Sunday, August 30, 2009

Time Is Critical...

I've wasted a lot of time this year. Trying to be more selective, I've cut down my trading a lot, which means that every position I still hold becomes much more important. Every time I make a critical mistake like what I did with C and AIG, I'll be undermining my annual profitability.

I've also got bond positions that are now MIA due to recent bankruptcies. This cash will be idle for at least another year before I can expect a definite outcome on the actual recovery. I've noticed some mid to high double digit gains on two bonds I purchased this year. I'm thinking of rebalancing my portfolio by cashing in on these bonds and using the proceeds to buy stocks. However, is this the right moment to do so?

I've only been able to book a YTD ROI of 2.4% on my entire portfolio this year. This is not good enough, but I realise that Q4 tends to be my most productive trading time every year.

I have to get myself into gear. I've been much less emotionally volatile lately and I have to keep all my emotions in check. When the market's decidedly bullish, I have to go with the flow. If the market's suddenly bearish, I have to be ready with my stops.

Interestingly, if I book all my unrealised profits tomorrow at Friday's prices, I'll arrive at a YTD ROI of 10.6%, which would be a slight improvement on last year's realised profits. However, I have to be aiming for more. Ever since it formed the recent lows earlier in the year, the market has been up much more than this. We have to outpace the market, which means I need to be much more aggressive. Moreover, the best trading advice I ever heard was if we have a small account, double digit gains are not good enough. We have to be aiming for triple digit gains or more.

My biggest fear is that I've missed the greatest sale of my life and that there will never be a market like this ever again.

Having said that, we have to still do our best. The market is what it is. We have to focus on what has proven to work for us and continue to trade what we know to be true.

1. Continue to invest only in companies with positive book values, allowing for a good margin of error, regardless of whether we're buying stocks or bonds.
2. Do not chase prices. When we do, our whole risk:reward calculations go out the window.
3. Do not settle and buy any second runner ups even if their stock prices are lower. Sometimes, you'll end up with a winner, but more often than not, you'll end up with an AMD - or worse, an ABK.
4. Like my forex broker once said, "If in doubt, just stay out."

If I can get out of ABK and AMD alive, I need to start daydreaming about how to reinvest these funds into something that does not involve... you guessed it, Hermes... It will be tempting though.

Technically, anything Hermes appreciates in value with time, though, so it wouldn't actually be a bad investment.

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