Dennis's Dozen

[dragonhart2]

Found it in the Shareinvestor Archive!

Dennis' Dozen - 12 Things to remember when investing:

I've benefitted a lot from some postings on this forum. I would like to share what learned from both "practical' lessons and from what I read to share with you:

1. Never invest with money you can't afford to lose.
We should build up sufficient cash reserves to cover at least next 6 months' expenses ("Just In Case Fund") before we invest any excess money. Don't touch the "Just In Case fund".

2. What's the story? Only invest in a company which has a good story to tell because this is how analysts and fund managers "sell" to their clients. That's why you see some stocks overlooked even when they are "OK" because these stocks don't have a compelling story.

3. You can't lose money taking profit, you merely made less profits.
There are times when prices shoot up after we sell, instead of crying over the "gain forfeited", move on. Maybe look at the company again, if it still make sense, buy it on dips or look somewhere else.

4. Holding power is key.
Sometimes a company's stock price drop in line with overall drop in market prices, even though it's a "good" company. Hold on to the stock, if the story still makes sense and the market is not in a prolonged declining trend (bear market). If you don't have holding power eg. buying more shares you can afford to take "delivery" or buying using your "Just In Case Fund", then you may be forced to sell even when prices are "abnormally" low.

5. Note that human beings are "Emotional" beings trying to be "Rational" beings, not the other way round.
That is why when sentiment is bearish, people "wait and see". However, when prices already shot up in a bullish market, people just rushed in to buy. That also explains why there will always be market crashes and market booms......because Human behaviour is steered by "fear" and "greed".

6. Therefore, we should try to be emotionally detached when we invest.
Don't hold onto every stock you buy. When an "egg" has become rotten, more often than not, it is likely to remain rotten. Eg. Goldtron and IPC. It will still be a long way for them to recover as there'll be much shares in the market when lenders convert their debts to equity in the debt-restructuring package.

7. The Name of the game is to "Win more than you lose".
Even gurus like Peter Lynch admits that he made many investment mistakes picking some "lemons". Note, these people have become successful not because they win all the time but because on aggregate, they win more than they lose.

8. Think long-term even when investing short term
If you buy on rumours hoping to "contra" and make a quick gain, most likely this short term "hold" can become long term when prices didn't rise as expected. So, before you buy, you must be comfortable to hold the stock even when it's meant for short term plays.

9. Stock market is usually at least 6 months' ahead of the real economy
Therefore, in trying to figure out the trend of prices (whether it's up or down), we need to look beyond what is currently happening and project what are the likely scenarios 6 months down the road for both Macro (the overall econom(ies)) and Micro factors (the company you're looking at). This is never easy and there're always risks that you might be wrong - which is why sometimes you make gains, sometimes you made losses.

10. Diversification can reduce risks without reducing returns.
Long term historical trend record of global indexes beating individual countries' indexes shows this.

11. "Timing the market" only make a difference when your investment horizon is less than 10 years.
Historical trend analysis has shown that you can make money even if you invest at the wrong time, eg. Invest at market peak just before the market crash.

12. Regular Investment Plan is One Way to Beat the "Timing" Problem
If you invest on a regular basis (eg. monthly) through unit trust etc, you don't have to worry about timing because with a fixed sum, when market is high, u will automatically "invest" less and when market is low, you will invest more. In the long run, you will achieve lower average cost because of "dollar cost averaging" effect.

[learner]

Anyone suspects that Dennis changed his mind on one or more of the items above? If yes, which item(s) do you think?

[kklok]

Anyone suspects that Dennis changed his mind on one or more of the items above? If yes, which item(s) do you think?

Hi Learner,

I will give it a try

4. Holding power is key.
If not wrong Dennis no longer practise this. He will just let the market tell him the direction.
It make no sense to hold when you can buy back at a cheaper price during a crisis.
In investment one must learn when to cut loss if needed.

10. Diversification can reduce risks without reducing returns.

11. "Timing the market" only make a difference when your investment horizon is less than 10 years.
From the Millionair Seminar, Dennis did mentioned before Oei Hong Leong said "It is all about timing"

Cheers
KK

[PatTalk]

I also think 4 and 10 but not sure on the timing 11.
On 12, I known he against UT. He always say the bank/financial sales person make money when you buy or sell from them. They will make money but not you. He have no longer keen with UT. The strategy of buy low to accumulate may be make sense but I don't think this is his strategy any more.

Just share my view

Anyone suspects that Dennis changed his mind on one or more of the items above? If yes, which item(s) do you think?

Hi Learner,

I will give it a try

4. Holding power is key.
If not wrong Dennis no longer practise this. He will just let the market tell him the direction.
It make no sense to hold when you can buy back at a cheaper price during a crisis.
In investment one must learn when to cut loss if needed.

10. Diversification can reduce risks without reducing returns.

11. "Timing the market" only make a difference when your investment horizon is less than 10 years.
From the Millionair Seminar, Dennis did mentioned before Oei Hong Leong said "It is all about timing"

Cheers
KK

[johnltc8]

UT he ment STI ETF offer by Phillip share builder plan(SBP).

Cheers
Johnson Lim

[Battleship]

Hi all,

You can learn a great deal of stuff from Oldman, Dennis_dozen, Warren and Mossie. I really think it is worth spending your time reading their comments. I have been spending my past few weekends reading and have gained alot. Just a reminder to the rest not to miss those info. Thanks Alvin for bring this up in the last Investing mentor's session.

http://forum.shareinvestor.com/archive/