Category: buyStocks

##when2sell stock/ETF, as recreational investor

Posted on by tiger40490

The question about when to sell a given stock is multi-faceted. In recreational investing, the PnL is so far a minor factor, because my total committed amount is small.

Note the sunk tcost of research. Wiping out a stock 100% (too drastic?) would wipe out the learning. I would rather keep 0.1 share.

Sooner or later I would feel a pressure to sell some stocks. I wonder which j4 below would emerge as the first straw to break the camel’s back.

— j4 sell: need to free up cash ..

  • wipe clean .. RSP[$300], VTI, IEMG
  • reduce to smaller fraction .. DVY[$90],  ARKK, Verizon [$60] ,
  • reduce to 1 share .. TAK, LFC, GE, SPHD/SPYD,

— j4 sell: I foresee a crash? Completely against my buy-n-forget principle.
— j4 sell: get rid of fractional shares, to improve liquidity
— j4 sell: reduce exposure to uncomfortable sectors ..
— j4 sell: when too many forgettable names (small positions) on my portfolio cause distraction and interfere with my navigation. Therefore sell-ALL to wipe out one name at a time.

  • CARA? 90% BUY
  • SWBI? still recommended BUY
  • TCPC? excellent DYOC
  • TXMD? 100% BUY
  • Unit? 7% DYOC

— possibly overbought , considering the low CDY.

  • BGC 1%
  • CARA 0%
  • GE[$100] 0.3%
  • GM [$150] below 1%
  • Ford[$30] 0.5% … keep
  • HTA[$100] 4% .. keep

However, most of these names were recommended BUY and often well-known brands, bought in four figures by “other investors”. In hindsight, I should have stood back.

==== How to choose which name to sell
— criteria: Not a DYOC cash cow .. I won’t give up
— criteria: Not a (for wipe-out) household brand like Macy’s or Baba
— criteria: not a “recommended BUY”
— criteria: hopefully not in a growth sector like bio-science
— criteria: Not a prized, cherished triple-jumper (i.e. more than 200% price gain) like APHA TROX IVZ RWT OGI

  • It has almost an equal chance of further appreciation as other stocks.
  • I want to keep it as justification for MOETF system
  • Also, the price increment provides a buffer against a down turn. The protection (does grow with the increment) is defined as the ratio of increment/currentPrice. For example a 90% protection means my position would go underwater iFF the price hits 90% loss i.e. my current return is 900%.

buy-n-forget→ sleep]peace, focus@work

Posted on by tiger40490

k_babysit4exit

See also

Motivation  — hazards of stock investing

  1. Sleepless night and work distraction are the most serious hazards of ANY online gambling
    • Note tcost/distraction due to pre-trade due diligence is less or a concern.
  2. lost time/energy for workout; overeating induced by active investment
  3. lost time for parenting and academic coaching

These hazards are more stoppable during the due diligence. However, as your position builds up, hazards become increasingly burdensome, unwanted,,,,,, Therefore, Position holding should be a focus for risk management, tcost management.

In div investing, I want to practice buy-n-forget, and collect dividend. Buy-n-forget is my answer, my solution to the challenges.

—  In recreational investing … I want to sleep in peace every night
Q: as my committed amount increases beyond 10k, 20k, how do I maintain that peace?
A: buy-n-forget. steady passive income .. is the ideal I am seeking

ETF can help, since the constituent names are hidden.

— If I must list the G5 derailers for buy-n-forget

  1. #1 factor: size of capital
  2. DYOC above 4% .. in theory can be a shield against the hazards. Note leveraged positions often have negative DYOC.
  3. 100% upswing .. can be a temporary shield against the hazards.
  4. extreme (rare) volatility .. can derail buy-n-forget and cause loss of sleep

— case studies
Q: which past investments caused loss of sleep, loss of focus at work, or affected my workout or diet?
A: 1997 commodities day trading
A: 2013 FX Options

Q: which would become the first stock to cause loss of sleep etc
A: T:US?
A: XOM?

