When we speak of making profits through stocks investing and trying not to lose money according to Buffet's rule, there is a part of the processes which we may overlook. That is - how good we are at minimizing opportunity costs in our investment journey. As we go along doing so, we should constantly seek to mitigate risks and identify market opportunities.
Here are some ways which we could incur opportunity costs (from my retrospective checks as I evaluated my current portfolio performance):
1) Sitting on too much cash in a bull market run or waiting for a crash to happen before acting
This is a total opposite of FOMO (fear of missing out). I can think of two possible reasons for sitting on a cash pile - the premonition that a bear may strike soon (fear of losing) or being unsure of what investments to make.
The cash on hand would erode in value with inflation as the bull market charges, losing out on capital gains and dividend yields. War chest under-utilised...
Not to mention those friends in the DCA (dollar-cost-averaging) and passive investing faction would probably go like "See, I told you!" with a smirk.
Read also this article by Teh Hooi Ling.
In the course of making use of our spare cash, we must forget money management rules as illustrated by the famous trader Jesse Livermore:
"Remember, you do not have to be in the market all the time. The desire to always be in the game is one of the speculator’s greatest hazards. When playing the stock market, there are times when your money should be waiting on the sidelines in cash.. .waiting to come into play. Time is not money — time is time, and money is money. Often money that is just sitting can later be moved into the right situation at the right time and make a fast fortune. Patience is the key to success, not speed. Time is a cunning speculator’s best friend if it is used wisely."
2) Letting go of 'touchstones' and holding on to 'weeds'
Your touch stone is somewhere
Touchstone refers to a stock that keeps climbing in price (despite retracements) beyond which you bought it for. Inspired and borrowed with pride from Uncle8888's story.
How many touchstones have you picked up in your x-years of investing? Did you pick and throw them back into the sea?
Do you hold on to those stone-turned-useless weeds and watch them rot away?
Touchstones (read the above link to the story first to relate) that I have failed to hold:
Comfort Delgro - 2013, sold at $1.84
Capitaland Retail China - 2016, sold at $1.425
CDL - 2016, sold at $1.39
DBS - 2017, sold at $20.55
3) Not following the macro economic news and being unaware of the market's trend
I was absolutely guilty of that when I did not read the market reports broadly and diligently for the last 2 years. As such, I have missed dearly the rise of the Semi-conductor and tech sector. I do read reports now and then, however my angle of view was narrow - I only read certain headlines which drew my interest and on those companies which I have vested interest in. With that, the bandwagon passes me by without my realizing!
Being able to identify value / projected good-earning stocks is one thing, identifying ignited value stocks is another. Watch the ignited ones rocket and do hold on tight.
(Creative tech just ignited like fireworks. However, I am not quite sure how sustainable is the new 3D audio frenzy.)
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Here are some ways which we could incur opportunity costs (from my retrospective checks as I evaluated my current portfolio performance):
1) Sitting on too much cash in a bull market run or waiting for a crash to happen before acting
This is a total opposite of FOMO (fear of missing out). I can think of two possible reasons for sitting on a cash pile - the premonition that a bear may strike soon (fear of losing) or being unsure of what investments to make.
The cash on hand would erode in value with inflation as the bull market charges, losing out on capital gains and dividend yields. War chest under-utilised...
Not to mention those friends in the DCA (dollar-cost-averaging) and passive investing faction would probably go like "See, I told you!" with a smirk.
Read also this article by Teh Hooi Ling.
In the course of making use of our spare cash, we must forget money management rules as illustrated by the famous trader Jesse Livermore:
"Remember, you do not have to be in the market all the time. The desire to always be in the game is one of the speculator’s greatest hazards. When playing the stock market, there are times when your money should be waiting on the sidelines in cash.. .waiting to come into play. Time is not money — time is time, and money is money. Often money that is just sitting can later be moved into the right situation at the right time and make a fast fortune. Patience is the key to success, not speed. Time is a cunning speculator’s best friend if it is used wisely."
2) Letting go of 'touchstones' and holding on to 'weeds'
Your touch stone is somewhere
Touchstone refers to a stock that keeps climbing in price (despite retracements) beyond which you bought it for. Inspired and borrowed with pride from Uncle8888's story.
How many touchstones have you picked up in your x-years of investing? Did you pick and throw them back into the sea?
Do you hold on to those stone-turned-useless weeds and watch them rot away?
Touchstones (read the above link to the story first to relate) that I have failed to hold:
Comfort Delgro - 2013, sold at $1.84
Capitaland Retail China - 2016, sold at $1.425
CDL - 2016, sold at $1.39
DBS - 2017, sold at $20.55
3) Not following the macro economic news and being unaware of the market's trend
I was absolutely guilty of that when I did not read the market reports broadly and diligently for the last 2 years. As such, I have missed dearly the rise of the Semi-conductor and tech sector. I do read reports now and then, however my angle of view was narrow - I only read certain headlines which drew my interest and on those companies which I have vested interest in. With that, the bandwagon passes me by without my realizing!
(Creative tech just ignited like fireworks. However, I am not quite sure how sustainable is the new 3D audio frenzy.)
---
"Besides having an astute mind in stock buying / selling and good money management techniques, knowing when opportunity knocks is just as important to succeed.
Opportunities knock only for the prepared."
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