying their judgment that the target range for the federal funds rate was likely now at or near its peak for this policy tightening cycle while leaving open the possibility of further increases in the target range if these were warranted by the totality of the incoming data, the evolving outlook, and the balance of risks." [italics mine]

The market heeded the front part of the message and threw away the rest.  The Fed had emphasized that any rate decision will depend on incoming economic data (which is what the Fed has always done).  The latest U.S. inflation print came in at 3.4% y/y on Thursday, higher than the previous month's 3.1%.  If the number continues to persist around this band, while no risk to the economy emerges, there is a chance that the Fed is going to sit pat on their hands and do nothing to the federal fund rate for now.

According to CME FedWatch, four out of five traders think the first easing will happen in March.  Most participants are confident it will happen by mid-year.

There are financial experts who think that the Fed may have to cut interest rates steeper than expected, such as JP Morgan Asset Management [here].

Regardless, I play the Devil's advocate, and question WHAT IF the U.S. inflation remains sticky and the rate cut does not happen until after June?

This means any relief is only likely to come in the later half of the year.  Hence, it may be prudent not to throw caution to the wind for S-Reits just yet.

The impact of high cap rates has yet to be reflected in the property valuation of most S-Reits.  Last month, Elite Commercial Reit reported a portfolio valuation value that was 11.5 percent lower than the previous year [here].  Meanwhile, Manulife U.S. Reit reported a 8 percent decline in property valuation [here].  Not to forget the warning by CapitaLand Investment of the significant valuation decline for the past financial year [here].

Add to the fact that most S-Reits will have to refinance their debt at a higher cost this year with no certainty that salvation is just around the corner.

In short, go into any trade with your eyes wide open.  Things can get messy before they get better.  But don't take my word for it.

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Don't predict the market. Stick to the plan.

Endowus CIO Samuel Rhee penned an op-ed in the Business Times today, titled "Market predictions could go awry; stick with long-term investment plan" [here].

He reminded how the market forecasters were so pessimistic at the start of 2023, but the major equity markets had actually ended the year higher.  He also shared a quote from the famed American economist John Galbraith, who humorously categorized the crystal ball gazers into two groups:

Samuel Rhee ended with some sagely advice for investors, and that is to "let go of what we cannot control - the market direction, economy, or the circumstances of war and pandemics.   Focus on the only thing actually within our control: our behaviour."

I couldn't agree more.  Through my years of investing, I had never gotten the timing of my stock purchases and sales right.  I had bought shares that continued their decline in price significantly before reversing; I had sold positions, only to see them climb higher the next day.  What lousy timing!

Recently, I read a book written by a local investor and financial coach.  It was published in November 2011.  In the book, he had made a bold prediction that the next global financial crisis was likely to hit as soon as late 2011 or in 2012.  The financial expert had sold his equity positions and was holding cash to take advantage of the crash when it occur.

But surprise, surprise, the stock markets did not crash in 2012.  On the contrary, the S&P 500 Index rose steadily over the next five years (2012 to 2017), ending the period with a 112 percent gain.  Factor in the dividends and the index had a total return of 140 percent!

The dip only occurred when the COVID-19 pandemic struck in 2020.  Even then, the S&P 500 Index was still higher than where it was at the start of 2012.

Humans are poor predictors of the future.  We suffer from all sorts of fallacy, including recency bias.  We never know what will happen to us the next day, let alone nail down the next stock market upheaval.

The late legendary investor Charlie Munger once quipped, "All I want to know is where I'm going to die, so I'll never go there."  That is a wonderful wish, albeit one that will never come true.

So I am going to ignore where the market is heading and focus on my game plan instead.  I will search for companies with solid fundamentals, determine the share price I am willing to pay, put in the order and let time do its compounding magic.

And I am going to hold the stock for as long as my rationale for buying it is still valid, global financial crisis or not.

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You may lose if you do, but I guarantee 100% you will not win if you don't

We can draw many valuable lessons from the world of sportsmanship.

Athletes spend years going through sheer rigour to hone their skill, in order to make it to the top of their league. Some of these epitomes of success offer precious pearls of wisdom that we can apply in life.

