Compare to people I know, I must say I am least emotionally affected. How do I build up this resiliency?
If I have to guess, it's because what I focus on are largely different from other people.
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1. Focus on Cash Flow
I have always kept my goal of investing in mind - generate enough cash flow to attain financial independence.
A
simple analogy: You brought a shop for $10000 that generates $1000 for
you every year. 2 months later, others are buying/selling that shop for
$5000. Are you going to panic sell your shop? Or are you going to buy
more?
When I first make a
decision to buy a stock, I am already satisfied with the yield. As long
as the company fundamentals are intact/does not cut dividends, I will
receive the exact amount each year, regardless of how much that
investment is selling for on the market right now.
This is one of the biggest advantage of dividend investing compared to growth investing.
Note: It is a different matter altogether if the company cuts dividends and/or fundamentals are affected. In that case, more evaluation will be needed.
Note: It is a different matter altogether if the company cuts dividends and/or fundamentals are affected. In that case, more evaluation will be needed.
2. Focus on Fundamentals, Not Marco-Economy
I don't know why people are always trying to figure out where interests rate will go, what the Fed will do next, what China government will do next, etc...
Macro-economy -> Country specific economy -> Sector outlook -> Company
All these are "upstream" factors are so far away. We already have difficulty forecasting a company earnings, why are you trying fruitlessly to guess the impact of macro-economic decisions beyond your control?
Just go straight to the source - company earnings, balance sheet, debt profile, economic moat. You will make way better decisions then trying to figure out what the Fed wants to do, how it will affect the market and in turn how it will affect your company.
Have you heard of Singtel subscribers cancelling their mobile plans because of "Yuan devaluation"?
Neither have I.
3. Ignore Real Time Pricing
We
are too affected by the "real-time" nature of stock prices because it
is updated every second. Comparatively, in property investment, we don't
care what the price is until we want to sell it. We don't have access
to a real time price tag on our house 24/7. We need an agent to thorough
valuation and find buyers, etc...
If
you brought a property for $500k last month and today someone knock on
your door and offer you $400k for it. Are you going to sell your house?
Or are you going to tell that person to f-off?
We should view stocks in the same
way. If you have no intention of selling it, why should you care how
much others are paying for it at this moment?
4. Stock Prices Are Not Reflective Of True Value
Most
people don't realize this, but the stock price is actually set by a
VERY small percent of people in the market. For example, Singtel have a
total of 16 BILLION shares, and its average volume per day is 25
MILLION. That's less than 1 percent!
In other words (for most companies), the majority of shareholders are not doing anything most of the time.
To
put it into perspective: let's say 100 people own an iPhone. 99 of them
are happy using it and 1 guy in desperation for cash decides to sell
his for $1. That becomes the "price" of that iPhone for that day. Does
this imply that the iPhone is worth $1? (Note: Of course, this is an
extreme example)
I am sure the answer is no.
A
company true value is dictate by how much profits it can make for you,
NOT by how much one percent of its shareholders are willing to sell it
for at any one time.
5. Ignore the Media and Analysts
If you believe every piece of nonsense they write, you will be in a world of pain. They are the greatest "prata-flippers" in the world and I have seen how fast their target prices and economy outlook can change overnight.
It is okay to read their opinions, forecasts and figures, but always do your own diligence and form your own decision. In 2014 when Keppel fell to $8, every analysts were forecasting $12. It is sitting at $4 now.
6. Ammo Management
If you are losing sleep, you are over-allocated. Diversify, buy solid companies and keep a large war chest.
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Pinning these down makes my thoughts and "acceptance" of this bear market clearer.
From this year onward, I am going to treat my portfolio like an investment company, where I am the CEO. I think it is a great way to enhance my investment acumen and understand each of my business better.
Look forward to my "1st quarterly earning reports" soon!
"Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves." -Peter Lynch
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