Tag: t_hardLesson

##keyVariable] %%bets #bigTicket++

Posted on by tiger40490

The pattern — In each investment decision, we are actually betting on one or two key “Variables”. After the dust settles, we can see which  Variable actually dominated.

I prefer specific words for each Variable. For example, MarketRisk is a vague, generic phrase.

— MSFM: (not a financial bet) variable is SnD of quant talents .. poor bet
— FXO: Variable was USD/SGD
— Jill’s HY/PE: good bets for the first deals. Luckily I minimized the quantum. Looks like Variable is credit risk.
— US HY bond mufu: Variable is segment sentiment (part of mkt risk)
— PLIP: if Sora (the likely Variable) remains low for 8+ years, then PLIP would be a good decision.
— Blk177: good bet. Variables were 1) market risk including rental 2) prime (HDB heartland) location
— BGC:

  • Variable 1: rental yield .. much lower than expected. Poor bet.
  • Variable 2: timely completion (developer)… Many construction projects got delayed. BGC was delayed by a few years but I still count myself lucky
  • Variable 3: SGD/PHP… Not too bad.

— Cambodia units:

  • Variable 1: GRR credit risk of the developer .. good bet
  • Variable 2: location .. neighborhood growth momentum .. not bad, largely thanks to China investment
  • Variable 3: timely completion (developer) … Good bet
  • Variable 4: efficient title transfer process.

Some may say a key variable is the developer’s credibility, but I think such a variable is too vague to be useful. I feel I bet well on MIH, much better than Megaworld.

3episodes@ non-recreational trading

Posted on by tiger40490

[d=non-positive DYOC while holding]
[c=commission, or bid-ask spread was high in terms of percentage of investment amount not notional]
[m=margin account requires daily check, like a crying baby…]
[q=profit too quick and possibly unreal or unsustainable]
[t=time is NOT on my side]

Q1: how many months/years could I possibly hold a position?

— #1) [cdmqt] 1997 commodities for a few months
A1: months
— #2) [cdmqt] Saxo FXO for more than a year
A1: months, up to a year
— [dt] Oanda for a few months since late 2014
More recreational than earlier episodes.

Securities: mostly USD/SGD, but also a bit of gold and oil futures.
A1: 1Y+ for gold, oil. For USD/SGD, perhaps months

— #3) [q] Robinhood
Thank god the pre-clearance helps keep it more recreational.

A1: 1Y+, hopefully longer, as bulk of my assets have positive DYOC, allowing me to buy-n-forget.

==== txCost, NRY: 2 underrated advantages .. provide a significant margin of safety. When other investors experience losses or liquidity issues, I am often spared. Most people underestimate these advantages. Instead they focus on the overrated DRIP.

With commission costs and zero-div stocks, the entry-price/timing decision is more risky, more error-prone, more intimidating, less fun. I often become paralyzed by the due diligence. The dividend payout is a huge psychological and economic cushion against NAV drop or regrettable entry-price.

Similarly, rEstate investment without rental yield is more risky.

— small transaction costs (one-time or periodic) do add up .. Some investors (like Kun.H) seem to dismiss these costs esp. commissions, in their pursuit of 中长线 strategic trends. In contrast, My MOETF “system” and HFT systems rely heavily on the commission advantage. Some HFTs even earn a rebate from exchange for providing liquidity.

Upfront commission and expense ratio are the two best-known transaction costs. Other small transaction costs:

  • FX exchange costs
  • fund transfer costs between institutions.
  • taxes

wiseInvestor[def]: RPR profile #zqbx^xx #w1r2

Posted on by tiger40490

Interns can hit more profits, perhaps by trading cryptos or hot tech stocks…

pain (as opposed to risk and reward) also includes anger.

As I grow older, I am more aware of my pains in investment.
10% loss generates more pains in me than 10% gain can generate happiness.
No pain no gain. I still have 40Y+ to live, so I need to take on some risky assets such as SP500, or Sgp rEstate

k_investor_selfEval

See also

Too broad to be useful? Will focus on my idea of wise investor [mellowing up], which is mostly about 1) breakaway from convention wisdom, or wrong priorities [i] … and 2) risk profile self-discovery.

In addition, 3) Pain is also center stage of becoming “wise”, but behind the scene and less talked about. Various psychological pains [including stressors] are part and parcel of investing.  Those pains need to be  managed. Unexpected, unmanageable pain can be classified as One special risk.

[i]A wise investor understands that her own priorities [Risk/Pain/Return profile] are subtly unique and invariably different from the stereotypical investors. Therefore, a lot of “other investors’ priorities” are the wrong priorities for her. see also

— risk: over-commitment of personal time… A wise investor recognizes the risk of regrettable ROTI, even with the firewall intact
— risk: infatuated investors .. wise investors understand this tendency in herself
— risk: liquidity risk .. often requires large allocation to low-return assets. See make every dollar work hard4us @@
— other risks not specific to the “wise investor”:

  • long-term inflation risk .. See my Nov 2021 mail to Edmund
  • personal legal risk .. A wise investor would not lose sight of this risk.

