Investment in Stocks

If you're new here, you may want to subscribe to the FREE "Investment in Stocks" eCourse on the right hand side or to my RSS feed. Thanks for visiting!

Options in Stock Investments?

I first learnt about options in my university in Business School. Options are used for hedging risk for investments traditionally, i.e. people use options to reduce their risk, so they pay others to take on their risks.

Options are very like insurance. Stock owners wants people to insure them in event anything happens to their stock, e.g. stock price plunge, and they are willing to pay “insurance” premium to be protected. This was probably the origins of options.

But today, most of the people use options to speculate and trade. Options can give a trader very high leverage. This means, options can potentially make you returns of 100%, 200% even 1000% in a month or even weeks. The issue is consistency. Buying lottery can give you amazingly returns. You pay a relatively small sum of perhaps, $10 and can potentially get $1million in return. The issue is that you may never ever win the lottery.

Of course, the chance of winning using options is much higher in the stock market. But understand that, typically speaking, in order to win in options, you got to choose the right stock, at the right price, within the right time frame. Again, this is a general view. But unlike stock investment, where we need to choose the right stock and buy at the right price, using options, the need to be correct within a certain time frame is important. The reason is because options has a limited lifespan. After a certain date, the option expires and become worthless.

In this post, I would just like to give a quick insight on options, but having said that, I see that I have to go into more basics of an option and I will do that in the next post.

Click HERE to book a Free Investing Workshop.

Sean
Master Trainer (Value Investing Options Strategy)
Investment in Stocks Blog
Value Investing Academy – the Warren Buffet Way
http://www.investment-in-stocks.com

Philosophy of Great Investors II

“Be fearful when others are greedy. Be greedy when others are fearful.”Warren Buffett. Chairman, Berkshire Hathaway

 

“The basic question facing us is whether it’s possible for a superior investment manager to underperform….The assumption widely held is ’no.’ And yet if you look at the records, it’s not only possible, it’s inevitable.”

Robert Kirby. Founder, Capital Guardian Trust Company

Recognize That Short-Term Underperformance Is Inevitable

Almost all great investment managers go through periods of underperformance. Build this expectation into your hiring decisions and also remember it when contemplating a manager change.

“The function of economic forecasting is to make astrology look respectable.”

John Kenneth Galbraith. Economist and Author

Disregard Short-Term Forecasts and Predictions

Don’t make decisions based on variables that are impossible to predict or control over the short term. Instead, focus your energy toward creating a diversified portfolio, developing a proper time horizon and setting realistic return expectations

 

 

“You make most of your money in a bear market, you just don’t realize it at the time.”

Shelby Cullom Davis. Diplomat, Legendary Investor and Founder of the Davis Investment Discipline

 

 

Click HERE to book a Free Investing Workshop.

 

Sean
Master Trainer (Value Investing Options Strategy)
Investment in Stocks Blog
Value Investing Academy – the Warren Buffet Way
http://www.investment-in-stocks.com

 

 

Philosophy of Great Investors

“Individuals who cannot master their emotions are ill-suited to profit from the investment process.”

Benjamin Graham. Father of Value Investing

Avoid Self-Destructive Investor Behavior

Chasing the hot-performing investment category or making major tweaks to your long-term investment plan can sabotage your ability to build wealth. Instead, work closely with your financial advisor to outline your long-term goals, develop a plan to achieve them and set the expectation that you will stick with that plan when faced with difficult periods for the market.

“History provides a crucial insight regarding market crises: They are inevitable, painful, and ultimately surmountable.”

Shelby M.C. Davis. Legendary Investor

Understand That Crises Are Inevitable

Crises are painful and difficult, but they are also an inevitable part of any long-term investor’s journey. Investors who bear this in mind may be less likely to react emotionally, more likely to stay the course, and be better positioned to benefit from the long-term growth potential of stocks.

“Despite inevitable periods of uncertainty, stocks have rewarded patient, long-term investors.”

Christopher C. Davis. Portfolio Manager, Davis Advisors

Understand While Painful, Crisis Creates Opportunity

Low prices can increase future returns. Investors who bear this in mind are more likely to endure hard times and be there to benefit from the subsequent periods of recovery.

“Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves.”

Peter Lynch. Legendary Investor and Author

Don’t Attempt to Time the Market

Investors who understand that timing the market is a loser’s game will be less prone to reacting to short-term extremes in the market and more likely to adhere to their long-term investment plan.

