Thursday, December 06, 2007

Profiting From Our Mistake(s)

I have been spending times reading back my own notes. Stuff that I had written some many years ago.

Here's something I wrote back in May 2004 in a closed forum.



  • 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.

    - Edwin Lefevre - Reminiscences of a Stock Operator

May 2003. This is probably where I would say the current (KLSE) rally had started. A good year has passed us by and it is probably a wise thing to reminiscence this past one year.

( Wait ... wait....... do not take this posting for granted. Firstly, this is not an exercise in vanity, ok? Yeah, this ain't another discussion on what is the best strategy or the best way to make money in the market. Yes, this is not a posting debating who is correct and who is wrong! Ok? )

Yes, during the past one year, I have seen so many various strategies applied in the market in an attempt to make money. Some punted and simply whacked the market, 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 day trading, 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 savvy techno canSLIMers, traders/investors who combine ta/fa in their strategy and then there were some who simply bought and prayed hard-hard!

For me, I believe that it's rather paramount that one develops to understand fully what one have and have not done correctly in the stock market and perhaps the most importing thing at this point of time is, are we gonna profit from our past mistake(s)?

Take a look at us. The index is still up a good 100 pts plus since last May (2003). Just how exactly are we doing?

Good, bad or so-so?

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 the 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 now Brown Cow?

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? Are we even using the technique correctly? (remember the argument of where they said the system is usually correct, it is the user of the system which is wrong!) Or even to the more extreme, is do we acknowledge the flaws in our own system? And lastly, is our current system really a no-hoper?



Bursa Malaysia is now at 1442.73. At its highest ever.

So just how are we all doing?

Are we still searching for the Holy Grail?

Have we profited from our past mistake(s)?


As the above was written in a forum posting, I did write another posting...

  • Yeah, realizing and admitting our mistakes is very important as I have witnessed folks who are stubbornly steadfast in insisting that they were always right and they just blamed their poor fortunes on irrational stuff like poor luck.

    Anyway, it does look like switching stocks is kinda popular, ain't it? The most popular switch is selling the top gainers - or selling a stock after it appreciates a certain percentage, and a switch is made into a stock that have not performed yet. Now assuming that our judgement and stock selections are correct, what exactly are we doing? What exactly is such a strategy suggesting and what exactly is the weakness in such system? Well it looks to me that we are limiting the gains in the top gainer stock. And when we switch to one and it fails, then what we have done is rather silly because we have sold out our star performer and bought a stock that might turn out to be a non-perfomer into our piggy bank.

    Just immagine, footie, say u are Arsene Wenger and the best perfomer in the team is Va-va-room (T.Henry), could u immagine if Arsene sold Va-va-room and purchase a non performing striker such as Diego Forlan??!! lol... lol ..... ridiculously silly ain't it? Yup, this is the very basic risk. We limit the performance of our star performers and we switch to one, which we may not know if it will perform, or not. However, if it works out, aren't we a genius? And of course the common argument for switching is that one is protecting one's profits....

    Then there are those who switch or rather they get rid of them poor performers in their portfolio. Would it work? It might and if does work out, then great. However, what if one witch to another stock that will perform even worse? It could happen, couldn't it?

    And every time we switches, one tends to sacrifice a little on the quality and the price one pays for their investments. Yes, one tend to pay a slightly higher PE for their switched stock and perhaps one opts for a more lesser quality stock, and when one does this too often, when the 'so-called game ends', ie the market rally ends, what does one ultimately ends up with? Can u imagine the chain of events? Isn't there a strong likely hood that one ends up with a basket of poorer quality stocks, purchased at a higher price? (And I would guess the best advice here is not too switch too often, rite? )

    As u can tell from my biased writing, I am not a switcher and I admit I am very much against switching. However, I would very much like to hear from anyone who has developed and maintain a strong winning strategy in switching stocks.
    Anyone willing to share?