— pain: stressors in eq-investing has a small section on “wise investor”. A wise investor would notice her internal stress sensitivities and work on stress prevention/reduction/protection.

Disambiguation : in this blogpost, “risk” refers mostly to financial risks; mental/health risk is classified as psychological pain.
— pain: firewall .. handles multiple risks and pains that I won’t list.
— pain: missing the boat on some high-growth assets
pain: FOLB by the cohort
— pain: setbacks .. (various types) A wise investor accepts them as facts of life in investing. She could choose to avoid certain assets forever [FXO, commodity futures..] Like R.Xia, she could decide to stand back and watch certain hot assets after losing money. No right or wrong.
— expected return .. if (a big if) and when all risks are understood and under effective monitoring, then the target return is a simpler question.

To reduce risks and pains, for some wise investors (or older investors), risk_capital could be a very small allocation. The smaller this allocation, the less pain/risk. My HY/PE is one example. Therefore, expected return is largely determined by the personal pain/risk profile.

Non-risk capital would go into low-return liquid assets including contingency_reserve. Some wise investors would find the low return painful.

jolt: It’s no shame to allocate 90% to low-return liquid assets.

I want to be an aggressive wise investor, with growing equity portfolio and rEstate portfolio.

jolt: equity portfolio doesn’t have to beat SP500. A wise investor won’t insist on that as a priority.

hot assets .. require a lot of wisdom and cool-headed detachment. Missing the boat is quite common and acceptable.

Q: Is zqbx [working towards higher returns] or passive acceptance of low returns a quality of some wise investors? 
Jolt: A: yes to passive acceptance. Investing is not personal improvement, not a noble cause, so I don’t associate it with zqbx.  However, I don’t like “lazy” investing. Some due diligence, some PP learning (separate section in this blogpost), some personal growth is part of being a wise investor. It requires effort, focus and dedication, but not zqbx.

— learning .. is a valuable bonus, not always necessary and not always possible.
Jolt: A wise investor may invest in 9 different “things” and learn nothing in depth from half or all of them. Note the different types of learning
— xpSelf has joys from learning and at moments of “short-term”[ii] profits like doses@delight. A wise investor recognizes that. By definition, a wise investor is 100% judged by the rmSelf.. These joys may not be significant to the evaluative rmSelf are are mostly forgotten.

[ii]In contrast, “long-term” profits by definition are very few, and much harder to achieve. For example, I had many joys with Jill’s HY/PE, and FXO, but mostly forgotten. The long-term result seems to be  a negative return.
— what experts to trust .. lots of theories make sense but are not really practical. Some academic theories have limited validity — most eq investing theories use U.S. stocks only, with a few (to a few hundred) thousand data points only. They don’t even recognize regime change.

— small number of experiences.. I told Caroline of  Propnex that most rEstate investors are not wise because we can’t try too many times, esp. compared to stock investors. After one or a few tries, we are experienced, but not necessarily wise.

Buffett said each person has a punchcard and 20 punches to make, and a few good punches would be enough!

==== some patterns of my bad bets. (I keep this section here as relevant.)

  • tx costs.. see https://tanbinvest.dreamhosters.com/18406/3episodes-of-non-recreational-trading/
  • non-positive DYOC .. see https://tanbinvest.dreamhosters.com/18406/3episodes-of-non-recreational-trading/
  • HY/PE poor transparency or regulation .. But German PE, Dr Soo’s first, E12 .. didn’t fail.

See also ## key variables in my bad/good bets
— eg sReit .. good transparency, highly regulated.
The blue-chip sReits have good bid/ask spread
— eg bccy .. bad bid/ask spread and fees; zero DYOC; poor regulation
— eg (neutral experience) US HY mufu .. real net DYOC was 1-3% considering fees and NAV erosion

underestimating market jumps, overconfident in historical price band

Posted on by tiger40490

First big lesson was 1997 commodity trading, after industrial attachment, before I took on an office boy temp job at Nippon Steel. Historical high prices in copper, soybeans etc. To cover my margin, I dumped all of my family’s savings (about 50k) into the margin account. Then I realized only money I keep OUT of that account is safe from market swings and gigantic jumps, which I have no knowledge whatsoever. Any sense of confidence and insight about that market was all illusion.

I realized that with margin trading, I needed to define a max “affordable” loss.

2nd experience was my 2013 FX option writing. To avoid commissions, I wrote twelve U$50k short calls. Total notional $600k. I thought all positions were deep OTM but many became close to the money or ITM. From that experience, I learnt to use smaller contracts each time, even deeper OTM, long-dated, and reduce total exposure. Still, I was unprepared for ….

3rd experience – when USDSGD strengthens to 1.34, my margin utilization shot up to 80%. Exposure was around U$200k, including $140k deep OTM – sounds safe but I underestimated the FXO margin calculator. Either the delta margin or (more likely) the vega margin was many times higher than I thought. I had no idea about that margin calc. All guestimates. Now I guess (again, no evidence) to earn $500 premium, we may need $10k of capital reserve.