12 Mar What is Our Take?
We often have readers leave comments and sending us emails after reading our articles. Many of these are remarks of encouragement and support which we greatly appreciate. Others seek to clarify and point out things we might have missed. We thank them for giving us the opportunity to engage in discussion and learning.
Occasionally we do get some readers asking us for our take on individual stocks. We take that as an indication of trust, that our readers deem us knowledgable enough for them to base their money decision on our recommendations. Once again we appreciate your faith in BigFatPurse.
However, most of the time we refrain from commenting when asked about stock picks and market outlooks. Why are we keeping mum then? Do we want to keep the good stock ideas to ourselves, are we being selfish? Do we not have the confidence to share, are we afraid of taking a stand?
Neither is the case. Allow me to explain. There are a few good reasons for keeping mum.
First of all, there are many factors that cause movements in the price of a stock. Generally, 40% of the movement of a stock is caused by market directions, 30% by developments in the industry, and only the remaining 30% is attributed to quality of the stock itself.
We could be right on the stock but overall market conditions can take a tumble because of a credit downgrade or a debt crisis or a tapering or an impending war or a terrorist attack or a myriad of other reasons and the stock could end up tanking.
If it is a good stock it will eventually recover and outperform the market but it will take time and the volatility would have caused many to sell out before that. Only get into stocks when you are able to withstand the volatility. Unfortunately far and few investors understand this.
(And since we are on this, we are great proponents of passive investing. We believe that 90% of the investors are suited to buying a low cost ETF that tracks the overall market. Only stock pick when you are confident that your system can produce alpha and beat the market).
Secondly, buying the right stock is only half the story. You only make money when you sell. And while we might be here to call a buy for you, chances are we might not be around to call a sell (or a hold). Putting together piecemeal investing advice from different sources is a sure way to disaster.
Finally and most importantly, we believe that the single most important determining factor of investment success is the individual.
Every individual has his or her own unique circumstances when it comes to investing. Each individual brings to the market his or her own strengths and weaknesses, fears and concerns. Some cannot take it when stock prices fluctuate, others get impatient when prices do not move.
We do not know you well enough to recommend an investment that might or might not be suitable for you.
Let us use exercise as an analogy. You want to get fit just as you want to get rich. You see your trim and tanned neighbour heading out for a jog one day and start giving serious considerations to taking up jogging. You call up a doctor and ask him – What is your take on jogging, can it make me fit?
I believe the good doctor would be just as flustered as we are.
Jogging is a good form of exercise no doubt but it is hardly suitable for everyone. An individual who just had knee surgery would do better going swimming or opting for lower impact sports. An elderly individual who has not exercised for a long time might want to try brisk walking first to prevent straining the heart. A heavily expecting lady might want to delay jogging until after delivery.
The doctor will not be able to comment unless he or she knows your circumstances. Just like it is not fair for us to recommend a stock or an investment unless we know all about you, your current portfolio composition, your risk appetite, your timeframe and your investing goals.
Apologies to one and all who have tried to seek our opinion on stocks. We hope this explains. Just as we do not disperse advice flippantly, you should not be accepting advice from just anyone.
No one can possibly know yourself better than you do.
Your investments are counting on you.