"It is not what you know, but whether you know yourself"
This has been my line for the stock market lately.
I believe that in the stock market, it is not what tools, knowledge or information that you have or know but rather it is about whether you know yourself; your own emotions. The biggest enemy that one faces in the stock market is usually himself, no one else.
My Final Thoughts...
Just a recap on my previous post, I got this feeling that friday might just be a bottom and for the first time I was comptemplating whether to clear all my put warrants.
On Monday, I was prepared for a huge gain in HSI. Of course, I can't do anything since sgx was closed due to deepavali. But surprisingly, HSI dropped 10%. The US markets didn't do as badly as the asia markets.
Tuesday, I was still undecided. It is not because HSI was up 14% on tuesday, but because I was still unsure about what happened on friday. At night, for the first time, I was thinking really hard about whether to sell or not. For the US markets, consumer confidence was horrible. Home prices were horrible as well. But Dow closed up 10%.
Wednesday morning, I begin to reflect on what I have done so far and I realise something. Why am I thinking so much over it? I reflect on the two particular days where HSI rallied 20% in total because of bailout plans. I was calm and relax and totally ignored what the market did because I knew that the selling is not over yet. For four days, I have been overwhelmed by my emotions bit by bit and I know this time, something is wrong. Intuition at work? Maybe, but friday limit sell down was the key for everything.
I sold all my put warrants in the morning. Of course, HSI closes flat at the end of the day.
Today as I'm writing now, HSI is up 10%.
Lesson To Learn
I was so close. I was so close to making the mistake that I have been making 1 year ago. I was so close to losing a huge chunk of my profits. Of course, I lost some of the paper profits. I could have sold everything on tuesday morning but I didn't.
I needed to see a panic selling to confirm a bottom and I did see one but a part of me chose to ignore it initially. I almost fell into some sort of self fulfilling prophecy and it could have killed me today. In the end, my worries on friday limit sell down was proven right.
I think we have a bottom here. It is not a real bottom in the long run of course, but it will be a bottom as of now and we have some upside to catch
What To Buy?
1. Buy some commodities. Buy some oil. I believe that the selling of all commodities is due to the deleveraging of hedge fund rather than real fundamentals.
2. Stocks wise, buy anything. I mean everything should rally, anything should go up. Buy some oil related or commodities related companies like Noble or Keppel corp.
3. For simplicity, just buy the index. I like HSI for its volatility. I think we have the upside of HSI at 17000. I can see dow picking up to 10000. I don't even think that tonight GDP numbers will affect anything. I'm going to buy some HSI call warrants. But I'm waiting for the green light from the mailman. Even after HSI is up for 10% today, I don't think that it is too late to go into it. You can still catch a 3000 point to the upside.
What To Sell?
1. There is only one thing. Sell all your lousy stocks into this rally. Of course, I'm not telling you to sell today but make full use of this rally.
One More Thing...
I will like emphasize on this. Know yourself. Understand your emotions. It is not easy. Even after one full year, I'm still susceptible to it. I firmly believe that once you know yourself, once you know how to handle your emotions, you will be there.
"It is not what you know, but whether you know yourself" - Jin
Wednesday, October 29, 2008
Saturday, October 25, 2008
I Think I Think I Think (still thinking)
I really think a lot.
I have been thinking for one whole day on whether friday was a bottom.
Some Thoughts So Far
1. It was a panic. Well, futures were traded to limit down.
2. But there was no huge sell down that really clear all the selling pressure.
3. To some extent, I could view it as the selling pressure is not strong enough to push prices lower anymore.
4. For the first time in many months, I am considering selling my put warrants. I mean it. But monday is closed so I can't do anything.
5. HSI is probably going to shoot on monday. But again, there is nothing I can do about it.
In conclusion, I will make my decision on monday night anyway. Nothing much I can do. Fed's meeting on wednesday, GDP numbers on thursday.
I will want to talk about something else this week - Derivatives. I will try to do it in a structured manner, something that one of my college tutors commented about. Hopefully, you can learn in a much better way.
Derivatives
Let's begin with some definitions.
Derivatives: They are loosely defined as papers that derive their value from other underlying financial instruments. So a derivative on oil will derive its value from the real oil price. Usually, you only have to put up a small margin to own a piece of paper that has a notional value of say 10 times your margin. Simply put, to "virtually" own 100 barrels of oil that are worth 1 million dollars, you only have to put up 100k to your broker (10% of the value) for example.
What forms do they come in?
They are mainly your futures, options, warrants, swaps and forwards. Well, usually people use futures and options more often than the rest.
What are the common uses?
