The 9 things I've learnt so far about investing.

I started thinking about investing pretty late. Despite having a savvy entrepreneur dad, he did not mentor us a lot on this front. He always believed in letting us be independent and learning on our own.

I think because he was burnt by the market so many times before, he may not have found the right formula of consistent success to impart to us in any case. His slant tends to be quite bearish and at any sign of a market correction, he will advise us to sell everything. It is the trader mindset, which is not wrong as well. He cuts his losses quickly and moves on fast.

The deep end

The earliest memory I got was when he gave both my sister and I a small amount of cash to put into the stock market when I was in secondary school. He threw us into the deep end and left us to find our own way.

My sister eventually lost all that she invested in, while I exited with a substantial double digit loss and figured that it really wasn’t for me. I invested in a couple of Chinese stocks, notably airlines, because I had an interest in aviation back then and I thought China was sure to be a growing market with huge potential. Even in the early 2000s, my dad already had a very positive view of China and that rubbed off me. Had I held the stocks till now, I think I would have turned a profit, but the impatient me got out when I saw deep red.

Purely academic

The next time I got in touch with the stock market again was in university in the early 2010s, right after the 2008 financial crisis. Being in one of the major financial hubs in the world, London, I’m amazed that I didn’t start investing then. I could have easy access to the LSE and I even did a financial analysis on HSBC plc as part of my coursework. But strangely, I did not and I wish I did. I think the earlier you start, the smaller the impact of your mistakes would be, and there is a longer runway for learning.

Investing proper - and it’s been humbling

I started investing more seriously a few years after I started working but mainly in the Singapore market. Although it has done me well and proved resilient (thanks to banks and REITs), I yearned for more return. At first, I invested in small caps in Singapore, but I quickly realised it was an area with extremely high information barriers as well as severe manipulation. It was at this point I started to make substantial losses of my own money. It was painful!

At the same time, I was also leaving my job in the automotive industry to pivot into investments. This time I was doing it for real. This was in Q4 2019.

The crazy 2020 year

Then Covid-19 hit. Thankfully I did not deploy a lot into direct equities back then but nonetheless, the bond and equity funds that I entered were deeply affected. Sadly, at the bottom of the market collapse we divested in those funds, which eventually recovered and went on to hit highs.

Having started with a setback, I took a step back and reflected on my next course of action. 2020 was an exceptional year of collapse and recovery, and I decided to ride the wave up, thinking it would be a great time to get restarted again. Eventually I made enough to cover all losses and make a small positive return. However, little did I know, the next year was the one to really humble me.

Froth removed

2021 was when the honeymoon ended and reality set in. As I was heavy into Chinese equities and US growth, both collapsed spectacularly in Q1 2020, especially the former. Worse still, I was helplessly buying more of them through structured products, which are the creation of the devil, if that’s the only takeaway you’d have from this post. In fact, till today I am still forced to buy at a high strike level, but thankfully the structures are mostly maturing in Q1 2022.

Thankfully, other parts of the markets held up in 2021, namely US Big Tech and Singapore banks and REITs, which saved the portfolio for most of the year until Q4 2021, when there was another deeper collapse of US growth stocks. It was a mistake to assume that the markets priced in the impending rate hikes. As of writing, the US market continues to correct, and not just growth is affected, but across the board.

What’s forward?

Sadly, this meant that I ended 2021 with a moderate loss. The start of 2022 has been horrendous. With the US being the dominant capital market in the world, the world’s indices have been following the sharp declines of the S&P 500, Nasdaq and Dow Jones. China continued to find newer lows. Europe and Singapore thankfully seem resilient so far, but I wonder for how long.

Don’t take it as financial advice, but I am learning to cut losses in 2022 (a little too late, I know) and to reposition for less volatility in profitable, strong cash flow companies. Index ETFs and alternative investments would also help, I think. Zooming out, I do believe that we are in for a financial apocalypse at some point in the future, so it would be helpful to hold gold/silver, hard assets (e.g. property) and crypto as hedges.

Learnings so far

It’s been a short investing journey but I thought it would be helpful for both myself and you that I documented it, so I could look back at it again next time. I also wanted to share my learnings, so that you can hopefully become a better investor than I:

1. Start investing early. I wish I had, so I would make big mistakes when it didn’t hurt, and smaller mistakes when it did.

2. Be careful of smaller caps where market makers can shift the stock price significantly. Seemingly good financial statements don’t tell the whole story. If possible, get to know management for these, especially if they are businesses you do not understand or use.

3. Be diversified across geographies, not just within the same market. It helped that while China fell, I still had the USA and Singapore to prop things up.

4. Don’t be too greedy. When valuations are stretched, they will snap back to the mean.

5. Hold on to convictions even if it seems bad. If you’ve done all your homework, hold on to the winners and sell the losers. We often do the opposite. Even though you may be losing less initially by cutting the winners, in the long run, losers will underperform.

6. Sell losers before they lose even more. Remove the emotion and cut them. Even better, set your stop loss limits. There will always be another opportunity to buy into the market.

7. Keep a long term account and a trading account. Normally, we will feel compelled to take action at the worst of times. That’s when your trading account is to be used. For long term holds of winners, we should never touch them, because it’s impossible to time the market. Easier said than done, though.

8. Be very, very sceptical about structured products (e.g. accumulators). Especially those recommended by the bank. They are usually selling their risk to you at a lower rate than you deserve, and at a higher rate than they can get elsewhere.

9. Think of the wider market shifts. While the world financial system looks to be working now, in reality, it is on an unsustainable path. Fiat money is being printed at an alarming rate, and there is no turning back. There is lots more to talk about here which I will share more next time if there’s enough interest. But suffice to say, don’t ever think fiat currencies would never collapse, even the world’s reserve currency.

That’s about it this time. If you wish to see more of such investing content, do give a ‘heart’ at the bottom right!