My favourite quote comes from Hockey Hall of Famer, Wayne Gretzky. It states,

"You miss 100 percent of the shots you don't take."

This statement describes neatly the menace that stops investors from acting decisively - fear.

Often, when the price of a share has retraced to our target level, we refuse to pull the trigger because we fear that once we bought the stock, it will get cheaper and we look like a fool who paid more than the next person.

The market has an ominous name for this phenomenon. It is called, "catching a falling knife".

And it can get worse - When we miss the chance to buy and the share price bounces back up, the fear evolves into an uglier monster - regret.

While fear nibbles at our heart, regret takes a big bite.

At the moment of decision, it can feel like we are caught between a rock and a hard place. To buy, or not to buy? To click on the button, or wait?

Hesitation leads to paralysis, and before we know it, the chance slips us by.

Through years of investing, I have found two methods to deal with the malaise.

The first method is simple - take action. Shut out that inner voice. Feel the fear and do it anyway.

Frame it in another perspective:

You may lose ($$$) if you do (buy the stock), but I guarantee 100% you will not win ($$$) if you don't (buy the stock).

Pain is inevitable in life. Suffering is optional. There is a risk in everything. Even eating involves the risk of choking.

The best we can do as investors is to minimize the calculated risk taken, and maximise the probability of a win.

Which brings me to my second method of dealing with fear and regret - preparation.

I cannot emphasize enough - a good investor does his/her homework. He/She knows the right companies that fit his/her investment criteria. Any purchase is planned and not made on a whim.

A good investor should also have a clear idea of the limit price at which he/she is UNWILLING TO PAY for a stock.

When you are aware of the price boundary marking the forbidden zone, the rest of the region is opportunity land.

Both methods work in conjunction with each other. Unless we have good knowledge of the companies we want to invest in, and take action when the opportunity strikes, we will never be able to achieve our intended goal. Financial freedom will always remain an elusive dream.

Given a choice, I will take reality, warts and all anytime.

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Jerome Powell got to wear the black suit and dark tie

I was tickled as I read an article on Bloomberg titled, "Fed Mulls ‘Game Changer’ to Jolt Inflation: Decision Day Guide" [news].

The quote in the title came from Chief Economist Vincent Reinhart at Dreyfus and Mellon. He was describing how the U.S. Fed Chairman Jerome Powell will have to present himself at his upcoming June 22 and 23 semi-annual testimony before the U.S. Congress.

Spiking inflation in the U.S. has bristled many U.S. lawmakers. Since the mandate for the U.S. Fed is to control inflation, it is fair to say Powell has perhaps the most stressful job in the world right now.

For sure, the U.S. Fed is going to hike the Federal Fund Target Rate in tonight's FOMC meeting. The question is by how much?

Some professionals think an increase of 50 basis points is still on the table; CME Fed Fund future traders believe a 75-basis point increase is more likely [data]; yet, there are a few extremists who believe a 100-point hike cannot be ruled out either. [news]

None of the above three choices will satisfy investors completely. So a massive reaction in the equity market is not unexpected.

Hang on tight for a long roller coaster ride.

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CME FedWatch Tool

I was watching the Asia First programme on CNA this morning when the presenter talked about CME's FedWatch Tool [here].

As explained on the website, the FedWatch Tool calculates unconditional probabilities of Federal Open Market Committee (FOMC) meeting outcomes to generate a binary probability tree.

The probabilities of possible Fed Funds target rates are based on Fed Fund futures contract prices assuming that the rate hike is 0.25% (25 basis points) and that the Fed Funds Effective Rate (FFER) will react by a like amount. (For more information on the methodology, click here.)

CME FedWatch Tool.

What interested me was that based on the data at time of writing, the market is pricing in a 96.8% probability that the U.S. Fed will hike 75 bps - yes, 75 basis points, not 50 anymore - during tomorrow's FOMC meeting.

Figuratively, it is no longer about the U.S. Fed slamming the brakes on the economy. It is about the U.S. Fed throwing everything, including the kitchen sink in an attempt to tame the runaway inflation.

I'm not sure if the prophesied recession will materialize or not, but the simple fact that the U.S. Fed is hiking interest rate faster than previously expected means that perception will change within the population.