— url of this blogpost

https://tanbinvest.dreamhosters.com/wp-admin/post.php?post=17998&action=edit

div^capital_gain: which do you bet on@@

Posted on by tiger40490

Between dividend and capital gain, which *one* is your primary focus financially? Which one do you bet on? Choose one please.

— Betting on dependable dividend income for retirement .. is betting on the “business” to generate free cash flow.
After we pay $40 for a XOM share, we hope to receive around $2 payout every year, without worrying about the short-term fluctuations in XOM price, assuming we don’t need to sell.

— Betting on capital gain is betting on supply/demand, betting on sentiment, betting on collective human reaction to news.

In this bet, inherent profitability of the business (heart@valInv) is perceived like weather or another source of news.

For example, when Twitter banned Trump, investor sentiment turned negative but some reactions were positive. Energy news impact energy stocks in complex ways, due to investor reaction.

— buy-n-forget .. is harder for tech stocks.
Tech stocks, China stocks, financial stocks generate paltry dividend. So I am forced to monitor the sentiment and hope to escape before any crash.
— buy-n-hold .. is the default for dividend investors. During the long holding period, we hope to be lucky with DYOC.
— Market timing .. is much less important for dividend investors. They kinda watch for entry points. They don’t watch for exit points, except for reallocation/re-balancing.

Buying too high …. is kinda tolerable for dividend investors, as long as DYOC is well-maintained. This depends primarily on dividend cut/raise decisions by the business.

impulsive trading ] recreational investing #w1r3

Posted on by tiger40490

https://zerodha.com/varsity/chapter/impulsive-trading-possible-causes-and-cures/ is concise. “It’s important to remember that you must carefully monitor market conditions, and apply a trading method when it is likely to produce a profit. If a high probability setup doesn’t present itself, it is vital to stand aside.”

Affected asset classes: FX, but mostly stocks/ETF

— tcost for recreational investing .. Managing impulsive trading may have a non-trivial tcost. As recreational investors we need to accept the tcost. To a recreational investor, runaway tcost can be equal-to or bigger-than $cost as a concern. (As my confidence grow, financial risk-taking will grow.) For small orders, I need to strike a balance between two tendencies

  • ($cost) emotional, irrational, impulsive trading. This could also create tcost like distraction, lost sleep iFF the position becomes sizable.
  • (tcost) over-think, over-analyze, but no purchase in the end.

— other speed humps and speed bumps

  • hump: One way to mitigate this infatuation is side-by-side comparative analysis.
  • Bump: Limiting the concentration risk and aggregate exposure is another control measure. Infatuated investors like to “play big” and win big.
  • .. At Robinhood, the risk  capital on each stock tend to be small.
  • hump: Also, listen to friends, family and advisors, including Kun.hu.
  • Bump: A cool-down period has proven helpful in my experience. Pre-clearance is the most effective antidote for impulsive trading. However, compliance breach threatens my job security and represents the most grave danger, worse than trading loss
  • hump: fractional investing is another antidote . Instead of “stand aside”, I can commit $5 to $20.
  • hump: Incremental build-up reduces the pressure, stress of due diligence.
  • .. one extremely form of incremental build-up invests up to USD 20 in an unfamiliar stock, just to monitor it.
  • .. YES I should learn to embrace small positions on a stock after a 5min pre-trade effort (pre-clear, documentation..). Even though roti is low, this stand-aside is suitable for recreational investing.

low-div allure: blue_chips || hot_stocks[def]

Posted on by tiger40490

See also firewall to contain moetf volatility

— low-div blue chips .. There are many very strong and convincing blue-chips paying low CDY or unstable dividend amount.
I hesitate as buy-n-forget is hard .. If price climbs then starts falling, I may be forced to babysit my position.

— low-div hot stocks
In my blogpost, “hot stocks” mean “popular growth stocks”. All of them pay low or zero dividend, due to the high price. Most of them are speculative IMO.

Many tech stocks are hot stocks.

Is it permissible to buy a bit (possibly fractional) of each, in the recreational scheme?

