My Biggest Mistakes (Thus Far), Part 1
disclaimer: opinion post, a lot of personal takes here.
While dividend investing is often seen as the more "stable" and "boring" way of investing, I have still made mistakes of varying degrees. But it's okay because everyone makes mistakes (right?), and the important part is to learn from them.
So in this post, I'll be going over one of my many mistakes. I will explain my thought process and how I improved and grew from it. Hopefully it'll be useful to those who are new, so that you don't have to go through the painful process yourself :)
The Mistake: Pseudo-Headless Chicken
I started off in 2015, around when I posted out from BMT. At that point, I stumbled upon ShareJunction and HWZ forums, which were probably the largest Singapore focused discussion sites around at that point.
Over there, I saw many familiar "household" names, basically your GLCs and stuff. There were a few that caught my attention - Sembcorp Industries and ST Engineering. There were a couple of reasons why I took an interest in these two.
(these were my reasons at that point in time, please don't take this as advice)
a) Cheap - At around mid 2015, SCI's price quite "cheap" compared to the previous few years, or that's what I thought.
b) Prominent - Sembcorp's business and name can be seen around the whole island, due to their energy and waste management segments. I think many bins have their name printed on (if I'm not mistaken). Anyone who have went through NS will have seen ST Engineering's stuff before.
c) Defensive - There will always be wasted generated, and homes to defend... right?
With these "research" done, so began my journey into investing. I deem this as a pseudo-headless chicken mistake, because at that point in time, I thought I had done the research and knew what I was doing. What ended up happening was a year of me trading around the counters. I had no plan in mind when trading, and could not justify my actions, but I thought I was well prepared.
While I ended up breaking even after a year, there was no progress in terms of knowledge or wealth. So that was a real waste of time.
Learning Points
Here are some things that I learnt, after reflecting on the 2015-2016 period.
1. Don't just go into a company because you're familiar with the products.
Just because you see a company's products everywhere, doesn't mean that the company's business is profitable and healthy. Also, the company could be doing much more than what you see (eg. SCI with SembMarine).
2. Low prices compared to historical prices doesn't mean it's cheap.
This pertains to what I call the reversion to mean "trap", which I might write on in the future. But basically, a company's fundamentals could deteriorate. Just because prices drop doesn't mean that it's definitely a steal.
3. Do you understand the business?
Unless you're a purely technical trader, you should understand your business before putting any money in. Put in more effort than 10 minutes of reading a forum/googling. If it were that easy, everyone would do it. There's no need to crunch all the numbers in the thick annual reports, but at least be able to explain a few things such as: breakdown of company segments, recent business decisions, trends, outlook.
Be open to criticism, pitch your ideas and encourage opposing viewpoints. An echo-chamber is the last thing anyone needs (all the more so if you're new or inexperienced).
4. Have a plan and stick to it.
If you're trading, do your technical research, charting or whatever. Come up with a trading plan (profit taking level, stop loss level, duration) and stick to them.
If you're investing, do your fundamental research, read the reports and come up with an investment thesis. Basically, write down why you're buying at a certain price, as well as how you came about with the "cheap" valuation. Write it down, so that in the future you can compare and see if the fundamentals have changed. If it has, you can reconsider your position.
In general, the main benefit for having a plan (and sticking to it), is for development and improvement. If you don't have a plan, you won't know where you went wrong, and you won't be able to improve and learn from it.
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Cheers,
InvestingNugget
Author's note:
At the point of writing, I am not a shareholder of Sembcorp Ind or ST Engineering. I have put in my best effort to ensure that the facts are accurate, but I do not guarantee it. Opinions are my own and do not constitute any recommendations.