"Even if your borrowings are small and your positions aren't immediately threatened by the plunging market, your mind may well become rattled by scary headlines and breathless commentary. And an unsettled mind will not make good decisions." - Warren Buffet
Read? 12 Years of Christmas and Two Lessons in Investing.
CW8888:
From his own personal experience in 2008/2009; you don't have to be in high leverage to feel threatened; your immediate fear of near term liquidity needs and unsettled mind will not make good decisions too.
BUT, the Truth... Market can turn faster than our self-denial
The moment we have accepted the truth and overcome our self-denial. It is often too late. Big negative returns are locked once we have liquidated our investment at market low or near market low
In Jan 2009, Uncle8888 finally realised the liquidity for expenses issue and accepted the "truth" that the daily bombardment of Great Depression 2.0 news might be real.
What about losing his job? Living expenses. How???
What about his two kids university fund starting from Jul 2009? Taking a gamble???
He bited the bullet and liquidated them at big losses to maintain Liquidity for Expenses and locked in negative returns. Painful lesson learnt when market recovered two months later.
Never, never invest money that may be needed in few years even when the Bull Market is running fast!
Risk is the permanent loss of capital and not price stock volatility. We really cannot take stock price volatility anymore when we really need the money soon.
What Warren Buffet said is so right!
What is risk? The conventional definition of risk in finance literature is price volatility. But to super-investor Warren Buffett, risk is the permanent loss of capital.
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Three months. Bang head big time. WTF! But; a lifetime of lesson learnt on how to move forward!
ReplyDeleteCW and temperament,
ReplyDeleteEveryone has to experience that epiphany for themselves. Its a rite of passage.
The bei kambing who needs to be 100% vested (or use leverage!?) to maintain a "financially free" lifestyle probably has not inkling what the 3 of us "lau kok kok" are talkng about...
Yeah, as SMOL says .... this is something that can only be appreciated & learnt thru the crucible of a full-bore bear market! :)
ReplyDeleteI often maintain about 2 years' worth of living expenses --- this is on top of the usual 6-12 months emergency fund. I know, I know .... easier for a low maintenance single or working couple than someone with many dependents.
This helped me to ride out 2008/2009, together with the ongoing "panadols". I find it easier also with big-index ETFs rather than individual stocks or niche ETFs e.g. social media ETF .... as it removes a lot of the unsystematic company or sector risks ... or even country risks.
Now some financial advisors are even telling prospective retirees to maintain 4-6 years' living expenses(!) just before they retire .... to avoid bad / unlucky sequence of returns risk.
Many investors are like those who go thru NS --- very ya ya & gung ho ... think soldiering is like all those field exercises .... always win with minimal or even zero casualties?!? LOL!
But looking at market history, I suspect those started their investing journey these few years are very lucky. It seems like now is quite similar to the early-1980s or early-1950s.
Likely a scary bear in the near term to wash out the sentiments, especially of those newer millennial believers. Hahaha!! But those who can control their emotions & take a long term view will likely be richly rewarded by 2030. ;)
Very interesting discussions. Wanna throw a question to the Lau Kok Koks ;). If you can time travel back to 2008 - 2009, will you hang on to your "losers" and wait for it to ride out the bears or would you sell it just before the bear and buy in again at lows?
ReplyDeleteI remember during 2008-2009, the headlines were filled with how much warren net worth has shrunk, now his portfolio has doubled since.
Greatest regret and mistake. I have nothing to show for 2008/2009. Too busy recovering and re cycling capital to break even instead of deploying ready war chest. This shall not happen for the next Bear!
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