Since my last blog post on September 2019, I have been kept busy with both school and extracurricular activities. With the end of the final examinations, it is finally time for me to take a much-deserved breather. Hence, I have decided to take some time to reflect on my investing journey since then. In the time after my last blog post, my portfolio has changed drastically due to the Covid-19 Pandemic. Fortunately – maybe not so, as I will explain later – I made the decision to sell of the stocks in my portfolio at the end of February just before the sharp fall in stock markets worldwide. This allowed me to realise most of the gains from the previous year. However, with the cash idling in my account, I made a rash decision to invest significantly in CFDs. (refer to my previous blog post on what CFDs are)
Having chanced upon short-selling websites like Muddy Waters Research and The Wolf Pack, it seemed like a good idea to short CFDs purely based on these reports. However, this turned out to be a HUGE mistake as I lost a significant (slightly more than 50%) portion of my cash in hand due to the increase in stock price of eHealth Inc (my shorted CFD). Though the price did drop after a few weeks, my position has been already closed due to a margin call. (margin call occurs when the broker demands that an investor deposit additional money or securities so that the account is brought up to the minimum value, known as the maintenance margin.) Though it was a painful wake-up call, it was also a valuable lesson in which I reflected deeply upon.
- Lesson 1: Similar to analysts reports, short-selling reports are often biased and cannot be relied upon as the sole source. It is necessary to undertake one’s own research based on both fundamental and technical analysis.
- Lesson 2: Do not be greedy or impatient. Greed and impatience (not to forget fear) are often one’s biggest enemies in the stock market. My greed for magnified gains from CFDs resulted in my blind faith in the short-selling reports. In addition, my lack of patience in simply holding on to my cash until the right opportunity arrived meant that not only did I lose the opportunity to invest when the market was severely undervalued, but it also led to my rash decision to trade in CFDs.
- Lesson 3: Rely on yourself when investing or trading. Blind faith in the advice of others often leads to disastrous results – my experience being a salient example.
- Lesson 4: Stand up where you have fallen. I have decided to learn more about swing trading to avoid my painful mistakes. Swing trading involves both technical and fundamental analysis in order to capitalise on price movements in the short-term (day to weeks). If I had done this earlier, I would have avoided my mistake of short-selling the stock purely based on the short-selling report.
Given the perceived overvalue in the stock market now, I will be concentrating on swing trading until the time is right to invest again. Hopefully, I would be able to start on a new blog post regarding this in 1 or 2 months time. Take care everyone in the meantime!