Well, money making instruments? By right, they are meant to reduce risk. For eg, someone is holding huge amount in stocks. He is quite afraid of a potential selldown but he doesn't want to sell away his holdings (don't answer me why). So, he buys some derivatives, put options to be exact, such that he will reduce some of his losses if the market turns sour. They usually call this hedging.
But, by left...
They have been used for speculation purposes mainly. Speculation is the key word over here.
So... why is it so dangerous?
I have mentioned OTC derivatives before in the possible demise of USA part I. So do refer back again.
More Insight Please...
This is something that I have thought of. Something really fuzzy and yet, I think it really explains why it is so dangerous.
From a normal person point of view, when he faces derivatives, the first thing on his mind is the gains. Believe me, the potential for gains totally out-weighs the risk that everyone knows.
The reason for this is pretty simple. Most people tend to believe that they will be on the right side more often than on the wrong side. They will picture how much money they are going to make with it rather than how much money they will lose and so on.
Furthermore, we all want to make money. Greed is "good". Imagine this, I buy a stock, thinking that it will go up. It does go up 10% in the end. But if I buy a derivative on the stock. If the stock goes up 10%, I earn more than 50% (for e.g.). The mentality is this - for the very same position, I earn more using derivatives (I know about the losses but...). In fact this is exactly what I feel when I first come in contact with derivatives. I go for more volatile ones such as short maturity dates, out of money warrants. I lost quite a fair bit =).
To sum things up, it is human nature as work. We, as humans, are overwhelmed by greed.
Even More Insights - Bank's Perspective
Using this analogy, we can try to think from the standpoint of a bank. Well, banks are supposed to manage risk properly. They handle lots of money. Think of it this way...
1. The world economy has been good.
2. Stock market has been on a crazy bull run since 1980 for 20 years.
3. There is too much money everywhere because money is no longer pegged to gold anymore and there is a printing machine.
As a bank, during rosy times, where everyone is earning money and competing how much money you earn, derivatives become a money making tool more than hedging tool to them. A bank will worry more about how much money they make rather than how much money they might lose. They anchor too much on their past successes and are getting complacent. Because of the competitiveness among the banks, the only way to better one another is through derivatives. Banks are not only hedging their positions but they are also making these derivatives bulk of their holdings as well. Banks become greedy to some extent. Not only do they purchase normal derivatives, they go into more unique, creative derivatives to complicate things.
The Financial System
The whole system has turned into a gambling den. Everyone is betting heavily using these derivatives. Everyone has turned to a speculator because of past successes and greed. The idea of doing the exact same thing that yield two different results where the latter is much better, covers the underlying risk that comes along with the latter decision. Again, people ignore the other side of the coin. They feel that one side is much heavier than the other.
Today, we are faced with a global financial system meltdown because of greed and complacency. Yet, these people are not learning their lesson. They plead to others to save them.
Hopefully, this is a much better explanation for derivatives. The previous is good as well, just that it covers another part of it and its pretty dry.
I will make my decision on monday and probably put an update here.
P.S: sgdividends, my msn is xeron_knight@hotmail.com. Feel free to add me =) Thanks
I have been thinking for one whole day on whether friday was a bottom.
Some Thoughts So Far
1. It was a panic. Well, futures were traded to limit down.
2. But there was no huge sell down that really clear all the selling pressure.
3. To some extent, I could view it as the selling pressure is not strong enough to push prices lower anymore.
4. For the first time in many months, I am considering selling my put warrants. I mean it. But monday is closed so I can't do anything.
5. HSI is probably going to shoot on monday. But again, there is nothing I can do about it.
In conclusion, I will make my decision on monday night anyway. Nothing much I can do. Fed's meeting on wednesday, GDP numbers on thursday.
I will want to talk about something else this week - Derivatives. I will try to do it in a structured manner, something that one of my college tutors commented about. Hopefully, you can learn in a much better way.
Derivatives
Let's begin with some definitions.
Derivatives: They are loosely defined as papers that derive their value from other underlying financial instruments. So a derivative on oil will derive its value from the real oil price. Usually, you only have to put up a small margin to own a piece of paper that has a notional value of say 10 times your margin. Simply put, to "virtually" own 100 barrels of oil that are worth 1 million dollars, you only have to put up 100k to your broker (10% of the value) for example.
What forms do they come in?
They are mainly your futures, options, warrants, swaps and forwards. Well, usually people use futures and options more often than the rest.
What are the common uses?
Well, money making instruments? By right, they are meant to reduce risk. For eg, someone is holding huge amount in stocks. He is quite afraid of a potential selldown but he doesn't want to sell away his holdings (don't answer me why). So, he buys some derivatives, put options to be exact, such that he will reduce some of his losses if the market turns sour. They usually call this hedging.
