To The Moon

Three Warnings to Remind In Stock Market

1) First and foremost, I don't recommend using leverage to invest. When it comes to investment which I will hold for at least 5-10 years or longer, it has to be money I have and money I don't need for future use. In short it has to be money I can park and sleep well with it. It is important to understand leverage and use it appropriate (disclaimer I only use leverage for trading portfolio but never for investment portfolio). Regardless of one's portfolio size, a failure to control leverage can have devastating effect. Bill Hwang is an example of excessive leverage resulting in huge losses within 2 days

https://www.bloomberg.com/news/features/2021-04-08/how-bill-hwang-of-archegos-capital-lost-20-billion-in-two-days

2) Predicting the stock market/ Time the market

I have said it before that literally no one can predict the market not even the best stock picker can do it so why do we amateurs like to waste time trying to time the market? It is a given fact that everyone want to buy at the lowest price but who has the 'god like' power to know where is the bottom? Successful investors like Warren Buffett, Charlie Munger or Peter Lynch have managed to build a resilient portfolio with track records that consistently beat the market without timing the market.

3) The Psychology of DCA and position sizing 

No one knows for sure how long a bull market can last, likewise for bear market. We can only use past historical data as reference points as a gauge where the market is heading. There is no certainty of course. 

While it is good to have a general view such as bullish or bearish, a good investor should still invest base on your research if price remains attractive and with a margin of safety. The key is position sizing, stick within a comfortable limit and not exceeding it.

Why would I still continue to buy if the general market trend can go lower? Because I know that having a view is good but market can easily turn. Take for example HK/China is generally up 30% since October low, some stocks even surge more than 100%. If you persist with a view that China is un-investable or China will continue to trend lower hoping to buy at a lower low. (I know some investors are waiting for Alibaba to go below $60 to take position, look at where Alibaba is now 😉). With correct position sizing even when market trends lower you will be averaging down your average price. But wait what if you continue to DCA and market continue to head south? Is that a bad investment? If you had done your own research then you should have that conviction that the stock will eventually recover. If you keep worrying about buying a stock and the price keep going down you either do not have the conviction in your research or you did not have a clear timeline for your investment to bear fruits. If a stock I like drop after I buy a position, I'll be happier to buy more at a lower price. It boils down to mindset. 

Having a clear and executable plan and follow it and you should do well over time.