Click HERE to book a Free Investing Workshop.

Sean
Master Trainer (Value Investing Options Strategy)
Investment in Stocks Blog
Value Investing Academy – the Warren Buffet Way
http://www.investment-in-stocks.com

Warren Buffett’s 2 Rules in Investing

Warren Buffett has 2 rules in Investing.

Rule #1: Don’t lose money.

Rule #2: Refer to Rule #1.

Personally, I love these 2 rules because losing money is not only painful, but it decreases your chance of your financial dreams dramatically.

Imagine you started with $50,000. With the right rate of compounding of say 20% and when you let it compound long enough, you can reach $300,000 in 10 years, $500,000 in 13 years and even $1million in 17 years.

You realise that it takes 10 years to reach $300,000 but from there it only takes 3 years to reach half a million and only 7 years to reach a million. Compounding is very powerful.

But imagine did not invest wisely and you lose 40% of your capital. This means that you are left with 60% x $50000 = $30,000. You need to make back 67% to gain back your initial capital.

And if you lose 50% and end up with only $25,000. You need to make 100% of $25,000 to get back $50,000. This is easy to lose 50% but it is not easy to make 100% returns.

This is the reason why I really hate losing money and that is why I stick to studying every company before I invest into them.

Click HERE to book a Free Investing Workshop.

Sean
Master Trainer (Value Investing Options Strategy)
Investment in Stocks Blog
Value Investing Academy – the Warren Buffet Way
http://www.investment-in-stocks.com

Stupid in Small

I once heard a story of Warren Buffett playing golf with Bill Gates and their group of friends, not sure if it is a true story, but I found the story behind it very powerful. And also, personally I don’t play Golf so please pardon me if certain terminology is inaccurate. The group of friends came to the Par 3, which is apparently the one which has the highest chance of scoring a Hole In One (hitting the ball into the hole with just one stroke.) Warren got into position to take his turn when one of the friends called out “Hey Warren, just have a bet. If you hit a Hole in One, I will give you $20,000!”

Warren turned and ask, “And if I miss?”

“Well… if you miss, you pay me $20.”

Warren thought about it for a second and said, “Bad odds, no deal!”

The group was shocked that Warren would not take up the bet. After all, he was risking $20 for $20,000.

They questioned, “What do you mean bad odds?”

Warren replied, “The bet is $20,000 is to $20 which means the odds is 1000 to 1. But that chance of me hitting a hole in one is less than 1/1000, so bad odds, NO DEAL.”

Bill Gates went to Warren Buffett, “Come on Warren, you are a billionaire and it is only $20. Can’t we have some fun?”

Warren’s reply was very profound, he said, “Stupid in Small, Stupid in Big”. To Warren, if you are stupidly manage a small sum of money, you will be stupid in managing big sums.

Click HERE to book a Free Investing Workshop.

Sean
Master Trainer (Value Investing Options Strategy)
Investment in Stocks Blog
Value Investing Academy – the Warren Buffet Way
http://www.investment-in-stocks.com

Why I don’t follow the Financial News?

Personally, I do not follow the financial news. I won’t know that the market had crashed until a friend tells me.

I remembered that Warren Buffett’s teacher, Benjamin Graham once telling him to look at the stock market as a partner named, Mr Market. He also mentioned that Mr Market is a great partner, but is a lousy advisor. Mr Market had mood swings and would at times price stocks at high price and at times price stocks at low price. If we know that ABC stock is a good price, when we buy it from Mr Market? Of course we should buy it at the low price!

The reason why I don’t follow financial news, is because my judgement may be clouded by the news. Those reporters and advisors on TV are really persuasive… Even though I know that my judgement on a business has been through logical studies, but when these fellows speak on TV, my confidence began to shake… And come on, if you follow news long enough, you know that 95% of the time, these guys are not accurate in their predictions!

So rather than listen to the news, I wait for people to tell me that the market is in a bad shape. There is when I go into the market to look at the price of the stocks I shortlisted. Read  carefully, I go in and look at the price, not the news and stories… And when the price makes sense, I grab them at a bargain – sweet!

Click HERE to book a Free Investing Workshop.

Sean
Master Trainer (Value Investing Options Strategy)
Investment in Stocks Blog
Value Investing Academy – the Warren Buffet Way
http://www.investment-in-stocks.com