But, by left...
They have been used for speculation purposes mainly. Speculation is the key word over here.
So... why is it so dangerous?
I have mentioned OTC derivatives before in the possible demise of USA part I. So do refer back again.
More Insight Please...
This is something that I have thought of. Something really fuzzy and yet, I think it really explains why it is so dangerous.
From a normal person point of view, when he faces derivatives, the first thing on his mind is the gains. Believe me, the potential for gains totally out-weighs the risk that everyone knows.
The reason for this is pretty simple. Most people tend to believe that they will be on the right side more often than on the wrong side. They will picture how much money they are going to make with it rather than how much money they will lose and so on.
Furthermore, we all want to make money. Greed is "good". Imagine this, I buy a stock, thinking that it will go up. It does go up 10% in the end. But if I buy a derivative on the stock. If the stock goes up 10%, I earn more than 50% (for e.g.). The mentality is this - for the very same position, I earn more using derivatives (I know about the losses but...). In fact this is exactly what I feel when I first come in contact with derivatives. I go for more volatile ones such as short maturity dates, out of money warrants. I lost quite a fair bit =).
To sum things up, it is human nature as work. We, as humans, are overwhelmed by greed.
Even More Insights - Bank's Perspective
Using this analogy, we can try to think from the standpoint of a bank. Well, banks are supposed to manage risk properly. They handle lots of money. Think of it this way...
1. The world economy has been good.
2. Stock market has been on a crazy bull run since 1980 for 20 years.
3. There is too much money everywhere because money is no longer pegged to gold anymore and there is a printing machine.
As a bank, during rosy times, where everyone is earning money and competing how much money you earn, derivatives become a money making tool more than hedging tool to them. A bank will worry more about how much money they make rather than how much money they might lose. They anchor too much on their past successes and are getting complacent. Because of the competitiveness among the banks, the only way to better one another is through derivatives. Banks are not only hedging their positions but they are also making these derivatives bulk of their holdings as well. Banks become greedy to some extent. Not only do they purchase normal derivatives, they go into more unique, creative derivatives to complicate things.
The Financial System
The whole system has turned into a gambling den. Everyone is betting heavily using these derivatives. Everyone has turned to a speculator because of past successes and greed. The idea of doing the exact same thing that yield two different results where the latter is much better, covers the underlying risk that comes along with the latter decision. Again, people ignore the other side of the coin. They feel that one side is much heavier than the other.
Today, we are faced with a global financial system meltdown because of greed and complacency. Yet, these people are not learning their lesson. They plead to others to save them.
Hopefully, this is a much better explanation for derivatives. The previous is good as well, just that it covers another part of it and its pretty dry.
I will make my decision on monday and probably put an update here.
P.S: sgdividends, my msn is xeron_knight@hotmail.com. Feel free to add me =) Thanks
Monday, October 20, 2008
Mid Week Pit Stop #26
Mistakes
Let's take a look at some of the mistakes I have made so far. Well, ignore some of the achievements of course.
1. Gold
Remember that I emphasize on deflation all along. The mailman actually thinks the same way as me but he sees that holding cash is a much safer bet than buying gold. In a way, I actually think that people will see gold as money and safe haven during times of "potential" deflation. Of course, I am wrong. Every commodities go down together. But fortunately, I never buy any gold. =)
I will probably see gold going down to as low as $700.
2. Oil
Well, same thing for oil. I didn't expect oil to plunge down so much after all it has an inelastic demand in some sense isn't it? Now, we all know that during times of deflation, everything falls. Cash is king and I should have listened to mailman. He is actually happily sitting on US dollars after converting all his Singapore dollars. Amazing econ man.
I will probably see oil going down to as low as $50.
3. Trading
I have always asked myself if I should have gone for more volatile warrants or done some intraday trades. There have been days where its like Dow was up 5%, and hsi opened just slightly above flat and I could have pulled out of the warrants and bought at the end of the day. There are also days where it is quite obvious that a rally will come. Of course, "obivous" is a very subjective word. There are also days where I will lose out badly because hsi just totally goes against the trend of Dow. One up, one down. If I have gone for more volatile warrants, those that expires less than a month. I would have made 1000% seriously.
On hindsight, it is easy to say such things isn't it?
ONE GOOD POINT...
Alright, there should be something worth learning to attribute to some of my gains. I believe it's the emotional control. I really like the way I see the market those days. I was relax. Too relax to some extent, that Mr. X reminded me to be careful at times.
But I told him, "It is different this time round."
