Preservation of Capital is Always Priority No.1
In the market, sometimes there are many opportunities that can make a lot of money but with big risk, I prefer to lose the chance. For example, currently, the coal and natural gas companies, such as aci and eca, could recovery back once weather will get cold. However, this risk is pretty big in case the weather is not going to be cold. In this case, I don’t purchase any aggressive options for natural gas and coal.
Believes his first priority is always preservation of capital, which is the cornerstone of his investment strategy.
Has only one investment aim –“to make a lot of money.” As a result, often failed to keep it.
Passionately Avoid Risk
The key concept is how to define risk. In term of mathematics, the risk is defined as standard deviation. This is the wrong concept. I think the biggest risk is that you don’t understand your risk position. For example, If the natural gas price is down to $5, then there is no any risk to purchase the natural gas, as the $5 natural gas is even lower than cost to produce. In this case, many companies will reduce the production, then the supply and demand is going to change, and therefore, natural gas price is going to go up.
As a result (of Habit No.1), is risk-averse
Thinks that big profits can be made by taking big risks.
Develop Your Own Unique Investment Philosophy
Warren Buffet: I don’t have that patience and I don’t have that ability to evaluate the business. Plus, I don’t believe buy and hold concept for this period of time.
George Soros: I don’t have deep knowledge of macro economics and therefore can’t get the direction right. In addition, his philosophy is very difficult to understand
Jim Rogers: I believe his commodity theory; however, I am not in the future market with such big long term bet.
Peter Lynch: I like his story with growth stock. I have similar difficult with warren buffet’s
Jesse Livermore: the world greatest trader. I like his story but can’t simulate it as I am not categorizing myself as trader.
Me: Believe that there is always a correction in the market where the price is lower than value. My goal is to take advantage of that correction and leverage is using call option
Has developed his own investment philosophy, which is an expression of his personality, abilities, knowledge, tastes, and objectives. As a result, no two highly successful investors have the same investment philosophy.
Has no investment philosophy, or uses someone else’s.
Develop Your Own, personal System for selecting, Buying, and Selling Investments
Initial prototype has been developed, it is in the test phrase
Has developed – tested – his own personal system for selecting, buying and selling investments.
Has no system. Or has adopted someone else’s without testing and adapting it to his own personality. (When such a system doesn’t work for him, he adopts another one – which doesn’t work for him either)
Buy As Much As You Can
I can intelligent diversification, meaning that we buy sector index, which has maximum profit with minimum risk. This idea is very good for buying options as the premium is relative low but with the same levage.
Doesn’t believe in diversification; always buy as much as he can of an investment that meets his criteria
Lacks the confidence to take a huge position on any one investment.
Focus on After – tax Return
Investment in RRSP, which will take the advantage of tax shelter.
Hates to pay taxes (and other transaction costs) and arrange his affairs to legally minimize his tax bill
Overlooks or neglects the burden that taxes and transaction costs place on long term investment performance.
Only invest in What You Understand
Secular bull market;
Currently, it is energy market and gold market;
Only invest in what he understand
Doesn’t realize that a deep understanding of what he is doing is an essential prerequisite to success. Rarely realize that profitable opportunities exist within his own area of expertise.
Refuse to Make Investment That Do Not Meet Your Criteria
Timing in energy market
Refuse to make investments that do not meet his criteria. Can effortlessly say “No!” to everything else.
Has no criteria, or adopts someone else’s. Can’t say “No!” to his own greed.
Do Your Own Research
Monitor 5 criteria to decide the exit point
Is continually searching for new investment opportunities that meet his criteria and actively engage in hid own research. Likely to listen only to other investors or analysts whom he has profound reasons to respect.
Is looking for the thousand – to –one shot that will put him on easy street. As a result, often follows the “hot tip of the month, always listening to anyone styled as “expert”. Rarely makes deep study of any investment before buying. His research consists of getting the latest “hot” tip from a broker, an advisor – or yesterday’s newspaper.
Have infinite Patience
Patient of doing nothing, when
§ No position in market
§ Position in market with huge loss, or market has no clear direction ($50 in January 2006)
§ Position in market with huge gain
Has the patience when he can’t find an investment that meets his criteria to wait indefinitely until he finds one that does
Feels that he has to be doing something in the market at all times.
If I decide to buy, then buy it NOW, never setup a order a little lower than market price
Acts instantly when he has made a decision
Hold a Winning Investment Until there is a predetermined reason to Sell
My sale rule is the reference point, or 15% up from the market bottom
Holds a winning investment until a predetermined reason to exit arises
Rarely has a predetermined rule for taking profits. Often scared a small profit will turn into a loss, so he cashes it in – and regularly missed giant gains
Follow Your System Religiously
Follow his own system religiously.
Continually “ second-guesses” his system – if he Has one. Shifts criteria and “goalposts” to justify his actions.
Admit You Mistake and Correct Them immediately
Is aware of his own fallibility. Corrects mistakes the moment they become evident. As a result, rarely suffers more than small losses.
Hangs on to losing investments in the hope he’ll be able to break even. As a result, often suffers huge losses.
Turn Mistakes into Learning Experiences
To summarize what I did right and wrong periodically
Always treats mistakes as learning experience.
Never stays with any one long enough to learn how to improve it. Always looks for an “instant fix”
Pay Your Dues
His return increase with experience; now seems to spend less time to make more money. Has “paid his dues”
Not aware it is necessary to “Pay your dues” Rarely learns from experience… and tends to repeat the same mistake until he’s cleaned out.
Never Talk about What You’re Doing
Keep learn it for my lifespan
Almost never talks to anyone about what he’s doing. Not interested or concerned with what others think about his investment decisions.
Is always talking about his current investments, “testing” his decisions against others’ opinions rather than against reality.
Know How to Delegate
Has successfully delegated most if not all of his responsibilities.
Selects investment advisors the same way he make investment decisions
Live Far below Your Means
Yes, I understand the money can be compounded
Live far below his means
Probably lives beyond his means (Most of people do)
It is Not about the Money
Invests for stimulation and self-fulfillment – not for money
Is motivated by money; thinks investing is the way to easy riches
Love what you do, not what you Own
Try to test my system to see how can I challenge myself
Is Emotionally involved with (and get his satisfaction from) the process of investing; can walk away from any individual investment
Falls in love with his investments
Live and Breath Investment 24 Hours a Day
Full aware of my investment
Lives and Breathes investment twenty –four hours a day.
Is not fully dedicated to achieving his investment goals (even if he knows what they are)
Put Your Net Worth on the Line
Put my RRSP on the line to try