Sunday, July 22, 2012

Lessons Learnt From My First 3 Months

Not too long ago, I was introduced to this portfolio tracking tool on Excel called the XIRR. I give up on using it as it don't seemed very accurate or perhaps I made some error because I don't fully understand it. Since I have compiled my trade history, I think it will be useful to share my wonderful experience with the market during my first 3 months. It was a really good experience and without with I think I will not have improved much especially when it comes to emotional balance.
Figure 1 - Trade History

So this is my trade history when I just started out in the market. The decision to take the plunge at the onset of the current Euro Zone crisis last September is a wise move as I started to get used to market gyration. So on 22nd September 2011, I got my trading account and bought my first 2 stocks - VICOM and Eratat. VICOM was a great choice and I bought it for I think it is a great piece of business. 

For Eratat, I thought it was being deeply undervalued and I was drawn into its story of going up the value chain to price itself as a premium brand.  Profit margin is growing and profit and revenue have been jumping higher each year. Coupled with its high cash position and low P/E of less than 2, it looks like an ideal value stock. I sold 2/3 of it in 10th November 2011 at a loss of 9.7%. Lesson Learnt - Accounting skill is extremely important when doing fundamental analysis. 

3 days later, I flew to Australia as part of military exercise and thus I did not do any trading until I came back   at the end of October. I bought into this stock called Sunvic Chemical as it has some share buyback programme and I think it is going to deliver a good quarterly result as price of the ester commodity seemed to be doing fine. Subsequently, I can no longer stand the price fluctuation and decide to sold it at a loss. Lucky, I sold it as it subsequently reported a 40% drop in quarterly profit. Lesson Learnt - Do not buy a stock if you cannot stand the price fluctuation.

While the loss was only 2.97% and maybe a few hundred, I cannot take the losses and was determined to get back into the black. Not long after, I got to know about this stock called Mewah through some investment website and blog. Basically, there was insider buying and speculation that it will have be a turnaround for the next quarter. I was hoping to be able to recoup my losses but I ended up losing money yet again though I was quick to cut my losses. Lesson Learnt - Don't buy on rumours.

As I continue to slump into the losses, I was even more determined to get out of it. So I went into Sunvic again, hoping to make some quick bucks. Luck was not on my side and I sold it off 4 days later at 4.94% losses. Lesson Learnt - Things get worse when you are speculating aka gambling...

Subsequently, I bought into UOL($4.26) since it seemed to be undervalued though I did not really do much analysis. 2 days later, ASSD was announced and all the property counter starts to crash heavily and I sold it at a 5% loss once again. Of course, if I have done my homework I might not have sold UOL given that it holds hotels, offices and retail malls. Lesson Learnt - Always do your homework.

I also bought into SIA Engineering as I want to reduce my "gambling" chips as I am quite scared about the losses coming from speculation. However, I did make a mistake in buying again the next day at $3.53, thinking that I was averaging down. Lesson Learnt - Averaging down target should at least be 10-20% lower.

After that, I bought OUE at $2.05 and sold it at $2.05 incurring brokerage losses. Once again, I was trying to recoup my ballooning losses but I cannot take it and sold it. Lesson Learnt - Even if you manage to sell away your stock at the original price, you will still be incurring brokerage losses. 

Then I bought into SMB United as a arbitrage play given that the original offer from Boer is a bit too cheap. I was thinking that even if the offer fails, the company is still worth more. Finally, Lady Luck smiled on me and I got away with a 13.2% gain though I am still quite in the red.

Getting away lucky, I venture into CD/XD play with UtdOAus which was trading in SGD but declared the dividend in Aussie. I got away with a 2.68% gain though I am sure I am still speculating.

At the end of the year, I bought into San Teh upon the declaration of dividend distribution the previous night. Not only was i speculating, I keyed in twice the amount as I was not aware that I failed to cancel the previous trade. Needless to say, I made ~8% losses again as I sold it within 3 days as I know I do not have enough money to pay for it. Lesson Learnt - Always check the trade that you have entered especially if you are doing online trading on your own.

In all, I made 11% in realised losses using NAV within 3 months and I told myself that I am going to stop speculating once and for all. I have read The Intelligent Investor before I have started, but I simply cannot control the very powerful feeling of greed and fear within me. 

However, I am glad that I have paid for the lesson and become determined to follow the proper path. I restructure my portfolio and sold the loss-making Eratat. I bought companies like HR Glass ($1.06) and additional stake in VICOM before the minor bull returned in 2012.