"the only way you get a real education in the market
is to invest cash, track your trade, and study your mistakes…"
Jesse Livermore
Very true indeed =)
Let's take a look at some of the mistakes I have made so far. Well, ignore some of the achievements of course.
1. Gold
Remember that I emphasize on deflation all along. The mailman actually thinks the same way as me but he sees that holding cash is a much safer bet than buying gold. In a way, I actually think that people will see gold as money and safe haven during times of "potential" deflation. Of course, I am wrong. Every commodities go down together. But fortunately, I never buy any gold. =)
I will probably see gold going down to as low as $700.
2. Oil
Well, same thing for oil. I didn't expect oil to plunge down so much after all it has an inelastic demand in some sense isn't it? Now, we all know that during times of deflation, everything falls. Cash is king and I should have listened to mailman. He is actually happily sitting on US dollars after converting all his Singapore dollars. Amazing econ man.
I will probably see oil going down to as low as $50.
3. Trading
I have always asked myself if I should have gone for more volatile warrants or done some intraday trades. There have been days where its like Dow was up 5%, and hsi opened just slightly above flat and I could have pulled out of the warrants and bought at the end of the day. There are also days where it is quite obvious that a rally will come. Of course, "obivous" is a very subjective word. There are also days where I will lose out badly because hsi just totally goes against the trend of Dow. One up, one down. If I have gone for more volatile warrants, those that expires less than a month. I would have made 1000% seriously.
On hindsight, it is easy to say such things isn't it?
ONE GOOD POINT...
Alright, there should be something worth learning to attribute to some of my gains. I believe it's the emotional control. I really like the way I see the market those days. I was relax. Too relax to some extent, that Mr. X reminded me to be careful at times.
But I told him, "It is different this time round."
"the only way you get a real education in the market
is to invest cash, track your trade, and study your mistakes…"
Jesse Livermore
Very true indeed =)
Thursday, October 16, 2008
Mid Week Pit Stop #25
No black monday. No panic selling. To make things worse, there was a crazy rally. Dow was up more than 10% on monday. There are two interesting things that I will like to share.
1. Donald Trump's comment on cnbc.com
But again, he is Donald Trump. I'm a nobody. =)
2. On Tuesday morning, the mailman sent me a mail...
"Should we liquidate?" he said.
In a way, I was quite disappointed because he was carried away by the 10% rally worldwide. Of course, I may be wrong about this. The rally may actually continue. You may argue and say that I may not have the guts to say this if not for yesterday's selling.
Again, I'm also wondering why I'm so calm and cool after the big rally. Honestly speaking, have I really improved from 1 year ago or is intuition at work? I don't know. Time will tell.
Learning Time
Well, I saw someone searching for Jim Rogers talk in Singapore on google.com and he came to my blog. I didn't attend the Jim Rogers talk, but my friend did and managed to write down some pointers.
As always, Jim Rogers like to talk about his adventure and his daughters. Hmm...
1. Rise of China:
Shoutout: Thank you sgdividends.blogspot.com for adding me to your blog list. Hope to talk to you if possible. =D
Maybe: Rate Cut again tonight?
1. Donald Trump's comment on cnbc.com
"For the first time in my entire life I was going to go very big into the stock market, hundreds of millions of dollars into the stock market" he said.
"Now it's a little too late," he said.
Well, Donald Trump is a brand himself, at least this is what I have learnt in marketing. I'm just wondering if he will go back to the market now. I mean, he was late on monday. What about today? tomorrow? When the markets drop even further, is he going to back in a VERY BIG manner into the stock market? Never too late isn't it? LOLBut again, he is Donald Trump. I'm a nobody. =)
2. On Tuesday morning, the mailman sent me a mail...
"Should we liquidate?" he said.
In a way, I was quite disappointed because he was carried away by the 10% rally worldwide. Of course, I may be wrong about this. The rally may actually continue. You may argue and say that I may not have the guts to say this if not for yesterday's selling.
Again, I'm also wondering why I'm so calm and cool after the big rally. Honestly speaking, have I really improved from 1 year ago or is intuition at work? I don't know. Time will tell.
Learning Time
Well, I saw someone searching for Jim Rogers talk in Singapore on google.com and he came to my blog. I didn't attend the Jim Rogers talk, but my friend did and managed to write down some pointers.
As always, Jim Rogers like to talk about his adventure and his daughters. Hmm...
1. Rise of China:
Among the best capitalist in the world. Save and invest over 35% of their income. There will be setbacks in China but every powerful nation will have setbacks. Children have to grow up speaking native mandarin and english.
