Saturday, June 30, 2007

Investment Mistakes Part 3 – Trying to Time the Market

This mistake is, of course, a classic for most discerning investors and somehow must be made at least ONCE before a person learns his lesson. In my case, this was a very painful lesson as I lost about 5% of my capital (amounting to several hundred dollars) within a span of 3 days.

The counter in question was called Keppel Telecommunications and Transportation (Keppel Tele & Trans or KT&T). I bought in on July 22, 2005 at a price of S$1.46 and sold out at S$1.40 on July 25, 2005. At the time, I had no inkling on doing proper fundamental analysis and was simply keen on buying on rumours and tips. I got wind of chatroom gossip mentioning the KT&T will be making better profits this quarter as compared to the previous quarter. I bought in 10,000 shares without doing the requisite research on the company and also without checking on valuations. I was also confident of a good dividend which would boost the share price in the short-term. In short, I was guilty of short-termism and attempted to contra.

Ultimately, the company declared a capital distribution and flat earnings which caused the share price to tank. I was totally clueless about why the share price did not manage to hold and was hoping that it could magically go up. However, after about 3 days I realized that it was futile to keep hoping for a miracle and sold off my shares at a contra loss.

Lesson Learnt: Do not try to contra unless you are an expert at reading charts and graphs. Value investors do not try to time the market, neither do they react to price trends. What to look for is value, and valuations are what drive the company’s share price. Another mistake was trying to contra with more than available funds, which resulted in me being unable to “pick up” the shares. This forces one to contra no matter whether he has a gain or loss, and essentially creates a lot of panic and sleepless nights (which I could do without !).

Always apply proper valuation techniques if you wish to assess if a company is worth investing in, and this will be highlighted further in my research series.

4 comments:

Anonymous said...

Are you a member of The Value Circle - Asia's top value investors community who seek out cheap but good stocks listed on Singapore, HK exchanges etc?

Full members can also use the initials "TVC" behind their name for name cards as a mark of a top fundamental analyst.

Check out www.thevaluecircle.com

I believe you would qualify.

musicwhiz said...

Hi there,

No, I am not a member of the esteemded Value Circle but I have heard of them and visited their website before to download samples of their reports. Apparently, you need to do an in-depth research report and write some essay and submit it to them for approval before you can be admitted into the ranks of the value circle commune.

Upon your recommendation, I will perhaps surf by the site once more to check it out. Thanks for your comments/compliment and I really appreciate it very much. :)

termsandconditions said...

thx for the article. Lesson learnt dont contra. Do you have any opinion on chemoil? i wanted to buy swiber since 1.30 cents but its been going up and i cant see how far valuations have gone. Thanks

musicwhiz said...

Hi termsandconditions,

I don't really know much about Chemoil so I can't comment. There are really far too many companies on SGX for me to do detailed research, so hope you can understand when I say I don't know much about a company. Doing detailed research requires much time and effort, and usually I will carefully select a potential company to research before I even begin.