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This coming Chinese New Year, many investors will have little to cheer about given the bearish market outlook. Many investors have seen their portfolio diminished in value and are feeling the pain of losing money in the stock market. Are you one of those investors who feel depressed over the recent stock market decline? If so, then brace yourself for further drops in the stock market because this is going to be a long ride. With China’s growth engine slowing down and the unexpected oil price rout, you know it is not going to be business as usual.

My Investment Mantra

As a wealth builder, my mantra is always to diversify my wealth on different assets. I have bought a bit of gold bullion, purchased insurance endowment plans and recently bought some K1 Ventures shares. I prefer to buy stocks during bad times because it is only during this period of time that you can buy stocks at reasonable prices. During bull market conditions, a lot of amateur retail investors would have pushed up the prices to ridiculous levels. The key thing is not to be greedy and set entry and exit levels when it comes to buying stocks at bargain prices. In doing so, you would more or less take the emotions out of investing.

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Lessons Learned

The worst mistake of an investor is to be emotionally attached to the stock that he invested in. Sometimes it is because investors fear the pain of losing money but most of the time, it got to do with ego. After all, nobody likes to feel like a loser and hate telling others that he lost monies in stock investments. When I started investing in shares, I made this mistake too. Even though I did a lot of research on the companies that I invested in, I refused to set entry and exit levels and did not implement any measures to mitigate potential risks. I refused to admit that I have made a wrong decision when it comes to stock picking. As a result, I suffered from the typical investment blind spot.

My philosophy back then was to adopt a buy and hold strategy and dream of having an investment portfolio that delivers steady stream of passive income. But I overlooked the fact that the market moves in cycles and business conditions change all the times. So when the market turns against me, I was caught cold and did not cut loss. One of my stocks, China Enersave almost got liquidated twice. Needless to say, all the profits from my other stock investments got wiped off by this toxic stock.

The bottom line is simple: you must have a strategy when it comes to investing in the stock market and you have a game plan in hand to deal with adverse market situations. Your framework will guide you through good times and bad times, so that you won’t feel distraught by stock market corrections. When the stock market is in correction mode, investors can consider short-selling to quick money. Although generally seen as speculative and risky, short-selling plays an important role in the market as it allows more efficient pricing of equities and facilitates hedging activities. If you know that a stock is being targeted by the big boys for a price fall, then you may want to join in the fun. Do note that you must have arrangements in place to avoid settlement failures. Otherwise, you might be penalized for settlement failures under the CDP Clearing Rules.

 

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Updated: July 28, 2017 — 3:22 pm

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