Summary of Lessons Learnt –
  1. Accounting skill is extremely important when doing fundamental analysis. 
  2. Do not buy a stock if you cannot stand the price fluctuation.
  3. Don't buy on rumours.
  4. Things get worse when you are speculating aka gambling...
  5. Always do your homework.
  6. Averaging down target should at least be 10-20% lower.
  7. Even if you manage to sell away your stock at the original price, you will still be incurring brokerage losses. 
  8. Always check the trade that you have entered especially if you are doing online trading on your own.
That's why I have always said that I am blessed to have started on September 2011 in the midst of the trial and tribulation ongoing in the market. The bear is where you learnt the most as it is akin to putting yourself on a survival mode out in the open sea. If I have started in a bull market, I supposed I will have made much better gain before my portfolio will get wiped out when the bear returns. I am happily waiting for the giant bear to come though it will probably not be any time soon. That will be where I can get to understand my character and emotional balance best.


  1. Hello Shanrui,

    Glad you blog is OK now :)

    XIRR is easy if you just focus on the annual returns of your portfolio - not the individual transactions.

    See this website for explanation:

    You know why quite a few qian-bei in valuebuddies got "lost" using XIRR?

    Investors will get it right the first time. Traders may take a longer time to figure it out... LOL!

    I prefer to count in money but that's another story altogether ;)

  2. By the way, you may want to invest in a Investing Diary or Trading Journal. I think I will blog about it tonight.

    Although you blog is already a sort of Investing Diary ;)

    Very good reflections of your trading journey!

    2 questions to help deepen your reflection that accounting skill is important:

    1) How much do companies pay bookkeepers and accountants (keeping records)? Or is the money more in Corporate Finance or Financial Management (using numbers to make decisions)?

    2) Those qian-beis in valuebuddies who can make money, but no clue or slow in understanding XIRR or NAV way of calculating their performance, would their performance improve/suffer now there's greater clarity in "accounting"?

    Remember your strength is not knowing what cannot be done ;)

    Cheers and have fun!

    1. For trading, why bother with XIRR?

      I thought traders measure Win$/Loss$ and No of Wins/No of Losses???

    2. Hi, I think I will just stick with NAV since I am very unlikely to have the ability to inject new capital into my portfolio for the next 4 years. I think 1 reason why I am having trouble with XIRR is that I have traded too many time initially.

      You are right that bookkeeping is of much less importance as compared to the actual decision making. I am glad to have made these losses when my initial capital is small and yet the lessons that I have learnt will probably have cost people so much more.

    3. Agreed with Createwealth8888. Your style (in out within such a short time) seems like Trading instead of Investing.

      You need to decide for yourself whether you want to do Trading or Investing. If you want to do Trading, you will probably need more Technical than Fundamental.

    4. Hi, that was my style when i started out in my first 3 months. Result was bad and I have since changed since 2012 onwards. So far, I have only divested UOB Kay Hian and a partial divestment of SIA Engineering. 2 more months, and VICOM will be the first stock that I have held for more than a year

  3. Hi The 21 Years Old Investor,

    This is probably my only comment here, and I hope it'll serve you well.

    Check out books/articles from John Bogle, Larry Swedroe, Rick Ferri, William Bernstein. Locally, check out Wilfred Ling.

    I hope this post exposes you to something new and valuable. You decide how you want to continue your journey thereafter.

    1. I will definitely check those books and articles out. Investing will always be a life-long learning experience

  4. Aren't you glad you sold Eratat :)

    It was the market darling, and analysts were so positive about it. The most positive report was from the SIAS analyst who gave a call of $0.325.

    It was at around the same time I warned many not to buy into this:

    Anyway, there was a time I deviated from my original thought out investment plan, and started speculating. Like you said, I couldn't take the price fluctuations, and I came out worse. Berlian Laju and Hor Kew are my only 2 counters left from pure speculations.

    1. Something which I have learnt is when to "buy and hold" and when to cut loss. If the fundamental of the company bought is flawed, there is no 2nd qns about cutting loss immediately. That was what I did on 19th January 2012 and diverted excess fund to those with better fundamentals. Shortly after, I remembered seeing Eratat rising all the way to $0.15 and more, but I told myself that I did the correct thing by selling it away at $0.105.

      Same thing goes for Sunvic and mewah. "Buy and hold" should happen only when the fundamental of the company is sound and that one has done the necessary homework.

  5. Your Eight Lessons are what i have learned and gone through as well. They are important because this give confidences in your investments.

    They is tendency to do trading always. I specifically marked them and sell immediate if things go the other way. They form a small part of my portfolio.

    As for XIRR, is a good tool to help you. Try to learn it.

    1. Mistakes are the most precious lesson one can have throughout the investing journey. Emotional control is very important and one should try not to mix up the idea of investing and trading.