Came across this and set Uncle8888 thinking loud too . Hmm ... and then ..
To answer this question: How long?
First, let us try to understand 3Ms in Investing: Method, Mind, and Money Management
Our Investing Mind: The Winner and Loser investing mindset and the way we as retail investor may like to think on winners and losers.
The Loser Investing Mind
When we bought a stock based on our investing Method; we will expect our self-defined decent yield with some capital gains in the near future; otherwise we will be waiting at the sideline for the "right" entry price.
But after we have bought; the stock price went south and farther south. Soon; we will be holding on this big loser. When we have held on to big loser year after year. It is matter of time, one day; we will change into Loser investing mind - I want to get out when I can!
That day has finally came when the stock price suddenly surges on good corporate news and begins to trend up, up and away. Now the uptrend soothes the Loser investing mind and soon looking to get out at the "right" time based on our Method e.g. "over-valued, Heng arh or whatever reason!
The Winner Investing Mind
Taking the same example as in the investing scenario in the Loser investing mindset i.e. When we bought a stock based on our investing Method; we will expect our self-defined decent yield with some capital gains in the near future; otherwise we will be still waiting at the sideline for the "right" entry price.
But; the stock price went south and farther south and then we will be holding on this loser.
However, the main difference is that this stock price has managed to recover in just a few months or less than one year and soon we are sitting on decent yield and good capital gains.
Winner investing mind in action now!
Then year after year; we are collecting our self-defined decent yield and also sitting on nice capital gains.
Sell for capital gains? You mean "Kill the Golden Goose for its Meat"?
Why kill a Golden Goose who lays Golden Egg when we are getting infinite yield?
This is how Winner Investing Mind thinks!
How Uncle8888 knows?
Posts
Arrrggghhh Uncle8888 .... so many lessons to learn here!!!
ReplyDeleteBehavioural finance: Endowment effect & Loss aversion --- explains why we hold on to losers too long, and develop Loser Investing Mindset.
But!!! Impossible to avoid & damn hard to overcome --- becoz of human genetic evolution & helped in survival of species e.g. perseverance, persistence, hope, loyalty, protecting & nurturing own kids/family/village/country.
Therefore, before you even invest 1 cent --- what is your EXIT strategy if it goes to hell???
Many people use technical --- cut loss, trailing stop, hard stop, trend following, momentum indicators -- you set your comfort zone, percentage size, timeframe, etc.
Many others use fundamental --- has business changed, economic cycle, disruptions in sector, changes in company strategies, senior management, re-analysis of financial reports, financial ratios, etc.
Your own example of your big 3 winners: Kep Corp, Semb Corp, DBS
Also highlights importance of valuation & timing!!!
What if you had bought them in 1999 and early-2000???
Losses of 40% after 3-4 years!!!
Will you continue to hold from 1999 to 2003???
So for everyone in today 2017 context --- e.g. holding $500K or $1M portfolio in stocks, REITs, trusts, ETFs, etc etc.
How will you handle when markets go down -10% or -30% or -50% over next 3 to 6 months???
If don't know answer, then something is wrong --- becoz you NEED to know answer BEFORE you invest!!!
Market timing is essential as it will eventually steer us towards Winner or Loser investing mind over long run.
Deletetemperament,
DeleteNot just you. Many (that includes me) have found out through bitter experience once upon a time darlings can become nobody just like that...
In the East, just look at Toshiba, Sharp, etc...
In the West, Nokia, Motorola, Blackberry, etc...
Now we see Apple like untouchable.
Well, that's what they say of SONY in the 80s with the Walkman. Now look at the share price today...
Same for CISCO during the dot.com craze. After 17 years, still have not broken even if one bought at the highs in 2000.
So much for long term investing...
And that's only 20 years.
Want to put money in CPF for child? That's like 50 years!?
20 years cannot even predict want to predict what kind of big daddy we'll have in 50 years?
What if we get a PM with his hand in the cookie jar like our neighbouring country?
PEPSI also not bad ... 45 years of increasing it's dividends every single year since 1973. Latest increase in May 2017. Pepsi increases it's dividends by about 7%-8% per annum.
DeleteBut all these dividend stocks in US now very expensive ... PepsiCo has PE of 25 and Div Yield of 2.75%
Don't bet the entire farm on them!!! :) :)
Some people will say, no problem --- I already took plenty of profits, and took a lot off the table liao. If markets crashed --- ho say liao!!! HUAT ARRRHHH!!!!
ReplyDeleteHaha!! That's taking a portfolio approach --- asset allocation.
Now the question is: If stocks do a repeat of 1999 and goes up +30%, +50%, +100% over the next 12 months .... What are you gonna do????
Sama sama, you NEED to know the answer BEFORE you invest!!!! :) :)
Quote: "Why kill a Golden Goose who lays Golden Egg when we are getting infinite yield?"
ReplyDeleteI agree we should not kill the golden goose as we invest for income and/or capital gain.
However, if the capital gain over the DPS ratio is > 10X, I will consider to let do the golden goose as I would have 10X DPS (10 yr yield on hand) now. It just like collecting 10X DPS in advance.
By doing that, I could recycle my capital for another opportunity.
edit .... I will consider to let go (do) the golden goose..
DeleteFor Reit, my rule is that I will sell if the Cap Gain / DPU is > 4 ~ 5X depending on what type of Reit.
DeleteThis rule only apply to dividend play stocks. lol
见 好 就 收!
DeleteCapGain = 15.5c (104.5 - 89)
Div = 6.4c
CG/D = 2.4X
For me, I won't sell yet. Collect dividend while waiting, if any. lol
I also subscribe to "mean reversion'" theory. But only apply to big cap stock and has good fundamental.
ReplyDeleteSPH - what do you mean for value/price? Mean reversion attribute is base on price. It's downtrend and mean is ~$3.75. IMO, low can go lower as SPH outlook is not good from 2014 onward.
Back to basics --- you got FLIT for cap gains or income? ;)
ReplyDeleteAny deterioration in its fundamentals? Gearing? Interest coverage ratio? Income growth?
Any negatives in the sector it's operating in?
DPU still make you happy? Any deteriorating yield compression? Any expanding price-NAV gap that indicate possible overvaluation?
If you still happy, then just sit back collect $$$$$ loh!!! :) :)
Reit is mainly for income, cap gain is a bonus.
ReplyDeleteSince we aim for income (dividend), if the market give you 5 years or more dividend (cap gain), do you not consider taking the dividend in advance?
Food for thought ...