When a person thinks the near-term future is going to be financially challenging, that person will likely adopt a series of actions to mitigate the effect. For business owners, this means manpower hiring freeze or holding back on business expansion. For consumers, this means cutback on unnecessary expenses or simply saving more.

All of these actions will have a follow-on impact on the economy and companies' top line. When profits are squeezed, further mitigative actions are taken and the tightening cycle goes on.

Hopefully, the fear does not spread maniacally, and we can avert a recession, even by a slim margin.

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The True Investor Welcomes Volatility

Sharing a quote taken from the book, "My Warren Buffett Bible" compiled by Robert L. Bloch [emphasis mine]:

"In fact, the true investor welcomes volatility ... because a wildly fluctuating market means that irrationally low prices will periodically be better attached to solid businesses. It is impossible to see how the availability of such prices can be thought of as increasing the hazards for an investor who is totally free to either ignore the market or exploit its folly."

- Warren Buffett

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Recession or not, solid businesses will survive and even thrive in difficult times. It is a boon that valuations have finally come down to attractive levels.

Hope you are ready to take advantage of buying opportunities. Feel the (market) fear and do it anyway.

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In investing, learn to lean into the wind

If you read market commentaries, you will know there are many trade suggestions that contradict each other.

For example, when there is a selloff, some investment advisors will encourage us to "buy the dip"; others will warn us not to "catch a falling knife".

When there is a rally, some fund managers will enthuse "the bull run still has legs" (whatever it means); others will caution this is a "dead cat bounce".

So who is right? Who is wrong? The answer is anybody's guess.

And honestly, you shouldn't care.

It is this potpourri of conflicting perspectives in the market that billions of dollars worth of shares change hands daily. [data] If everybody believes a stock is going to go one direction, nobody will be willing to take the other side of the trade.

Professional portfolio managers have learnt to take a stand - bullish or bearish, risk on or stay defensive at any point in time. Their PnL and their future career prospects depend on it.

As retail investors, we should have our own view too, be it right or wrong. When you are indecisive and always looking out to others for a lead, your mind will be like a reed in the wind - shaken by changing opinions, none of which is yours.

Are you like a reed shaken in the everchanging wind?
(Photo credit: Unsplash)

We ought to ignore the chatter and formulate our investment thesis based on logic and data. Here is what a savvy bottom up stock picker would do:

1. Retrieve the figures from company financial statements.
2. Derive the valuation ratios.
3. Compare result against history and peers in the same sector.
4. Decide on companies to invest.
5. Decide on price to buy and sell.

It may sound tedious, but it does not have to be manual. There are ready stock screeners out there that can perform the number crunching.

If even a screener sounds too scary for you, and you prefer to get stock recommendations directly, the least you can do is a fact check on other people's findings. Trust, but verify.

It is only through our own effort that we build up sufficient conviction on a company. It is only through our own analysis that we know for sure whether a stock is cheap or expensive at the current price.

When you have gone the mile to complete the homework, I'm sure you will feel more at ease when you put in the order. This is especially critical when everybody else seems to be heading for the exit.

Even when you invested and the stock price moves the other way, you will feel personally responsible, and not point the finger at others. Since the onus lies within you, you can take action and not be hapless.

You can review the information and see if you had missed out an important point. Is it an idiosyncratic company risk? Or is it broad market sentiment in general? If there was a mistake, you can learn from it. If there was none, you can stand firm in your belief. Either way, you are on track to becoming a better investor.

The money is yours. The financial freedom is yours. No one is obliged to realize your dream. Not your broker analyst; not your blogger next door.

Learn to invest with a view. Learn to lean into the wind. Face head-on towards volatility with confidence from your own research. It is a more comfortable position to be than being tossed around like a reed.

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An Economic Hurricane on the Horizon

I was reading on CNBC when I came across an article titled, "Jamie Dimon says ‘brace yourself’ for an economic hurricane caused by the Fed and Ukraine war" [article]

The head honcho of JPMorgan Chase was speaking at a financial conference in New York on Wednesday when he uttered,

"You know, I said there’s storm clouds but I’m going to change it ... it’s a hurricane ... You’d better brace yourself ... JPMorgan is bracing ourselves and we’re going to be very conservative with our balance sheet."

