Buying your first stock...



Image result for magnum 4dIf you are investing in any stocks market , you will have experienced on the stock you first purchased in your investing life . For me , it was a counter call “ Magnum Bhd “ ,a company who operate and manage 4-digit numbers forecast betting in Malaysia. ( yeee.. a sin stock !) . Yap , indeed ,it is a “sin “ stock with quite decent dividend .



There was a story on why am I investing in such counter as a start in my investing life. As you may notice from my post on “ About me “ , I came from a big family with 7 siblings and my father was a construction worker. We are poor and most of my siblings don’t even have chance to complete their primary school ( I am just the lucky one who have chance to complete my tertiary education ).

My father like to buy 4-D and he has won quite a big sum in early days ( around RM10K ) in 35 years ago .  It would have considered as huge sum of money at that time , but since then ..he lost all the money he won plus much more in subsequent years . Obviously , that was my primary intention for me to buy into this counter as it was giving good dividend and recession proof counter. I hope to gain back some money from what my father lost to them ( sounds funny right !).

Experts have identified many reasons which try to explain why people are addicted to gambling or buying 4D/TOTO …. reasons such as greedy / excitement / risk taking / social or peer influents / escapism and of course glamorous when they win BIG were cited among the factors causing people to gamble.

Our Mind …

“Neuroeconomics “ try to explain this in term of our “brain design “ and evolution . Neuroeconomics is a new born field – a hybrid of neuroscience , economic and psychology “ which studies peoples action or reaction when we need to make decision on matters related to economics like investing and choices .

This is one of the book in my early days of learning on the “Behavioral and Psychology “ of investing . The more we understand on how our inner brain react to our decision making in investing , the more we will avoid the “pitfalls or traps “ in investing world.

Image result for your money and your brain

Quote : “One of the themes of this book is that our brains often drive us to do things that make no logical sense, but make perfect emotional sense. That does not make us irrational, It make us Human
Our brain were originally designed to get more of whatever would improve our odd of “survival” and to avoid whatever would worsen the odds. Emotional circuits deep in our brains make us instinctively crave whatever feels like to be rewarding-  and shun whatever seems like to be risky “.
Our minds is much capable to form “ pattern “ and objects in our imagination instead of doing the complex calculation e.g. “probability “.

Now , close your eye and try to imagine the scene of “things “ you would like to buy if you strike a TOTO ..eg Big house , Rolex watch , holidays to exotic place , sumptuous food “ One can vividly imagine that and make us excited and the release of “ dopamine “ after unexpected reward i.e. “win lottery “ make us wiling to take more risk.
Again , close your eye and try to imagine the “probability or odds “ of striking TOTO … 1/ 13,983,816 .

Well , it just a bunch of figure and we can’t really imagine or calculate how “ difficult “ it is to strike the TOTO . Therefore , we will tend to think that striking TOTO or 4D is easy ( just 4 numbers ,,, forget the probability of 1/10,000 in striking 4D .

For the case of my father , he has the bias of “ over confident “ once he have the first strike in 4D … and think odds may be with him again … same for investing , one should avoid “over confident “ once we have some gains in particular stock , it might be due to “Luck “ and not our capability of identifying all the winner most of the time.


I shall try to explain more about “ behavioral gap and psychology impact “ in investing in my future blog post .. stay tuned…


How about you ? do you still remember which counter you bought as your first stock ?


Image result for quotes of the day on investing


Quote : Investing is about probability :
"Investors want certainty, and we cannot give them certainty. We can give them high probability; we cannot give them certainty" ,,, by Charles William Hamilton


Comments

  1. Hi STE,

    On behavioral finance, would you be able to share one particular occasion during your investment journey that you did well, or did not do well because of behavioral finance (whether your action is rational or irrational) and the lessons learned. Thanks

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  2. Hi millionfaith,
    One of the biggest mistake I have in my early investment was the "loss aversion" in behavioral financial . I was holding to a counter called Berjaya Group ( a multi industrial counter ) and a bit of speculative . I lost more than RM 20K on this counter ,, price dropped from a dollar to 20 over cents ,, I am holding it in hopping that the price may rebound ( kind of feeling pain if I sell it ) ,, but at the end I lost more . As for the " did well " areas , I think the behavioral finance will teach us to avoid the " pit fall " in investing and avoid the mistake , like what I quote on the other blog about " walking a dog ". Pit fall like controlling our emotion and not to trade much also avoiding the hot and hype stocks ,,eg , I escaped the dot com bubble and not investing in these counter , think if those holding " creative " at high might be still bleeding now.
    Other behavioral gap we could avoid is the " anchoring " to certain price for particular stock , like 52 week high or low. Also , the comfirmation bias that we always look for news we wanted to hear or read ,,when searching for info. I hope to write more about these in my following blog,, cheers !

    ReplyDelete
  3. Hi STE,

    Thanks for the sharing.

    You are rationally wired, that would make you a successful investor. Most speculators would have their fingers burnt invested in IT stocks during the dot com bubble. By the way, just curious, do you trade at times too (i.e. buy with a mindset to take short term volatility?)

    Sometimes, really hard to know if our action is right or wrong (even due diligence is done). Only time will tell. As much as we need to have patience, we need to determine if we have 'married' the right stock. Love is blind, investing is blind too. There is no certainty, only probability.

    Sometimes, I am aware of the risk getting into or holding onto certain investments, but the thrill and excitement of being right, and having a different general opinion, believing in my thesis made me take the plunge anyway. Having said that, there are hits and misses. What would you suggest me to do to counter such behavior besides strengthen my control over my mind?

    ReplyDelete
    Replies
    1. Hi millionfaith ,

      Haha :) I like your description on holding stocks as "married "..yah Love is blind ,,,the biggest problem is that the one you love does not know you are loving her .. same apply to stock ,,, stock does not know who own them ( love them ) ..so don't have any "relationship" with any stocks !! :)
      Yes , "trading ' is really have fun , especially when we do the betting right ,if we have that in few times , as you said , the thrill and excitement is high !! But as I mentioned ,, this will make us think that we are having skill to " predict " the movement of the price (which is rather random in short term ).. and subsequently have bias of "over-confident " which lead us to have more "trade " .. Always remember that " trading is not a Zero sum game .. because of cost .. in the long run ,, your brokers and SGX will make money .. ( so better buy into SGX instead ,,, just kidding ).
      I am not a trader and I only re-balance my portfolio once a while , base on long term market valuation ( pls refer to my early post on " mean reversion ) to determine the long term market valuation.
      Sometimes I do take some position on market over-reaction on certain counter ,, like ARA /DBS not long ago (even that , i will need to hold the counters for quite sometime to see the market reverting to mean ),,, I hope to make a blog post on this in near future .. so stay tuned .. cheers !!!

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