Post by oldman on Oct 19, 2013 8:47:03 GMT 7
John, I am human and am equally fascinated and excited by Mr Market. It is truly not easy not to be affected by the markets.
What I do is to be very clear on my objectives for each of my investments. For stocks, usually they move within a trading range and I can be tempted to buy at the lows and sell some at the highs of this range.
But if the fundamentals of the stock transform for the better, you will not see me selling any of these stocks even if they are hitting their all time highs. For these stocks, I usually do not sell on the way to paradise. In fact, as the stock climbs in value, I will be more inclined to add to my positions.
I will then designate such stocks as one of my pillow stocks..... stocks that I will sleep on regardless of market conditions because these stocks have the potential to become the blue chips of the future. For such stocks, I will ignore the daily, weekly or even monthly movements because my time frame will be measured in years.
Usually, there are only one or two of such stocks in my portfolio... as it is not easy to find such stocks and it is even harder to have bought enough of these stocks earlier. There is really no point in identifying a pillow stock and not putting enough of your capital in it as pillow stocks can potentially increase one's net worth by a significant amount.
As the years go by, I am trying to tweak my investment strategy and identify more pillow stocks. These are usually companies in which the new management has a significant stake and their actions have shown that these stocks may become their vehicles of choice for building their own personal wealth. They usually put good deals through these companies which they could have easily done on a private basis. As a result, these companies tend to report better and better earnings as the years go by.
The reason these investors put quality assets into a listed company instead of buying these in their own capacities is because the market values the transaction by giving it a price-earning ratio. Hence, if an asset produces a yearly profit of $1 mil, in the stock market, even with a low PE of 8, the market can value this asset at $8 mil.
Regardless, I will still insist on a decent margin of safety whenever I buy into such stocks. Yes, this means that the criteria for pillow stocks is even more stringent than that for generic fundamental stocks. But the potential is a lot higher as the upside is not just the revaluation of their assets but also the limitless potential that these new businesses can bring to the listed company. Hence, my investments are moving more and more in this direction.
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John Pang wrote:
It fluctuates. It refers to the HDB prices, share prices, all kind of prices; it is the "Mr. Market"; irrational.
"Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies." - Chapter 8, "The Intelligent Investor"
Having mentioned it, it's till very hard not to be affected emotionally by the gap in prices. That's why, I observed investors with the habits of meditation or some sorts of spiritual inclinations tend to do well because of their ability to focus, stay calm, patient. Michael, do you practice some of these?
What I do is to be very clear on my objectives for each of my investments. For stocks, usually they move within a trading range and I can be tempted to buy at the lows and sell some at the highs of this range.
But if the fundamentals of the stock transform for the better, you will not see me selling any of these stocks even if they are hitting their all time highs. For these stocks, I usually do not sell on the way to paradise. In fact, as the stock climbs in value, I will be more inclined to add to my positions.
I will then designate such stocks as one of my pillow stocks..... stocks that I will sleep on regardless of market conditions because these stocks have the potential to become the blue chips of the future. For such stocks, I will ignore the daily, weekly or even monthly movements because my time frame will be measured in years.
Usually, there are only one or two of such stocks in my portfolio... as it is not easy to find such stocks and it is even harder to have bought enough of these stocks earlier. There is really no point in identifying a pillow stock and not putting enough of your capital in it as pillow stocks can potentially increase one's net worth by a significant amount.
As the years go by, I am trying to tweak my investment strategy and identify more pillow stocks. These are usually companies in which the new management has a significant stake and their actions have shown that these stocks may become their vehicles of choice for building their own personal wealth. They usually put good deals through these companies which they could have easily done on a private basis. As a result, these companies tend to report better and better earnings as the years go by.
The reason these investors put quality assets into a listed company instead of buying these in their own capacities is because the market values the transaction by giving it a price-earning ratio. Hence, if an asset produces a yearly profit of $1 mil, in the stock market, even with a low PE of 8, the market can value this asset at $8 mil.
Regardless, I will still insist on a decent margin of safety whenever I buy into such stocks. Yes, this means that the criteria for pillow stocks is even more stringent than that for generic fundamental stocks. But the potential is a lot higher as the upside is not just the revaluation of their assets but also the limitless potential that these new businesses can bring to the listed company. Hence, my investments are moving more and more in this direction.
-------------------
John Pang wrote:
It fluctuates. It refers to the HDB prices, share prices, all kind of prices; it is the "Mr. Market"; irrational.
"Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies." - Chapter 8, "The Intelligent Investor"
Having mentioned it, it's till very hard not to be affected emotionally by the gap in prices. That's why, I observed investors with the habits of meditation or some sorts of spiritual inclinations tend to do well because of their ability to focus, stay calm, patient. Michael, do you practice some of these?