An economic hurricane on the horizon? (Photo credit: Unsplash)

These are very strong words indeed. It seems the global investment bank is preparing its clients for not just a downturn, but a huge slump in the economy and the markets.

Sadly, I don't have excellent foresight as Dimon, so I cannot say for sure whether this economic disaster is going to strike or not. But if history is any guide, I would say our local stock market hasn't baked in any of that possibility.

During the 2007-2009 Global Financial Crisis, the Straits Times Index (STI) declined 62% from peak to trough (11 Oct 2007 to 9 Mar 2009).

During the 1997 Asian Financial Crisis, the STI also retreated 61% (17 Feb 1997 to 4 Sep 1998).

Right now, the STI has only fallen 6% from its peak on 5 Apr 2022. We still have a long way to go when the shit hits the fan.

Naturally, such a recessionary event does not manifest quickly, not like when the COVID-19 pandemic struck and STI crashed 30% within the span of one month. It would be akin to a tango between the bulls and the bears - one step forward, two steps back.

In any case, it is always good to be mentally prepared for a precipitous drop in your portfolio market value, and have emergency funds set aside for unexpected expenses.

Personally, I maintain some liquidity in my DBS Multiplier account to tide over any unforeseen circumstance. I also have a separate cash stash for investing in the companies on my watchlist if and when the prices hit my target entry level.

As the cliché goes, be greedy when everybody is fearful. Our mettle as savvy investors may well be tested soon.

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A Question to Myself

Pondering a question out loud to myself:

The underlying resilience in the Straits Times Index (STI) is mind-boggling. Are local investors truly oblivious to the worsening global outlook, or do they believe Singapore can emerged unscathed when other countries are suffering?

We shall see.

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In investing, a half-truth is worse than a whole lie

I once read a satirical article on how to market a stock newsletter successfully. It goes something like this:

Take 1,000 free subscribers. Split them into two groups. For 500 of them, make a bold declaration that Company X's earnings will be so disastrous, its stock price will crash at least 5% overnight; to the other 500 subscribers, declare that Company X's result will be so wonderful, its stock price will rise at least 5% overnight.

If Company X's earnings proves disastrous and its stock price crashes at least 5% overnight, take the 500 subscribers who received your accurate forecast, split them into two groups again. To 250 of them, declare that Company Y's earnings will be so disastrous, its stock price will crash at least 5% overnight; to the other 250 subscribers, declare that Company Y's result will be so wonderful, its stock price will rise at least 5% overnight.

If Company Y's result turns out better than expected and its stock price soars at least 5% overnight, you should now have a group of 250 subscribers who are fairly convinced of your predictive power.

To those 250 converts, market your stock newsletter at no less than $100 per subscription. If you have 100 of them who sign up, you will have earned $10,000. Not bad for two hours of work.

I hope you can see how evil selective omission of information can be. What then, is a whole lie?

That will be the facade staged by the Bernie Madoffs and the Ng Yu Zhis (of the nickel scam saga) of this world. Unfortunate as the victims may be, at least the truth came to light and the perpetrators were put behind bars.

But those 100 paying subscribers will never know the truth. They may remain faithful to the guru, even if later predictions turn out to be inaccurate (a.k.a. the sunk cost fallacy).

There are two morals to take away:

First, always read every stock opinion you found on the Internet with a pinch of salt (including this author's blog). You are entitled to reject the thesis, but are strongly encouraged to consider the FACTS presented about the company, especially if they run counter to your view. This will ensure you arrive at a balanced judgement of the company;

Second, nobody has a crystal ball into the future. Before you sign up for a stock newsletter or an investment course, be clear on the end goal. You should try to get behind the thought process of the investment coach, so that you can apply it in your own analysis. If you are looking for quick and easy profits like copy trading, you are bound to be disappointed over the long run.

A healthy dose of objectivity and scepticism will make us better investors.

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All eyes on the U.S. CPI number tonight

A quick post here to note the tense atmosphere in the market. It is fair to say all eyes are on the U.S. CPI number tonight.

U.S. CPI hit 8.5% YoY in March 2022 - the highest level in the past 40 years. The professionals are saying that inflation has likely peaked, and April figure should be lower. Bloomberg consensus pencils it at 8.1%.

