Do not make enemy, but make friends!
This is the most important lesson in investing.
When an investor invests his or her money in buying stock, it means his or her money is stuck there, and he had 3 enemies already:
- Interest and inflation keeps coming. Interest and inflation ate investor's money value.
- Your stress, since some people are really stressed when investing.
- Investor's spouse (read: your wife), which will grumble every time your stock is down.
3 enemies are enough, and investor should make no more enemies.
Time, is a double edged sword which can be our best friend, can also be our archenemy. The lesson is, do not make time, as our enemy
. Make it our best investing friend.
How to make time our nemesis is by buying options, warrant, or other things with expirety date.
I did invest in warrant as an experiment. I bought lots of them, and if my warrant did make goals, it will give me a whole lot of money. I should have bought more warrant when they are cheaper, and now at least I could get 500% of return from the warrant. However I don’t buy them, as I don't really like to keep warrants, since it keeps me stressed. Since warrant works as leverage, so when the stock price increases by 1 percent, its warrant price can increase by 10 percent, however when the stock price falls, warrant will induce even more loss.
Warrant can expire after certain date, making them worthless, which is unlike stock from a good company which its value will increase overtime. Having warrants in my inventory making me to suffer insomnia. However, I'll still buy some little warrants for leveraging to add some spice in my otherwise plain vanilla portfolio. Well, warrant is for the party!
I still have some warrant which its today’s price is only 50% of averaging down price. The logical explanation is the warrant value will drops down into nothing and vanishes into thin air when it expires. However I wanted to experiment with the warrant and kept that in my portfolio.
Options are about the same as warrants, it works with leverage. However, there are certain strategies which can be executed that minimise the loss. I personally dislike options, since it decays with time, and the profit is actually generated by its exercise which involves real stock trading.
I did study options, do some trading and write software which reads options price and finds the best strategy for options investing. Although the software was unfinished, I came to a conclusion that at options are not suitable for me.
However having options in my portfolio will make me sleep better instead of having warrant. Options is also for the party, it is not for everyday investing.
I didn't buy options for today, as there are no options in Indonesia. However I'll get a little of them when they are available. Just for experimenting, and a little party!
Since option decays, and warrant rots away, I prefer to hold stock from the company which is healthy, have enough competitive advantages, and lead by competent leader, stock never loss its value. Stock can drops to 10 percent of its value in a no time (e.g. from Rp 7000 per share to Rp 700 per share), however it also can jumps in a no time.
Don't worry with stocks, it is the same as owning and running a business. Sometimes the business is good, and sometimes it is quiet. As long as the company had enough competitive advantages, led by capable leader and had they are honest, there will be no reason to afraid investing on them. Just watch for a good deal!
As with other business, I have to prepare and have reserves for looses, therefore I didn't think for that looses, and making it a lesson for me, just the same when I pay my university tuition fees.
If you always count your losses, you'll stop investing and be afraid of doing businesses.
I myself has monitored 3 stock exchanges since January 2005 and kept monitoring until March 2008. Then I started trading and investing until now.
I used to hold some foreign currency and swap them from one currency to the other currency. For example I swap AUD to JPY, CNY to USD, EUR to USD, however I don't think them as profitable.
While some people suggest me to use automated day trading software, I don't really like to use day trading software, since I think it is closer to gambling. Therefore I decided to keep some foreign currency on banks. They gave me interest rates and hopefully their value kept increasing. Well, not really, I have sold most of my foreign currency but AUD. I got a good interest rate for AUD that's why I kept it.
Until today I still can’t predict with more than 60% accuracy the movement of foreign currencies, as there are too many factors involved. All I know is the US dollar is loosing its value; due too many of them are printed and spent. How much will they loose value? I don’t know! When will the US dollar regains its value? I also don’t know.
There are no investment grade mobile phone. It's my joke to list the Samsung SGH-i780 as an investment grade PDA Phone. There are also no electronic products and cars good for investing. They are expenses!
Time as a best friend
One lesson I've learnt is make friends with time, and I made quite a profit on my portfolio.
By choosing a good stock, I had made time as my best friend. It appears that my averaging down and hold strategy works pretty well until today. With today's bullish trends, I earned a good profit from the stocks.
If I hold options and warrant, I guess I wouldn't be this profitable today. In fact, some of the warrants will expire on the middle of economic crisis and become worthless. Since by the time I bought the warrant, I never know when will the global economic crisis is going to end.
Options will be the same as warrant. I know some options trader who loss hell lot of money in this crisis.
By having time as my best friend, this global financial crisis did not make my investment realise a loss, although from March 2008 to December 2008, my investment is technically a loss as I'm doing averaging down. However I didn’t come to realise the loss (I don’t sell the stocks). Instead I just buy and buy when people were panicking and selling their stock of a perfectly healthy company at a good price.
If some people did follow me, and doing average down, by today he or she might enjoy hundreds of percent return since January 2009. Since January 2009 I earned a huge 250% of profits, which means my money grew almost three folds. Well, until today, I did manage to get 20 percent return since the beginning of my investment on March 2008; this rate is pretty good compared to bank's rates and my other businesses.
Stock investing is not gambling, it is requires strategy, understanding of human psychology and careful planning. Once you've master it, stock investing is the same as investing in physical gold or land or business.
These are what you need to make a time as your best friend:
- You'll need to use your own money leftover. Not any money for business, not anything borrowed. Just use whatever left unused!
- You'll need 3-4 times spare money of what you invest, so you can always averaging down when necessary and have enough reserves for sudden needs such as hospitalisation.
- In fact when the stock market collapses, I did invest more money, counting around 90 of my available cash is invested. My bank deposits and savings and other things all go to my stock investment. However business running money is still intact and my insurance is ready just in case I need hospitalisation.
- Unless you are the ultimate investor, you should not make stock market as your primary income. I keep my job and earn money enough daily living and didn't even go shopping when the crisis happens. Again: do not rely your income from investment. It is investing! And the idea of earning income from investment contradicts the idea of investing!
- Once you've got your position, just watch your portfolio grow. Time is your best friends here! Moreover you can back to work and earn some more money to replenish your cash reserve and prepare to invest on some other good stocks.
Stock trading is like driving, you need experience, and then you'll understand driver’s psychology. When you drive you can estimate whether a motorbike will cross the road or will it wait for you, then you can make the decision to brake or proceed. This decision is entirely psychological as you will guess with yourself on the motorbike position.
Stocks are entirely the same, and with training you'll know where the crowd (other trader) is going to. Just as driving, you'll sometime guess correctly and sometimes guess wrongly and rammed the motorbike.
It is psychological, my friends. Not technical. So ask your heart, since it is where human psychology is!
PS: if I use a title of 'How to make 250% profits in just 9 months', everyone will flock to my website and read this article. However that's not the point of this article, the point of this article is on making time as the best investing friend.