  • $budget — $5 to $50
  • t-budget — 3 to 10m
  • .. pre-clearance is another t-budget
  • learning benefit — after I hold such a stock, I would monitor it once a few months, and pay some attention.

criteria:

  • analyst rating
  • distressed stock is best. Hot stocks often become distressed.
  • the name should be quite familiar to me, otherwise, the “learning” benefit gets lower as the number of my stocks grow. So a new name introduced up by a friend doesn’t qualify.

fake ECR due to end-stage shoot-up

Posted on by tiger40490

Compound return fallacy is the bigger framework

Criteria for ECR is as stringent as dynamic binding/dispatch 🙂

  • For 20+ years, every annual return must exceed the riskfree rate by 100 bps [2]
  • investor can top up but not withdrawal

From now on, I will mostly look at equities, esp. U.S. equities.

— the shoot-up .. When the annual returns are up-n-down, in hindsight we can still see a “fake exponential” curve due to one shoot-up period towards the end [1] of the holding period.

The growth curve is actually non-exponential, but at a coarse granularity, it looks exponential.

In reality, many investors miss that shoot-up phase. Their portfolio will be hopelessly non-exponential.

— [2] average annual return .. Compound return fallacy has more details.

Many analyses compute an average annual return from positive and negative annual figures. Then they plug this average into compound return formula — a blatant abuse of math. If you use the raw returns (not the average) to plot a curve it will NOT look exponential. — [1] Q: what if the shoot-up happened before the end of an observation window having up-n-down, i.e. the end phase is not shoot-up?
A: I believe the curve will NOT look exponential.

— effect of observation frequency
rEstate valuation changes quarterly, not daily. I only monitor my property NAV once a year at most.  Therefore, I don’t see up-n-down. If you have only 10 yearly observations in a time series, is it exponential?

DRIP to build snowball@@ #w1r2

Posted on by tiger40490

Compound return fallacy is the bigger framework.

— stock DRIP… There is widespread brainwash about the miracle snowball of ECP (exponential compound return) via DRIP

  • AA) For example, with XOM (or SPY), my uncle re-invests dividends every quarter. If my aunt chooses to receive dividends but do not invest further, then yes she would get no “snowball”.
  • BB) In contrast, I choose to receive dividends, but later at my own timing[1] invest the same [2] amount into XOM or unrelated stocks [3].
  • BB^AA prognosis ….. if I invest at least the same [2] aggregate amount as my uncle, and at least once a year[1], I won’t lose out to my uncle.

[1] My frequency is sometimes higher sometimes lower than quarterly. I always prefer to time my entry. About half the times, the DRIP default timing is not ideal. If my timing decisions turn out to be inferior to the default, I won’t blame anyone, but this won’t be a valid explanation for the “snowball” or the absence thereof.

[2] The amount I invest is often bigger than my uncle’s tiny dividends. High dividend years are over, so those “snowball” stories are outdated because nowadays the smaller dividends make the snowball growth slower.

[3] Usually, my “reinvestment” amount goes into a stock different from the original stock (XOM in this example), often a stock outside SP500. This diversification is usually beneficial, though it breaks the compound return paradigm. In fact it can beat the compound return snowball.

My uncle’s robot uses market orders, which are inferior to my limit orders.

One advantage of automated (robotic) DRIP is tcost. (Tcost is a different concern in recreational investing.) In view of that, I may need to reduce trading frequency..

— splurge .. Somehow the brainwash theory assumes that most investors who opt for cash dividend would spend the payout. Suppose the typical investor Cody spends $5000/M on average. When $770 dividend received in June, how much would Cody spend in that month? The brainwash theory assumes answer is $5770, because the dividend would feel like a windfall to be spent.

Well, I think the answer for some people is $5000. They save the windfall.

Actually, some investors simply leave the dividend payout in the brokerage account to buy more stocks. If they withdraw the cash dividend, then indeed there is higher chance of spending it.

dividend safety: naysayers #T, tobacco

Posted on by tiger40490

In my Jan 2021 mail to Tanko, I wrote “https://www.fool.com/investing/2020/10/08/could-att-cut-its-dividend/ is one of many analysts preaching caution against T:US.  At any time, there will be some bulls and some bears about T:us. I don’t take U-turns due to one article. But it’s fair to say that many investors view T:US as under threat.”