I am thinking aloud how the stock market can swing. If the figure is higher than act. 8.5%, another selloff may occur; if the figure is lower than est. 8.1%, a relief rally may occur.

Either way, volatility is here to stay, which means possible opportunities to load on quality stocks.

Keep your cash ready.

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When I Can Be Wrong About the Market

I have a base case where a worsening global inflationary environment causes earnings to drop for listed companies.

Moreover, Singapore's major trading partners are facing risks of their own:

- Prolonged COVID-19 lockdowns may slow China's 2022 economic growth;
- Europe faces an energy crisis from Russia's threat to turn off its oil supply;
- The U.S. faces a possible recession due to over-tightening by the Fed.

Most equity indices have reacted accordingly. The S&P 500 Index is down 13.5% year-to-date. The MSCI Asia Ex Japan Index is down 16.7%. The Hang Seng Index is down 14.5%. The CSI 300 Index, Nikkei 225 Index and the KOSPI Index are all underwater too.

The only exceptions are Indonesia's JCI (up 9.8%) and Singapore’s STI (up 5.4%).

The STI's gravity defying feat is puzzling. It is as if Singapore has become unhinged to global developments.

One may argue the Singapore bourse is light on tech listings, and hence spared from the carnage. The STI is dominated by banks (45%) and Reits (13%). Banks are beneficiaries of higher interest rates, while Reits are viewed to be good inflation hedges.

The alternative view is local investors are still drunk on the country's re-opening optimism. Increased costs have not hit companies' bottom line and consumers' pockets yet.

Over the past few months, I have trimmed my stake in companies like CapitaLand Investment, TheHourGlass and Singtel as the stock prices rallied higher. I have been waiting for an opportunity to load up when prices retrace lower.

So far, the expected selloff did not materialise. This led me to wonder whether I have been wrong about the market.

A recent Bloomberg article [here] commented investors are turning to Southeast Asia's stock markets as one of the best places to park their money right now. This could explain the resilience seen in the STI.

I may be a fool to hold on to cash as inflation climbs higher. Nonetheless, it is still early days of the downturn (if any), so I am going to bide my time.

This post is to pen down my thoughts, and as much to convince myself on staying committed to my investment strategy.

Thanks for reading!

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Passive Investing Has Gone Too Far

I was reading on Bloomberg today when I found an article titled, "Elon Musk and Cathie Wood Say Passive Investing Has Gone Too Far" [link].

Both are well-known personalities, albeit in different arenas. I would understand why Cathie Wood, portfolio manager of the actively-managed ARK Innovation ETF, has an axe to grind against passive investing. But it is rare to see Elon Musk comment on the same topic.

Passive investing in the form of Exchange Traded Funds (ETFs) has grown over the years. According to Statista, the AUM parked under global ETFs has exceeded 10 trillion U.S. dollars in 2021 [link].

The growth has been most significant over the past two years, when COVID-19 restrictions forced people to stay home. According to a study by FINRA, more retail investors had flocked to the equity market during the pandemic [link].

I suspect the same reason also explains why there is a greater interest in cryptocurrencies and non-fungible tokens now among the general public.

The argument that active investors help to maintain accurate valuation of a listed company is one I have heard for a long time. If there is a shortage of investors who trade on the counter day in and out, the price can deviate significantly from the appraised value.

A dearth of active investors will give more clout to ETF managers. When a company is added to the index, the stock receives a huge boost in demand. Conversely, when a company is removed from the index, the stock suffers a huge selloff, as ETF managers rebalance their portfolios.

Such market-shaking price movements have nothing to do with any change in the business. This is the beef that Elon Musk has with passive investing.

Unfortunately, the siren song of ETF investing has been well ingrained into the mind of the general public. ETF AUM is set to grow, giving even more sway to ETF managers on the vested companies, including board seats.

The above phenomenon is neither good nor bad. It depends on how ETF managers exercise their power when they are in a position of influence on the company. We can only hope for ethics and good judgement.

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Addendum:
CNBC wrote a more detailed piece on the same topic [here], which included a grim warning by Jack Bogle, creator of the first index fund and widely known as the father of passive investing.

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Better an Approximate Hit Than a Precise Miss

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.

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