Friday, 26 August 2011

Kungfu and/or? inner strength

This post is specially dedicated to BB AK in Cbox. As many already known, his blogs are famous and he has many readers who ask him finance related questions. To many of us readers, we admired his kungfu. However, not many of us have his inner strength. 


In stock market, different traders and investors have different kungfu. It may be easy to know and learn other people kungfu but applying it is not that easy.

As a summary, BB AK’s kung fu is:
  • Buy more when price hit new low at resistance and with positive divergence.
  • Don’t sell when the prices form new lows, instead reduce exposure on rebounds.
However, normal people like me cannot keep buying more when price hit new low. We don’t have enough inner strength. If we did that, the % of that stock out of our entire portfolio will be too high such that it causes us sleepless night. Subsequently, many of us will just panic sell when the price keeps hitting lower low, while BB AK keeps buying from us HAPPILY. (Quoting from beary, "AK will win money no matter what.") When rebound really come, we will all regret on hindsight.

Therefore, this boils back to the very fundamental issue of mind and money – the need to train your mind to sit tight when price high and not to panic sell when price goes lower.

Personally, a very good way not to panic sell in bear is to manage your money allocation well. For example, if you have 100k, you put 5k into each stock. This stock only takes up 5% of your portfolio. In addition, due to your prior experiences with losses (see http://opposethetrend.blogspot.com/2011/05/sharing-on-how-to-be-emotionless.html) and the fact that you know how long you can replenish that money from your working income, you will not easily panic sell and can sleep well in night. If you are comfortable with 10% per stock, you can add 5k later to average in. (not average down.). Do not keep averaging down if you do not have enough inner strength. You will 走火如魔,死无全尸。

In short, plan your money allocation well first as this will indirectly train your mind to follow the most simple rule - buy low sell high. 

Remember, you can only be invincible if you have great kungfu with good inner strength and mind.

5 comments:

Createwealth8888 said...

Read? Bear market is here. Let's accumulate more by average down? (2)

AK71 said...

Hi ot,

You do me great honour but allow me to share my plan and "kung fu" here as your description needs some fleshing out:

Sleep well at night with a plan.

CapitaMalls Asia: Gap closed at $1.325

Thank you, shifu. ;)

Singapore Man Of Leisure said...

Good one OT!

Let me stick out my neck and hazard my 3rd party Bard's take on AK.

Using your analogy, Kung Fu is Method, and Inner Strenght is Money Management. AK's plan to me is Method - he don't fight freestyle. LOL!

The most illusive and near impossilbe to copy (applies to other Gurus too) is Mind.

We are all different! All the Kung Fu and Inner Strenght in the world is no use if we freeze - pull the damn trigger!

AK's discipline? Nah! I admire more his "stubborness". He has the Hero ability to go deaf when people offer him well-intentioned advice.

Please don't hit me AK!

AK71 said...

Hahahahaha... SMOL, your comment brought tears to my eyes. ;)

Read the comment by W in this blog post of mine on silver:

Gold or silver?

If I had listened to him, I would have missed the boat on silver. ;)

Some cboxers, I remember, made rather derogatory remarks about my decision to invest in silver (and gold).

One said it was a ponzi scheme and another said it was not investment but speculation because it does not provide cashflow. Well, I did it my way.

Stubborn to the core? Maybe. :)

OT83 said...

Dear experts,

I am honored to have your comments!

CW, I had read that post before. It let me understand what is the difference between average down and average in.

AK, I am glad that you like the kungfu panda. I must work hard and gain good internal strength. Hopefully one day I can overtake you :)

SMOL, you are right. AK has a plan and execute it. Not many people has his level of mind. We need to train our mind more.

Post a Comment