Trading Ideas| How to be the Longer Term Investor?
Hello everyone! Today i want to share some trading ideas with you!
1.
Markets move first, reasons follow later: $Berkshire Hathaway(BRK.A)$
When I started investing as a young impatient, restless and a (self-styled) astute & logical investorI wanted reasons for everything that the markets did. It took me several years and plenty of failedopportunities to understand that in majority of cases markets moved first, reasons followed laterwhile debates continued thereafter, This sequence of events continues even today where marketvariables have increased in terms of news points, the logic has become more precise and hard-hitting with more information from the TV and the internet. All these has however not been able tochange the end game for the investor which is"Markets move, first reasons follow later".
For someone like me I have given up assigning reasons and levels since 2008. Beniamin Disraeli said"What we learn from historyis thatwe do not learn from history. This applies to pinpointing reasons for short term market movements and erroneously assigning credits in the "I told you somode. These self-styled forecasters mistake the randomness of events to self- generated intellect. Our markets are passing through a similar phase. We have been assigning the movements to various reasons based on the recency effect and when there is no recency element we put theblame on the Govt. for its sheer inability to govern or in the more sophisticated language*governance deficit". How many of us wanted to put failure of the Govt. to undertake secondgeneration reforms as one of the primary reasons for our stock market to go down and when theGovt finally plunged in hitting two birds with one stone (FDI in retail and Companies Bill) themarkets obliged - by sliding 150 points the next day, Basically the markets seem in no mood tolisten to any good news and wants to catch all the bad news this is the classic feature of a bearmarket or as some eternal bulls (me included) like to say a bearish phase.
If the trend does not reverse very quickly then the bulish times seem some distance away. Thereand several at 2008 lows. The underlying reason is thatare so many stocks quoting at 2 year lows markets want to go down andare going down. How else can you explain scores of companies trading at PEs of 4 and 5 times, RoE of near 20% and a yield of 4%? The stock keeps going downand the yield keeps looking better but one has to bet on them at the right time. Somewhere downthe line we will be able to make that quick money buying the beaten down names but personally i would attempt those opportunities only when I'm sure of downside protection. If in the event wemiss some so be it because we need a 100% gain to make up for a 50% loss and the probability ofdoing foolish things go up when a person is on the losing table- he gets desperate.
(I have started to pay more attention to prices on the screen and theemotions on the street when it comes to buying cheap stocks, As markets fall the cheap stockbecomes cheaper and when they rise the costly ones become more expensive. One single datapoint of analysis is to look at whether the stock you own is nearer to the 52 week high or the 52week low, In either case the line of least resistance as Jesse Livermore wrote about one hundredyears ago acts as a magnetic force-and that force is in complete contrast to what a valueinvestor thinks
The call of the hour remains to stick with fundamentally strong stocks rather than try to bottomfishfor the beaten down names. The beaten down names look cheap but are devoid of earnings visibility, We will ride them when it seems that it is fit to ride, At 20 times trailing the human mindchoses to think of L&T as a cheaper stock to another alternative with more predictive earnings just because L&T is down from its 2008 high, The fact that there is so much of an issue with newprojects, falling capex, high interest rates does not bother the investor because he is more focussed on buying what has come down rather than focusing on the twin matrix of value withprice or more importantly reality with perception. One stock (Ncc Ltd) is down to November 2004levels. In the interim it became a ten bagger!!!
It pays to lose some opportunities in life rather than be brave and ride against the tide for nomartyr has ever collected the gallantry award himself.
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