Taming the Money Sharks for real – 8 Stock Investment Maxims

Taming the Money Sharks by Professor Philip S Cheng – I cannot find a better phrase to describe this book other than taking this from its back cover – “Down-to-earth strategies guaranteed to make you “shark-proof’ while optimizing your investment returns. There are lots of book out there offering sure-fire formulas, fool-proof systems and impossible-to-lose schemes for making that big swoop in the market. In spite of that, this book stand out from the rest. It is written by a top investment professional with both academic and practical experience in stocks investing, with no interest other than to give retail investors like us a chance to achieve our financial goals over time through prudent stock investing. Some mantras, of course, can be applied universally for other investment vehicles, like property investment. Professor Philip has distilled a lifetime’s experience into a set of 8 simple rules that will assist you to steer clear of potential investing hazards and money sharks (aka the Big Boys institutional investors, in case you are wondering).

A preview of 4 of the investing maxims highlighted in this book – illustrated!

How money sharks work

Hot stock tips for average investors could originates from investors with deep pockets, so that could end up with even deeper pockets. Of course, not every large investors is like that, but that can be done if they want to. Fund managers have their jobs to do according to the fund mandate, and when macroeconomic or company conditions change; buying and selling large amount of stocks is their day job, normally dwarfing the order size of retail investors. Retail investors often chase prices in the dark. Thinking of beating the market? Think again. So what to do to prevent this from happening? 

Managing systematic risks

Investing involves risks, like juggling a few balls in the air. Would you rather not juggle any balls at all (that sounds wrong!)? Not investing is a risk by itself – inflation risk. If we, as human, do not take calculative risks, we won’t be having man powered flight today (quote from Triumph in the Skies 2). So how to minimize the probability of losing money due to systematic risks? (The author explained them in length).

Portfolio Management Strategy

To mitigate the risks beyond our control, we could summarize our portfolio strategy in one diagram as above.  It is not a guaratee of short term profit, but like life itself, there will be wins and loses. Predictably and step by step, you will have more systematic wins than occasional losses. Now, What would you like to call this analogy of portfolio management?

The last piece of maxim the author stressed is to not lose any sleep over investment matter. According to him, if one’s investment is properly structured, they increase in value even when you sleep. What good is our money if we cannot enjoy it with good health? Worse yet, with millions to your name, you may live a long live but in a wheelchair with tubes connected all over.

See First Part of the Book Review Here

2 Copies to be given away by publisher Wiley – The Best Answers to the 3 questions in bold above, chosen by the Publisher, Wins

Wiley Book Winner

Taming the money sharks

This Post Has 7 Comments

  1. 1. As retail investor, being a contrarian investor would give the investor a big edge. Be greedy when others are fearful, and be fearful when others are greedy.

    2. Assume that the inflation is always there, then a sure win way is to buy into a country’s stock ETF (exchange traded fund). Most of the countries enjoying economic growth (due to inflationary economic expansion), and the passive investing of ETF should have enable investor to be better than the rest of the people, thus minimizes the systematic risks.

    3. Pareto’s Principle or the 80-20 Rule. We can construct our portfolio using this way, where 80% of the asset is put into the low cost index fund (or ETF), and 20% can be invested into potential growth companies.

  2. 1. Chasing prices is herding behaviour. It is irrational and often driven by emotions – greed in bubbles, fear in crashes. Joining the crowd in a rush to get in or market only makes it easy to fall prey to sharks in the market. A smarter strategy would be to find businesses with superior business models which are run by honest and competent managers, and invest for the long term.

    2. i) Familiarise yourself with different types of risks
    ii) Determine the risks associated with various investments
    iii) Determine the level of risk which you are willing to shoulder
    iv) Reduce each asset risk through diversification

    3. The pareto rule (also known as the 80-20 principle)

  3. 1) This is caused by the emotion of Greed. To counter this:-
    – Educate yourself on Financial matters.
    – Do not chase after stocks which have already run up high.
    – Practice Emotional control.
    – Do Value Investing.

    2) Systemic Risk is beyond one’s control. To minimise losses:-
    – Practice Risk Management.
    – Do not “put all your eggs in one basket” ie. separate your investments in to a few asset classes which you can manage well.
    – Sell your assets when they have reached fair value or overvalued and buy the assets which are undervalued.

    3) This analogy of portfolio management is called Portfolio Rebalancing. You should do periodic reviews of your portfolio and sell your assets when they have reached fair value or overvalued and buy the assets which are undervalued. If you consistently do this, your investment returns will increase over time.

  4. 1. To prevent us from chasing hot stock, be sure to have due vigilance and do homework aka studying financial result of your interested company for past few quarters/years. Quick study on its growth net profit, EPS, debt/equity ratio etc. Most importantly, stay calm , take deep breath and don’t be too euphoria when “good” news keep coming out

    2. In order to minimize the probability of losing money due to systematic risks, we need to create diversified investment portfolio, maybe in term of different asset allocation or same type of asset in different geography to mitigate currency, geopolitical and macroeconomy risks.

    3. The 80/20 rules define this portfolio management which also named after Italian Economist as Pareto Rule.

  5. 1) Retail investors should understand that fund managers too are paid to get their job done. Retail investors must stay away from the hot stock tips they get and must do their homework. Do not follow others on investing on particular companies. Investors must know the reason why they invest in particular company and must aim for long term investment rather than short term gain or lost. Everyone has their own investment objective and risk profile and we must stick into it, aim for long term. This will help to prevent them from falling into hot stocks tips and become the prey of the sharks in the market.

    2) There is risks everywhere, even you put the money under your bed will have to face with deflation risk. There are quite a numbers of companies who are in the markets for decades, gone through few economic downturns and they are still here today. They form the blue chips and have certain competitive advantages compare to their peers. The management team have the experience to deal with risks involved and spend the shareholders’ money wisely on capital expenditure to enhance the company’s value. Investing in this kind of companies will help to reduce the risk of losing money.

    3) I believe it’s called value investing. Do the homework and invest in fundamentally good companies and aim for the long term. The market will one day realizes the value of the good companies. Investor will not lose any sleep because value investors know the difference between the price and value of the companies they invest in and importantly fundamentally good companies will not change overnight. Invest and collect the dividends as time goes by and enjoy the wealth with a healthy body.

    Discipline is still the key for the retail investors to be a successful investor and I’m learning it.

  6. 1. Ignore market noises. Increase knowledge in company/stock fundamental analysis in order to be competent to understand the true picture. History (previous company performances) always has a story/lesson learned to tell.
    2. Consistent and regular investment like DCA after picking the right investment area or companies.
    3. The pareto rule…:)

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