Throughout my investing journey since Year 2013, I have made numerous mistakes when it comes to investing but I guess this is part and parcel of my process in learning to be a wiser and more experienced investor.
I'm sure many experienced and savvy investors would experienced such situation before. When do you cut loss when your investment is wrong and when is the right time to cut loss?
Personally I have invested in a number of counters which feels like a value trap for me, especially when you see that the share price has plunged to a new low point of no return. I always encounter the hard decision of whether to hold on to the stock (HODL) or decide to cut loss which is usually a painful one.
Personally, I always try to follow what Mr Warren Buffet has mentioned "Do not make your temporary losses into Permanent ones" hence I will try to hold long term for all my investments to see if there are improvements over the long term but might change my mind if I see that the stock is not improving or if the manager of the particular Reit or company is not actively doing any enhancement or activities that will further improve the value of the company.
Over the years, I have developed a set of criteria on whether I should cut loss for some of my holdings to prevent further losses and to preserve my capital as much as possible when my investment goes South.
Below are a list of stocks that I have cut loss in the past although it's painful:
Current Price as of 15th July 2021:
Ying Li (China) - Bought at $1 and sold at $0.30 - Current price at $0.081 (My worst purchase of a stock)
Lippo Malls Trust - Bought at $0.41 and sold at $0.25 - Current price at $0.064.
Starhub - Bought at $2.75 and $1.74 and sold at $1.66 - Current price at $1.21.
Sembcorp Marine - Bought at $2.53 and sold at $1.66 - Current price at $0.119.
Cache Logistics Trust - Bought at $1.029 and sold at $0.675 - Current price at $0.89.
Fraser Property - Bought at $1.847 and sold at $1.704 - Current price at $1.14.
It is indeed painful to realize your losses however looking back at my decisions made during that time, it seems some of them was right on hindsight to save my remaining capital.
However I understand that we cannot always be right in our decision, such as for Cache Logistics Trust where I have decided to cut loss right before it was acquired by ARA as sponsor and their price have climbed steadily until today at $0.88 although it would still be in the red.
Indeed when it comes to investing, we are constantly battling with Greed vs Fear. Decision after decision. When is the right time to buy and when to sell. Definitely there will not be a perfect answer for us and what we could do is to learn from our mistakes in our investing journey.
Although all of us can't predict how the future will turn out, I believe that our decision making process based should include the following criteria:
1) PE vs NAV
2) Is the DPU falling year on year?
3) Dividend Growth
4) Who is the Sponsor and are they strong?
5) Free Cash Flow of the Company
6) Gearing Ratio
7) Any improvement or expansion plans
8) Any other macroeconomic factors affecting the stock
Everyone have their own mindset and strategy when it comes to investing. And I truly believe that your investment portfolio reflects your vision, personality, risk appetite and the kind of investor you are.
Up till now I continue to upheld my belief in my strategy of holding on to winning stocks and cutting loss on losing stocks. Of course I have made some profits from selling some of winning stocks as well which I will share in the next article but often, we sold too fast when there are further room to grow.
My Investment Strategy:
1) Identify and acknowledge the type of investor are you.
2) Do your research on the stocks that you are interested to invest during your free time including the entry price and exit price that you are ready to take action.
3) Patience is key when it comes to investing. Wait for the right entry point whilst accumulating your War Chest.
4) When price is right or drop to your required level, have confidence and do not hesitate and buy at one lump sum amount to minimize fees as the window of opportunity will last for a short period only before rebounding.
5) Hold long term for your stocks especially winning stocks after investing. However do ensure you are able to hold it long term which can be mean from 6 months to 3 years.
6) Cut loss on stocks that have lose their fundamental value, quality, revenue and DPU. Preserve your capital for better stocks.
7) Do you average down? Yes, I will average down when the price has plunged and if I think the quality and the fundamental value of the stock that I want to buy remain unchanged.
8) Aim for US markets for higher growth and capital gains but ensure you have the stomach for higher volatility.
Regards,
SG Cashflow Investor