2. State of US dollar:
World's reserve currency. In the last 21 years, American National Debt is 13 Trillion Dollars. Foreign debt increases at a rate of 1 Trillion dollars every 15 months. Head of Central Bank is persistent in debasing the value of US Dollar. It may be efficient in the short term but not in the mid term nor long term.
He quoted that Pound Sterling was the World's Reserve Currency before Dollar overtook its place. Same thing could happen again.
3. Bull market in Bonds 1980s to 1990s. Bond market is over. Not a place to make money. Likewise with stocks in the West. Very expensive and volatile.
4. Bull market in raw materials, natural resources commodities. 2nd largest market in the world to Foreign Currency. Bull markets last around 15-23 years. We're like 8 years into the commodities bull.
The usual Jim Rogers Hot commodities talk.
5. What causes these long cycles? Supply and Demand. Invest in productive capacities in a bear market. Many countries have been big exporters of oil are now importers of oil i.e. China, Indonesia, Malaysia. Bull stock market inversely proportionate with commodities. Don't get rich diversifying. The Saudis say that they have 260 billion barrels of oil every year (no change). Get a job in the commodities market.
6. Opportunities in a downturn. Pursue your passion. Hmm... I believe he is refering to buying commodities.
7. Oil Sands in Alberta is a growing oil market. It's an expensive procedure and it takes a long time.
8. US Government Bonds market is a huge bubble that is gonna burst. US dollar is in a huge rally now in false liquidity. Everybody has been shorting US dollars and they're forced to cover their short-selling.
9. Financial Investment banks fundamentals are impaired. but commodities fundamentals are unimpaired. Supply of commodities are going down as nobody will be able to lend you money to start a farm. Hence supply of commodities will go down after financial stock market goes down. Airlines, water treatment, tourism, are potential prospective growth industries to rise for the next 20-30 years.
10. Women are lacking in China, India and South Korea. Women are going to be in demand, divorce will be high (divorce lawyer). Hmm, I think becoming a lawyer that specialised in divorce sounds good. Wonder why he mentions this?
11. Biofuels have great future, politicians like bio fuels. Not good for the world. Driving up the price of the food, water.
12. Gold ETFs, Gold futures, Gold coins. Uncertain, but safe.
13. Carry trading is huge. Japanese interest rate is near 0 but Australian interest rate is about 5. Hence people sell Yen to buy Australian Dollars to put in Australian Banks. Now is unwinding period, explaining the drop in Australian Dollar.
This is good. I didn't know about the Australian Dollars part.
14. China Central bank started cooling the economy but they can manage they have huge reserves and savings.
Shoutout: Thank you sgdividends.blogspot.com for adding me to your blog list. Hope to talk to you if possible. =D
Maybe: Rate Cut again tonight?
Sunday, October 12, 2008
Black Monday 13 October 2008
I kinda like this picture. Creativity at work! Many people have come to me and say, "Hey dude, this is a bottom!!! Buy now!!! Sell your put warrants for goodness sake." I don't know why but people love to give lots of comments and they are actually doing nothing right now. Noises of the markets. Maybe there are lots of smart people out there who really know a lot of things. I don't know, I'm not so smart after all.
Alright, enough ranting...
Black Monday
You know me. Friday was an interesting day. Intraday wise, Dow broke 8000 at 7900. For the whole week, the market was down about 19%! OMG. Seriously speaking, as bearish as I am, I didn't expect the process to be so fast. I really think that it will take time to slowly sell down that's why my put warrants are all of long term maturity dates.
From a chartist point of view, on a weekly chart basis, we have not seen a bottom. On monday, the bond market is close. To some extent, I don't really like friday's rally. I believe it might be short sellers at work. The last trading hour of thursday was amazing. I still remembered that at 3am, before I went to sleep, the market was just down 150 points. News on how to save the world is supposed to be announced over the weekends. Well, I don't know what the smart bankers have up their sleeves but they are certainly quite smart =D.
Anyway, I like the idea of a black monday tomorrow. Self fulfilling? The past few mondays have been quite crazy if you actually look at the statistics. I see no reason why will people want to buy into this market at the moment. There is no confidence at all.
Again, I will like to emphasize that this is not a bottom. There is no panic selling at all. We will see one when everyone thinks that there is no bottom and starts to sell like there is no tomorrow. This will bring a lot of people back into the market at least momentarily.
Oil
Well, I think that once the panic is over. You shouldn't be buying stocks. Buy some commodities. I really like oil alot. I think that the fundamentals of oil is still there. I will want to buy oil in the future as well. I mean oil and not oil stocks. I will like gold also. This is my stand so far.
Black Monday 13 October 2008. R.I.P World Stock market
I haven't met a rich technician
Jim Rogers
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