Sunday, 21 June 2009

Short-term gain, long-term pain

Just reviewing my transactions in one of my stocks which I have invested since the 1990s. This review starts from May 2006.

The bought and sold transactions since May 2006

15-May-06 xx Bought at 3.98 Present price 8.35 Gain 4.370
31-May-06 xx Bought at 4.06 Present price 8.35 Gain 4.290
13-Jun-06 xx Bought at 3.92 Present price 8.35 Gain 4.430
26-Mar-07 xx Bought at 5.75 Present price 8.35 Gain 2.600
29-Mar-07 xx Bought at 5.95 Present price 8.35 Gain 2.400
03-Jun-07 xx Sold some at 5.3
28-Aug-07 xx Bought at 8.25 Present price 8.35 Gain 0.100
28-Jan-08 xx Sold some at 8.05
06-May-09 xx Bought at 7.70 Present price 8.35 Gain 0.650
05-Jun-09 xx Bought at 7.95 Present price 8.35 Gain 0.400

Stock xxx Avg Price --- Present price 8.35 Gain ---

The present price of this stock is 8.35.

The annual dividend yield of this stock is better than the present FD rate.

Its share price peaked at 9.25 in second half of 2007.

During the severe 2007 - 2008 bear market, the share price was at the lowest of $6.30 in September 2008.


There were 10 transactions: 10 buys and 2 sells (partial).

Buying this stock at regular intervals has been profitable.

The prices of the stock bought in the early years were lower than those bought in the later years.

The share price of this stock (good quality company) has reflected its eps and eps growth rate over time.

At the lowest share price of $6.30, the average price of all the transactions were still lower than this market price.

Some stocks were sold for various reasons (e.g. to lock in gains/ or in anticipation of market downturn/ asset allocation/ etc.) in Jun 07 and Jan 08 for 5.30 and 8.05. The present price of this stock at 8.35 is higher than these selling prices.


1. Buying this stock for the long term is safe and profitable.

2. Short term volatilities offer opportunities to buy this stock at bargain prices.

3. The above buying is almost akin to dollar cost averaging (upwards) and it is safe. Dollar cost averaging (downwards) is also safe and probably can give even better returns.

4. Selling this stock at anytime during the 2007-2009 severe bear market and not reinvesting into the same stock at lower prices, gives a lower return than the investor who held onto his stocks during the same period.

5. Lump sum investing into this stock at bargain prices in the earlier years, may give a better return, than dollar cost averaging the same amount over a very long time frame. Dollar cost averaging over a few months (for example 6 months) is almost equivalent to lump sum investing.

6. Timing the market is difficult. Study the above transactions:
  • Did this investor buy during the depth of the 2007 - 2009 severe bear market? (This investor has to put in more work on this topic!)
  • Did this investor sell at the height of the bull market?
7. In the transactions above, ''buy and hold' strategy can be likened as short term pain for long term gain. In the transactions above, 'buy, sell, and buy back at higher price', can be likened to short term gain for long term pain. ;-)

8. The average price of all the above transactions were significantly lower than the market price almost all the time. This is so even when the market price was at its lowest of $6.30. This gain provides a significant buffer and confidence to the investor of this stock. A value investor would be happy to hold or even load up on this share at the low prices.

It is safe and profitable to buy and hold this and selective stocks.

Selective stocks can be held safely for the long term, even in a severe bear market.

Selling a good quality stock for short-term gain, generates cash which will need to be reinvested. This is not without its associated risks, including, that of not achieving your objective of superior gains in your investments (for example, 15% per year, doubling in 5 years).

Timing the market to buy and to sell is tempting, but is difficult. (trust me on this).

Selling and buying incurs some costs, and when are done frequently, will reduce your returns.

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