Thursday, April 19, 2007

Systems and Old Mistakes

My Dearest Scouser,

Here's a repeat posting of an old posting I did long ago. I called it
Systems and Mistakes.. when I blogged on it long ago.

Anyway, in my opinion, this is a nice posting to re-read again because I get to see one of my old mistakes.

~ ~ ~ ~ ~ ~

If a man didn't make mistakes he'd own the world in a month. But if he didn't profit by his mistakes he wouldn't own a blessed thing.
- LiverMore - Reminiscences of a Stock Operator

During the past few years, I or rather we have witnessed so many various stock market strategies applied in the market in an attempt to make money from the stock market.

Some punted and simply whacked Ze market, some chiak and chiak da bugger, some whacked simply based on hot-air, some used various trading techniques and skills, which included trading in a short term basis, scalping, tape reading, swinging and daytrading, while some others traded on a longer term basis based on Market Timing or cycles, and some simply invested in the market - yeah the buy and hold long, long buggers, and then we have the more technical savy techno canSLIMers, traders/investors who combine ta/fa in their strategy, some simply bought and prayed hard-hard!

So how are we doing?

Good, bad or so-so?

Or is there something wrong in our system?

Are we 'playing the game' correctly or are we in the need to go on a holy grail search for Ze best method?

Now, for the holy grail searchers, those switch hitters who moves from one system to another in search for the best method, the biggest problem and the biggest risk is simply time. Mistakes cost money and what if one takes too long to discover our mistakes?

Each system/strategy has got its own winning point and its weak point. And this the holy grail seekers greatest risk. Finding, testing and discovering each strategy takes time and lots of mistakes will occur along the way.

And of course, the ultimate question would be: could one ultimately find the best ever technique?

Is there ever a 100% fool proof strategy?

What if it takes you too long a time to find it?

And what if there isn't such a thing as a perfect strategy?

Ahhh... how? Profiting from our mistake(s). This is i think is the ultimate key. Be it if you are an investor or you are a trader. So the alternative is to take a good review of what we have done and what we have not done correctly the past year. Look at our own methods. Can we avoid repeating the same mistake or we doomed to make the same mistake again?

Or are we even using the technique correctly?

Or how about argument which argues that the system is usually correct, it is the user of the system which is wrong?!

Or even to the more extreme, do we and will we ever acknowledge the flaws in our own system?

And lastly, what if our current system is really a no-hoper?

Are we going to accept and acknowledge these fact(s) or are we just going to keep on repeating our mistakes over and over again?

Read thru Ze compilation!!!!
a couple of times and i thought it would be really good if I had shared my own personal investing mistake.

Isn't this not one of the most important thingy? Are we are gonna profit from our past mistake(s)?

Let's go back in time.

Way back in 2003. Near towards the end of the year, I 'invested' into one furniture business stock. Baswel Resources.

It was a small little decent company, with decent profit margin and there was growth also.

Hence, I embarked on an investment into Baswell. 8,000 shares at around 1.50.

Now my mistake was that after my purchase, I failed to acknowledge the weak trend shown in its fiscal year 2004 Q1.

Yes, the sales were pretty much flat, however, the net profit margin declined quite substantially. From 14% to a mere 7%.

I discounted its poor performance as a temporary dip in form.

Now the weakness continued.

The next quarter, 2004 Q2, the clear GET OUT sign was there!

Its profitability slumped to a mere 3%.

Oh, another issue first, i had also failed miserably understanding the rubberwood furniture business.

Baswell did not have it own resources.

It had to purchase rubberwood and when the price of rubberwood increased, Baswell's margin was squeezed.

And another issue, Baswell, was not active in all the furniture trade fairs we see so often.

Ahh, this should have had been a clue for me. A big one. I should have realize that by being not active, perhaps its business maybe was not as attractive or as strong as other furniture players.

All said, after reasoning out Baswells 2004 Q2 earnings, I decided that I have made a poor rotten investment decision, and it was time to sing 'so long and farewell, it's time for me to go...'

But... butt... butttt....

I faced another issue... this was a dead counter!!!

Yalor.... D E A D ..... not laku at!

So disposing that 8 lots or 8000 shares became a truly task for me.

I was faced with trading quotes such as: buy 1.10, sell 1.30...

The huge gap between the buyer(s) and seller(s) and the lack of buyers turned into a huge PROBLEM for me....

Now the thing was, I could have and I should have 'given' to the buyer as soon as i decided.... but noooooo sir me... i tried to be a smarty alec... and i dilly-dallied on my sale....

In the end.... i got out.... 6 lots at 1.20.... and the last 2 lots at 1.08.


And yes.... this will be a big lesson for me!!!!!

And regarding the D E A D counter issue....

I think that this is was one big lesson I've learned.

Do not discount this factor when investing.

Now, do not get me wrong, for I agree very much that IF a stock is truly great, then it matters not how the stock is traded.

Yup, my focus has always been on the stock and not the market... for simply, the market is just where we make our transactions.

However, i am afraid to say, that there is one small thingy.... there is a potential failure in such system... ie... what IF we are wrong?

Ahhh.... what if we made a mistake in our stock selection?

Let's face the facts, we are just normal buggers, tiok boh?.

We are not Ze super-duper investors, rite?

Sooo sometimes (as hard as we want to avoid doing so) we can still make mistakes!

So if we make a mistake in our stock .......

then how?.....

Soooooo..... if the stock is a D E A D counter.... then our escape hatch... our cut-loss strategy faces a huge obstacle....!!!!!

Baswel is now trading at 0.51!
Baswel lost money for the last 3 quarters!
buy and hold will never work if u hold a company gone bad!


19th april 2007. Baswel now trades at 0.30!

If I had used the buy and hold forever nonsense, this would caused serious damage to my well being.