I have always been a fan of Seth Godin as I find his ideas are brilliant and are brought across in a manner that is interesting and easy to understand. Recently, I read his book titled, “The Dip”, and I found it relevant to adapt his concepts into the realm of investment though he did not really intend to.
Lesson 1 – Diversification is mediocrity
“A woodpecker can tap twenty times on a thousand trees and get nowhere, but stay busy. Or he can tap twenty-thousand times on one tree and get dinner.”
Do not diversify, focus on the winner. This is what Warren Buffett does. Do not waste your resources, I believe your money is scarce, so put it in the right place.
Lesson 2 – Going through the Dip is necessary for success
Economy and businesses have cycles. They go up and down. Stocks and other investment products too, fluctuate. The Dip (or market turning against you) will happen and you must hold them with persistence. Likewise if you are doing dollar cost averaging. If you know you cannot get through the Dip, do not invest.
He futher adds that, “if it is worth doing, there’s probably a Dip”. Investment products like stocks, funds, commodities, etc, contain risks that may cause you to lose money (the Dip). You may choose safer products like bonds or income securities with capital protection. But you will end up average (only able to beat inflation or managed to get a small gain). Thus, to gain extraordinary gains, you need to go through the Dip.
Lesson 3 – Decide in advance when to quit
He mentioned 3 curves in his book. Besides the Dip, the other 2 are Cul-de-sac and Cliff. These are situations that bring you nowhere. These are lousy investments without future. They are not worth holding. Dump them.
Trend followers and traders have cut loss limits pre-determined before they go into an investment. When the market price hits the limit, they sell and quit.
Buy-and-hold investors also have a set of rules to determine whether a business has the potential to gain big earnings. The rules are supposed to determine the Dip from cul-de-sacs or cliffs.
Have a plan. Don’t invest blindly.
You may also like:
- Investing Strategy – Trend Following
- Fail-Safe Investing by Harry Browne
- Why investing in mutual funds or unit trusts may not be a good idea?
Discover the Secrets of Singapore Trading Gurus!
Interviews with Singapore stocks, forex, futures and options traders and trainers! This book is written for you:
- learn how professionals trade
- discover their strategies, money management and approach to the markets
- understand their stories and motivation behind trading
- know your trainers before attending their courses
