After I published the previous article "Invest
because of Good Performance", a feedback from one of the readers
has the following remarks and question.
"Undoubtedly the PBond has performed remarkably especially during the last
3-4 months. For someone who has not invested but has only been told about
it now, what technical ( or any other ) indicator is there ( if any ) to
say that it will continue to perform as well ?"
This reader has obviously noticed that different investment instrument,
in this particular case PBond is performing much better than PSMALLCAP
equity fund discussed in the previous article.
I have to be very careful in handling this question as I do not want to
be in the similar behavioral pattern like the typical fund agent to try to
convince investor now to use this particular investment instrument because
of "current good performance."
Remember, in the previous discussion, the fund agent is using the logic
that PSMALLCAP is performing at 65.87% for 4.5 years, whereas KLCI only
4.82%, and that is enough evidence and rationale to invest in this
particular fund.
If now I say that the current performance indicator shows that in the
last 9 months, PBond is giving a return of 6.79%, whereas PSMALLCAP only
2.24%, then PBond is a better fund to invest, I can be as misleading as
the previously mentioned fund agent.
We certainly need to look at investment from a more strategic
perspective and not from the above simple logic.
Other feedbacks go like this : "QuaSyLaTic, I should have taken
your advice earlier" "Or, I should have invested in the said fund
more aggressively so that I can have more handsome and larger profit
now!"
As a disciplined investor, we should not let emotion (regrets) to color
or prejudice our ongoing investment judgment and decision. (Refer :"Psychological and Emotional Treatment in Investment Loss")
Investor's Psychology and Mindset
Investor usually looks for clues or logic to make investment decision.
The reasons can be a) past good fund performance, b) a more promising
economic future, c) simply the logic or belief in long term investment and
diversification, d) refer to experts' opinions, e) gut feeling, f) follow
the crowds sentiments, g) after lengthily research and study, whether
using fundamental approach, technical analysis, or astrology.
With one of the above rationale, or other, he or she makes the
investment.
What happens then?
In most cases, they follow through the logic, rationale or assumptions
and treat that as the "truth, nothing but the truth". If they do
monitor, usually they don't, and if the performance is less than expected,
they "pray and wait" and "hope for the good days to
return."
In the case of investment in the last 9 months, with return at 2.24%
with PSMALLCAP (or negative after deducting the cost and commission),
instead of 6.79% with PBond, they regret and ask for more confirmation for
them to do the switching from PSMALLCAP to PBond.
Most will use diversification strategy, invest in one fund here,
another fund there, some stocks, some properties. Usually the net effect
of the overall investment return is average or poor or negative depending
on the proportion of the diversification and timing and timeframe. If the market is
strong and good, the overall return could just be mere average, and these
investors look at those who did not diversify and ripe the maximum market
return with pathetic eyes.
The above described investor's psychology, mindsets, action and
behavior are those investors destined to lose money in the long run and
they can run into problem during their retirements.
Sound Investment Strategy and Belief
In summary, there must be a fundamental shift in the "Belief and
Investment Strategy" in order to ensure positive and healthy growth
of the investment return.
- With whatever maybe the logic or rationale in choosing a particular
investment instrument at that timing, one should constantly monitor
and validate the original assumption with the actual performance of
the fund or stock. It should be in the planning stage, before the
actual investment, what performance is considered acceptable and what
not, with clear criteria for continuation or exit (escape route to
protect the investment capital)
- One must exercise neutral emotional behavior in a disciplined manner
to follow the holistic plan.
QuaSyLaTic Investment Strategy and Belief
The QuaSyLaTic investment strategy and belief follow the above
principle. At this current timing, we look for an investment instrument
that can give better return than the bank interest or EPF return, while
study is being made for the equity market to be low enough so that high
return can be harvested at the correct timing and timeframe. (Refer the
use of TA tools
for such study). At the same
time, a criteria was incorporated to exit from this investment instrument
to protect our capital and profit like what we did in August, 2003.
(refer previous articles).
This QuaSyLaTic did not, and does not predict that the current
investment instrument is giving such good and steady return in the last
few months. It is a recipe for failure if investor tries to play God to
make prediction of the future.
Once the above strategy is laid down, we go all out and invest (no time
for diversification, which is the recipe for the ignorant) and we continue
to make consistent high return in a big way. (Refer Overall fund
performance.). And you will notice that QuaSyLaTic investors
understand this strategy with several accounts at or near RM 1 million
invested.
For those who cannot follow the above belief and strategy, they will
continue to ask me for tips and advice like the above question posed
- "what indicator that it is a good investment?" "Is it a
good time now to invest?"
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