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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Welcome to Ministry of Wealth!

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

"For the things we have to learn before we can do them, we learn by doing them." - Aristotle

It is here where I share with you how I did it! FREE Education in stock market wisdom.

Think Investing as Tug of War - Read more? Click and scroll down



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Value Investing
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Sunday, 1 September 2019

Understanding 7 Common Stock Market Risks As Retail Investors

Rainbowcoin 1 September 2019 at 12:02:00 GMT+8

Hi Uncle8888,

Could you combine all the 'risks' into one post or give a common, less generic label? Hehe


Fun to read them. :)


You often hear this - Investing in Stock Market is risky.

In fact, investment of any kind including setting up your own business by nature is risky, and can potentially cause you lose some or all your investing or initial capital. 

Actually as a paid employee you also face similar risks of losing your job when you approach 40s or 50s. It is a well known fact that HR department update this list of employees in these age groups during annual budget exercise. 

So what are the possible Stock Market Risks and how can we as retail investors mitigate these risks?

1. Price Volatility Risk 

Need to learn how to time your Entry and Exit points

Buy in batches by Average In (different from Average Down)

Sell in batches

Read? Newbies Do Not Earn The Right To Average Down. Never!!! (Refresh)


Read? Bear market is here. Let's accumulate more by average down? (2)


Read? Help me! I am still losing money in my Investment Quadrant (5)



2. Companies Risk

Select top tier blue chips that are likely to be rescued by Temasek.

Limit your exposure to any stock to less than 10%, and for bigger account size less than 5%

Limit your exposure to any sector to less than 20%, and for bigger account size less than 10%

3. Currency Risk

Invest in Singapore only

4. Lack of Knowledge and Skills

Read? Investing Knowledge and Skills

5. No Time for Research and Monitoring

You mean other people got more than 24 hours? Time is the fairest commodity of all and everybody has the same amount of time, no more or no less. 24 hours a day!

Wake up if you don't have time and stop dreaming!

6. Liquidity Risk 

This risk is associated with the ability to sell out our stocks easily without depressing the price level further and causing potential buyers to retreat to sideline in anticipation of more fire sales coming.


It is true that when we buy stocks which have low liquidity; we can have all the time in the world to buy slowly. I am not sure if the opposite is true when you need to sell? 

Do you really have the time in the world to sell slowly? Probably, you may have urgent need to raise money; otherwise, why would you be selling?


This Great Bear of 2008 taught me there is another risk to think about:

7. Dilution Risk 

Even if you only invest in blue chips that are strategically important to Singapore and the government will never allow them to fail. So there is very little risk of complete failure but you are still expose to the dilution risk i.e. your interests in your holding get diluted by these companies injecting more capitals to strengthen up their balance sheets by raising more capitals through private placement or right issues.

Private Placement to Institutions

You either get out or get diluted. If you have decided to hold on; then it may take a long while for your current holding to get even.

Right Issues

Same here. You can choose to get out or exercise your option to prevent your current holding been diluted by subscribing to all your entitled right issues to hold it at higher investment cost.


If you don't, then your interests will take a long while to get even.

Do you have war chest for right issues and especially true for those heavily into S-REITs when their business model for raising right isses is BAU?










11 comments:

  1. Ha! Ha!

    CW, U see there are many smart people around like U. And practical too.

    So not smart people like me got a chance to learn from people like U. Not so much talk male chicken only.

    Thanks.

    ReplyDelete
  2. For that matter about blue Chips "supported" by Big Brother have to be careful when it is abandoned.

    Like is NOL a blue Chip once?

    Like Hyflux a Blue Chip once?

    How about SPH now?

    Do U know SPH Outstanding shares to floating shares ratio has changed very drastically.

    In the past U guess who are the people holding all the outstanding shares?

    So be very careful if i know nothing about shares, at least I want to know who own most of the shares of a company.

    ReplyDelete
    Replies
    1. When BBs continue to sell and retails are buying them on the way down. It may be a Red flag!

      Delete
  3. i mean in the past who holds all the outstanding shares of SPH.

    The floating portion would never go above 49%.

    In fact very, very much less because Big Brother wanted to control the news then when there was no such thing as the NET. It was almost a monopoly media business.

    Now with Net they say, "All hell breaks loose".

    Not even Trump can con the American people for too long.

    ReplyDelete
    Replies
    1. Blue chips or not. Risk and money management applied to survive over economic, market or product life cycle

      Delete
  4. Ya lol U can only sifu so much, the rest is up to individual "goondos" lol.

    How much can they absorb and put to practice.

    Thanks.

    ReplyDelete
  5. Actually is investing in the stock market a Zero Sum Game?

    If it is not so good leh....

    ReplyDelete
    Replies
    1. If i lose money in the market i know most of the time i can only blame myself (The fool, the greater fool and the better fool).

      But when i make money i do feel i need to give back at least some to charity now or in future. Of course not the market, we are all guilty of playing this "Zero Sum Game"

      Delete
    2. In a sense, WB must be the greatest "villian Player" in the market then?

      Delete
  6. Hi Uncle8888,

    Thank you for this post!

    Companies risk I guess would also include sustainable business model and earnings. Not necessarily all blue chips will get rescued or can salt-fish-turn.

    Currency risk - Yes, by investing only in SG stocks in SGD can mitigate that when we need the money to spend in SG. However, some money in other currencies may help hedge against SGD decline. (Perhaps not necessary for now, will not know for future.)

    Another risk not mentioned here is Market risk. Something like what HK is experiencing now. I suspect that's why SGX managed to hold its price currently.

    ReplyDelete

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