As from April 2013 my Journey in Investing is to create Retirement Income for Life till 80 years old for two over market cycles of Bull and Bear.

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This blog is authored by an old multi-bagger blue chips stock picker uncle from HDB heartland!

"The market is not your mother. It consists of tough men and women who look for ways to take money away from you instead of pouring milk into your mouth." - Dr. Alexander Elder

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Wednesday, 13 July 2011

Investing Made Simple by Uncle8888 (19)

Read? Investing Made Simple by Uncle8888 (18)

In Uncle8888 series (16) - How to invest and make big money in the stock market?

The key learning point is "Men who can both be right and sit tight are uncommon."


Uncle8888 also mentioned "Buy and Hold is Dead".

  1. Men who can both be right and sit tight are uncommon.
  2. Buy and Hold is Dead.
Two questions arise from the above two statements.

  1. Does these two statements contradict each other?
  2. Is statement No 1 useless advice?  (Brolp said: it's useless advice actually - when right sit tight. It's almost like saying when it's raining, bring an umbrella.)
The answers are:
  1. The two statements do not contradict each other.
  2. It is useful advice.
How does Uncle8888 know that when he is right and sit tight?

There are two conditions. Both conditions must be met before he can consider he is right.

Condition No 1: Early Bull in the Bull Market.
Condition No 2: Stock price doesn't look back at his purchase price level during correction.

If stocks are not bought during early bull in the Bull Market, the stocks will be eventually sold at the desired profit goal. In this sense, Buy and Hold is Dead if Condition No 1 is not there.

Even if stocks are bought during early bull in the Bull Market e.g. in early 2009; but subsequently the stock price corrected to near or fall below the original purchase. The stocks will be eventually sold for profits.

Only when both conditions are fully met Uncle8888 will know that he is right and will sit tight.

Do anyone think that the current market is an early bull in the Bull Market?

No. Right? So all stocks bought by Uncle8888 during this period are meant for sale.

Lastly, does anyone else still think that advice from Jessie Livermore is useless actually?

6 comments:

  1. Hi bro8888,

    Perhaps 'useless' is a bit harsh? It's more un-actionable, rather than useless. Actually I think an advice is more than just a one-liner. It may be catchier with a one-liner but the meaning is gone by condensing many conditions in which the advice applies into just one memorable sentence.

    When I say it's raining, bring an umbrella - that's a sound advice but it's not actionable. The question one will ask is how do we know when it will rain. You look at the clouds before going out, you check the weather forecast too, and if it's likely that it will rain, you bring out an umbrella.

    It's the same for the advice - be right and sit tight. How do we know if we're right? Your 2 conditions explain it further, and that advice is made more 'actionable' by the two conditions.

    But I would like to ask this:

    How do we know that the stock price doesn't look back to the purchase price level during correction? Has it not corrected to the purchase level or will it not correct to that level? Before it happened, it's impossible to tell, so it's only possible to say after it happened.

    If I bought A at $1 and it went up to $2, do I say that the price would not drop to $1 again, thus I would hold it tight? Look at cosco or swiber or longcheer or the infamous blue chip Chartered semiconductor.

    If I bought A at $1 and it went up to $2, and I sat tight and it came down to $1. Do I sell it because now the price of the stock went back to the purchase level, hence I conclude that 'buy and hold' is dead? What happens after I sell and it went back up to $3? Do I similarly lament that I shouldn't have sold it because 'men who are both right and sit tight are uncommon'.

    I hope you get the gist of my message.

    ReplyDelete
  2. direction of the market price is simply unpredictable. we can never know but guess.

    ReplyDelete
  3. Hello CW8888

    Ah! I agree that to be right and sit tight despite the normal corrections along the way is hard to practice - but that's the way to multi-baggers! Respect and envy the multi-baggers you have!

    And good dividends to boot! I prefer your way of looking for earnings growth instead of most dividend players looking at 12 months trailing yields.

    ReplyDelete
  4. Hi CW8888.
    Actually, i have been "practising" both conditions until now, for a US stock that was purchased once/month for only about a few months in 1983. i was working for a US company in Singapore then. Based on this US company historical stock's data, if i had joined this employee's benefit of subsidised stock purchase earlier by a year or less, this US stock alone will make me a Singapore's millionaire by now.
    Alas! It is not meant to be.

    So both conditions can be true if you happen to buy Micro-Soft, or IBM during on its IPO and intend to put it on "DRIP" when available.
    My US stock is still on "DRIP".
    Ha! HA!
    If only i worked for IBM or Micro-Soft. Don't even have to be at their IPO times.

    ReplyDelete
  5. Read?

    http://createwealth8888.blogspot.com/2011/07/simple-is-not-necessarily-simplistic.html?showComment=1310653539844#c1470344597416021496

    ReplyDelete

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