Tumble Mumble is a failure and I lost $6,000 from trading
I have not been blogging for a long time. You can say I am reflecting on the Tumble Mumble concept. Oh wells, it is a failure.
Losses had reached $6k SGD, and this is bad as I am near my next phase of life. Basically, coupled with a huge expense incurred in October 2018, and cut in salary due to career change, this has significantly impacted my morale in trading and quality of life.
Was Tumble Mumble all wrong?
Why should you buy into stocks that have already dropped a lot right? Losers are gonna stay losers.
I doubted my own idea. Other ideas came into my mind – Buy & Hold is better? Trading into tumble mumble is too stressful for myself?
I certainly needed a better strategy that is less stressful and higher profit rates. I had tried to put stop loss positions, but this backfired as tumble mumbles are volatile and hit stop losses easily. Yet, I refused to give up on Tumble Mumble idea. This is where I decided on a hybrid strategy.
Inspired by Vince Chew from REIT-tirement, and the fact that I have not purchased any significant endowment or investment plans with any insurance firm, I began this portfolio. It is largely modelled after shifu, Vince’s model.
It is a simple model where I put in $5,000 quarterly, and aims to invest about 90% of dividends back into the markets. And, where is the money going to?
REITS! I had done research on past dividends and will run a personal model to identify purchase opportunities. These are the list that has growing dividends that we should invest in:
Frasers Com Tr
Frasers Cpt Tr
Keppel DC Reit
EC World REIT
Mapletree Ind Tr
Mapletree Comm Tr
Frasers Log Trust
CapitaR China Tr
Mapletree North Asia Comm Tr
Mapletree Log Tr
Below picture shows the model Vince has prepared for me:
I have invested in 2 REITs so far – Frasers commercial trust & CapitaR China trust. $70 collected in dividends.
I was wrong. Incurring 6,000 in losses through trading has made me realise that I am prone to all the bias I can ever have. Or, the poor trading psychology that made people lose money to the professionals.
Finding out why I lost money
I asked my industry friends (from Wholesale Investment banking), and they themselves admitted that they rely on financial ratios instead of complex models. I read a book – A random walk down wall street by Burton Malkiel.
The book shared that it does not make sense to stock pick. Given the long-run, monkey will be better investors compared to the pros anyways. It makes much sense to just dump money periodically into ETFs.
Wells, I am really going to dump money periodically into REITs. But still, I want an answer to why tumble mumble did not do well.
Giving myself time
Refusing to give up, I gave myself until year end to prove that Tumble Mumble is not an all-gone concept. I remembered reading about such a hedge fund manager who buys into stocks that drop a lot, but I cannot recall who.
I admit I am wrong and I need to change. 2 months later, I have gathered that I have to tweak my mentality and strategy…
Mentality and Strategy
Observations made by buying into shares that dropped 20% or more in a day:
- 90% of the stocks that I bought into, would rise to a profitable position if held onto long enough.
- I got involved with penny stocks. (Market cap <$500m)
- I meddled with loss-making companies.
- Not all Tumble Mumbles will lead to a rise in stock price given time.
- Not confident in trades made.
By buying into penny stocks, I was unable to treat it as an investment and hold it well. The fear leads to closing of loss positions.
In order to increase confidence in trades made, I combined technical and fundamental analysis. Or, what others call, identifying undervalued opportunities.
New set of criterias to guide my Tumble Mumble purchases:
- Market cap has to be close to $1b at least.
- Company has to be profitable.
- Good current ratio (at least 1.5)
- Good quick ratio (at least 1)
- Best to be still enjoying growth in revenue and EPS despite not meeting analyst estimates
- Best to be in a sector that has growth, eg IT tech, Bio tech.
- Positive cash flow.
- News does not seriously jeaopardise bottom line.
- Lastly, Shares has dropped significantly. A 4% drop is significant in McDonalds (blue chip) vs 30% drop is significant for Grubhub (Market cap $3.26b company that deals in food delivery tech).
- Good broad outlook for shares – Low interest rate environment.
Good cases recently – Arista networks, Credit Acceptance Corp, Grubhub, Merit Medical systems, Rogers Corp.
Combining Technical and Fundamental analyses
The whole concept of profiting from market is that share prices has to rise. To rise, the stock has to attract buyers. Buyers that move the market are more often that not, Fund managers and other institutional investors.
In order to attract such buyers, the company need to have a certain market size, be part of certain Indexes, and has good fundamentals.
After falling significantly, you can get in and await the bounce up – be it from the institutional investments or covering of short position.
Talking about the technical part, you have to watch the markets for a bit. Buy only around 2-3 hours after market opens, where the share price stabilises. Do not rush in.
Losses has been trimmed to just $5,000. Strategy and skills remain to be improved further.
Will I succeed in trimming all losses? I don’t know, but I will persevere on..