Author: stlplace

Set a realistic goal, e.g., 20% return in one year. Don’t get too carried away from other people’s success and try to emualte it without learning its risk.

I have some hefty goals in the past two years. To be more exact, although I don’t have a number (for percentage gain), I know I have some wild expectations from time to time. When I bet on the earning reports of Netease (NTES) last November, I have two chances to make 10% gain but I was expecting more. Eventually I lost 20% instead because the actual earning report is not as good as wall street expected. Note the “Wall Street expectation”. We know the stock price is ultimately determined by the earnings (how much money the company make), but in the short term, it is also related to the Wall Street expected earning and the actual earning. If it beats (like Google did in last few years), the stock soars; if it misses, the stock tanks (like DELL did lately).

OK so much for the expectation. Back to the goal, besides the percentage gain. I think we also need to determine how much money we want to put in the stock market. This is important because we also need to pay bills (food, cars and house), and save for retirement. I like Jim Crammer’s “mad money” definition on this. Basically as the name suggests, we should only put the money we don’t need to use for a while (maybe 6 months to a year), a.k.a., the mad money into the stock market. I made mistakes on this because twice I had to sell the stocks because I need the cash for something. We should never let this happen. This is just a sign of poor budgeting. We should sell the stock only if “we think the stock price peaked, or we are confident there are other investment opportunites with better return/less risk”.     

This planning and expectation thing also applies to other aspects of life very well. I think a lot times we feel disappointed about someone or something because we had too high expectation. Another good example, Saint Louis Cardinals won the 1st division series games against San Diego Padres this afternoon. Because a lot people expect Padres will win (low expectation for Cardinals), I feel very happy now.  

Grass is always greener on the other side. I first heard this from a coworker and I found it describes human nature very well. Remember when we were kids, some of us felt the meals at our neighbours or relatives’ home taste better the our own home?

I made this mistake when I first started trading into stock markets a few years ago. It ususally happens like this: so I bought this stock, hope it to go up higher (it did not); on the other hand, other stocks in my watch lists went up. So what did I do? I became impatient, I swap out of my stock with the one went up. The results? Not so good (certainlly this is not the only mistake I made in past 2 years).

This year I took a different approach. I bought Symantec (SYMC) last December and I still hold some of them (the reason I sold some is another lesson I will talk in another day). So far this security/storage software giant did not disappoint me: it went up more than 20% from the price I bought. From time to time I also had the distractions I mentioned above. I had about 10 stocks in my watch list and some times I felt it’s a real good time to buy a stock because it’s cheap (relative to its intrinsic value). Panera Bread (PNRA) fell to $48 about a month ago, it traded at $60 lately. But when I examine more carefully, the percentage gain for those stocks is similar to Symantec stock I have, if we ignore the duration of time, for instance, NBR (large cap oil service) went from $56 low to $70 high, JCG (retailer new IPO) went from $25 to $32, and AGIL (small cap software) went from $5.50 to $6.50. Note the new IPO or small cap stocks usually has more risk, and we should expect more rerurn for more risk (otherwise, why all these sleepless nights before quarterly earning reports 🙂

By the same token, sometimes we make the same mistake on work and personal lives. When I first started programming job (using C and C++), I wasted a lot time taking certifications on Java and some other areas in IT because I thought those are “cool”. I also thought about moving back to China because I thought life back home is much more colorful than midwest; and the development in China means more opportunities in career development. This probablly has some merits. But again we should not ignore the downside of the other side either: more competition, more stress at work, more crowded (on street and housing), and hard to drive a car 🙂

I believe we should resist this “greener grass on the other side” thinking when looking for the life partner. For instance, when you look at other attractive girls when you are with your girl friend, you know what you will get from your girl friend 🙁