World Economics Forum at Davos sets investment tones for 2014

At the annual World Economics Forum at Davos 2014, attended by head of states, economists and CEO of large MNC, this is where lots of information and data about economics were exchanged. And some of these discussions might just gave clue to the investment tone for this year.

Just to highlight some of the good reading and information complied as reference;

1. theguardian.com-five key data sets
2. www.onenewspage.co.uk - Shiller Warns of Global Bubbles
3. www.huffingtonpost.com
4. in.reuters.com-india tapering
5. www.bloomberg.com -Brazil
6. uk.reuters.com - emerging
7. forumblog.org- europes top 10 competitive economies
8. www.bloomberg.com - investors most upbeat in 5 years
9. www.cnbc.com - shiller

What is your investment strategy for 2014?

While I was surfing(usual routine) for information to reinforce my financial knowledge, I came across a video about this value investor, Joel Greenblatt. Apart from being an investor, he is  also an adjunct professor at the Columbia University Graduate School of Business. He devised a system which he had faithfully used and as a result, a book that he has also written - 'The Little Book that Beats the Market'. To most of the people, his system was known as the 'magic formula'. So what is this 'magic formula'.

The 'magic formula' is a simple set of system, which I like, as most of the readers know that I like to keep it simple.  To most of the folks who read or watch about him, most would have known of the 2 criteria, which helps one to select good companies at bargain price. However, there is also the 3rd most important criteria which he mentioned repeatedly in the video above, Patience. And, yes, most of the retail investors wanted to make a quick profit from the market and most of the time, they are more excited with counters where lots of other people are talking about.

If you want to know more about him, there are lots of information and videos in the internet, so I will not share more here. What I want to share is now I have another selection strategy which is simple to execute and a proven track record. 

Below is what I will be using in 2014 and longer if it make sense. In the funnel, you have the selection criteria from Walter Schloss and Joel Greenblatt. The funnel basically provides the guide to what to buy, and the TA tells you when to buy and cut loss.

Greenblatt's formula; source: oldschoolvalue.com

Remember a lot of the experts tell us these;
1. Buy and keep long term
2. Buy low and sell high
3. Dont time the market, always be in the market

But these people never share the how, and this strategy, though boring, addresses the above and keep your risk lower than most people around you.

Last trading day of 2013

I was on vacation when I saw the news of layoffs by HGST and it struck deep in me as I have also heard about friends and clients whom were layoff in the financial sector since last year. This is definitely not the most desired way to end 2013 and start 2014. I hope they have a healthy balance sheet(family) to see them through during these period and that they can find employment in 2014. This further reinforced that one should prepare himself/herself financially so that in the event such a unfortunate thing happen, it is not the end of the world.

As we moved into the last trading day of 2013, I would like to share some of the lessons learnt over the last 12 months. 

Risk and Rewards. Dr Tony Tan once said, and I quote 'when you take care of the downside, the upside will take care of itself'. How wise is the statement, and many times, it has worked for me for those shares that I have bought below their NAV and low PE. Taking care of the risk also means that one needs to cut loss if it does not turn out to be in the direction that you have set out to be. Cutting loss is important as you keep your loss to the minimum so that the profits from the other counters can help to reduce the impact to your overall portfolio.

Know Thyself. Not everyone can be both a trader and an investor. My definition of a trader is one who buys and sells share based on TA, solely TA, and that he/she does not keep shares for long period of time(more than 2 to 4 weeks). An investor is one who uses FA to select the stocks that he/she wants to buy and then uses TA to time the entry and exit from the market. I know where i belong to after having my loss when I tried trading.

Diversify. Although some people said that you dont know what you are investing if you have a diversification of portfolio. I have said this many times, I am not expert so I cant be putting all my eggs into one basket(and besides most of the experts were also wrong during the Lehman crashed) and therefore I need to learn from someone who has proven track record. Walter Schloss holds a portfolio of stocks using his own selection which he has shared and for 45 years, his fund has produced a healthy return of 15.3%. This is very impressive considering that it has beaten S&P500 which has recorded 10% for the same period of time. And besides, the penny crashed that we had in October, can you imagine if you have put all your savings into one of these counter, Blumont Group Ltd, Asiasons Capital Ltd and LionGold Corp Ltd.

Be Patient. I too made this mistake of buying too early, just like most of the investors. I have to constantly remind myself that sometime it is worthwhile just to wait for a few more days before deciding again whether to enter the market. To mitigate this, for the past few counters, I have been entering that market in batches using TA.

In less than 15hrs, we will be starting 2014, what is your investment strategy moving into the new year ...