Q: how reliable is an annuity like Allianz Income Protector, SocialSecurity or CPF-life?
A: There are always naysayers. They point at inflation (uncertainties grow over long horizons), international interest rate risks, national fiscal policies, even trade wars! I mean, which country on earth is forever safe?

Singapore government has the will and the way to sustain the annuity. So does U.S. government and insurers.

Q: how safe is the dividend of T:US or any stock on earth?
A: At any time, there will be bears. They point at long-term risks, evolving competitive landscape,,,

I choose to look at the track record and I choose to trust the management. They have a moat, a brand, a high ground to defend and grow their business. Why would they have no choice but become a sitting duck?

No company is free of threats. Having a threat is not the same as surrender and implosion.  Yes many iconic companies have fallen (Yahoo, Motorola, Nortel, Nokia… in tech) but many more have survived multiple threats, crises and challenges.

Eg: “With the world-wide decrease in smoking in the 21st century, shares of Philip Morris were no longer considered the ‘safe haven’ they once were.” Personally  I would say this is a long-term trend, but in the 20-year horizon, my DYOC may stay above 4%. Question is “can NAV recover?”

— moat: strengths are relative, limitations are absolute.
context: In Value Investing framework, moat protect profit and dividend

For most moats, the strength is never absolute or permanent. We can only identify relative strengths.

  • T:US is one of the biggest phone networks
  • O:US has a large portfolio and strong reputation so it can attract reputable tenants, negotiate good lease terms. It also has good cash flow to withstand economic down turns better than competitors
  • XOM?
  • GE?
  • Baba?

signs@gambler: big bets@stocks

Posted on by tiger40490

Speculation/speculator is another word for “gambler”

Get-rich-quick mentality

— timing the (stock) market, as YLZ mentioned.
— reacting to news and sentiment of “retail hot money”
[[ irrational exuberance ]] and my RTS business analyst — “always recovers after down turn”
— short holding period. Day-trading is an extreme example. I like buy-n-hold to collect dividend
— infatuation, esp. in the property market
— gold investors are often gamblers, partly because 1) negative current-income 2) large positions 3) horrible bid/ask spread
In contrast, my colleague Gavin is a buy-n-hold gold investor.

— retail FX and commodity investors are often gamblers, trading news without understanding the fundamentals
I used USD/SGD FX trading for personal currency hedge in mid 2010’s, at a leverage of 1.0. That’s less speculative.

I feel bitcoin is a classic speculative asset.

— keep mortgage unpaid .. One of the most common j4 is to invest in stocks. Basically borrowing bank money to play stocks.
The most experienced stock investor I know, Kun.H, actually paid off his mortgage early !

— Huge enterprises betting big

  • eg: China Aviation Oil
  • eg: Nick Leeson
  • eg: national governments taking a stake in big banks? Not derivatives

— over-sized bets, like one of my young UChicago classmates (probably a rich kid). Many of these kids bet big on FX
I felt bad about my small bets in stocks and mutual funds, but it could be a good thing ! 

The lesser of two evils — I would rather tolerate poor ROTI, rather than betting big amounts.

If you want to build big positions, I feel U.S. ETF is safer.

One of the biggest price to pay is peace of mind…

prefer Limit close to the current px

Posted on by tiger40490

Now I feel limit order placed outside trading hours is better than night-time active trading. Save time and energy. Position a few fishing poles and check the status once a while. I would lean towards low limit-buy price

  • If limit price is too near the last price, you may get filled before a correction. I feel this is more regrettable.
  • If limit price is too much below the last price, you may waste your time on the research, but this is a small risk. You can always resubmit.

As explained in my jobjob blogpost on marketable limit order, limit price is an insurance protection.

— In NY offices, when colleagues are around, avoid trading during office hours

If you make a decision after work, submit GTC limit orders.

Even without colleagues, I still prefer order entry outside market hours. I can take my time to adjust my limit price. No stress.