I need to remind you for the umpteenth time that I am not attempting to grow my portfolio, or even preserve, my capital so that I have a nice little pile to leave for posterity. I earn my livelihood from what I make in capital gains. I retired prematurely some 15 years ago with a totally inadequate pot of money. Since then I have only been able to afford a decent lifestyle because I have been able to generate exceptional returns from my meager pot. No superannuation, no regular flow of cash from any source. Just me and my savings. The returns I have made, exceptional as they have been, are too small to grow the capital, so continued high returns are essential. I have managed to navigate through two major stock market crashes and it is only in these last couple of years that I have found the going really tough causing my little pot to dwindle.
I put this down to the fact that I can't get my head round how the new players in the market operate. These are the banks and funds that are the beneficiaries of what is perhaps the biggest income redistribution I have ever known. After the banks lost almost all of their capital and pushed the economies of the developed world to the point of bankruptcy, governments have been furnishing them with social benefits on an unprecedented scale to help them rebuild their balance sheets. This money has found its way onto all the major capital markets in the world (stock markets, foreign exchange, commodity and interest rates) and it and has distorted their operations.
Enough winging! I have to make my living and I can only do that by reviving my talent for making my money work really hard. And the only way to do that is to take big risks. The last few days have demonstrated that risk taking is a two way street and I can lose as well as win.
The stock market continues to defy gravity and I can see no end to its upward movement. So, belatedly, I decided to dive in. I scouted round the US market and found that the big winners through the gyrations of the US market over the Summer and the Autumn (Fall) were the Chinese shares quoted on the US market. Fine I thought. Good track record, good story (China is where the future lies). I'll go for this.
On the very day I bought in the news hit. NQ Mobile was accused of falsifying revenue and profits data. According to Bloomberg:
"NQ Mobile fell the most on record last week after Muddy Waters said the company inflated revenue and lied about cash balances in an Oct. 24 report. NQ denied the allegations, holding a two-hour conference call on Oct. 25 to discuss details of its financial statements."Their shares crashed taking with them all the shares that I had bought.
In two days those shares had lost 13% of their value. At certain intraday points the worst of the shares had lost over 30% of its value.
Big decision, Do I cash in my losses and run for cover or do I work on the principle that this will blow over? There is no road map, no sat-nav to steer me out of this hole. Just nerves of steel and self belief. I've held my nerve and held on. By the end of yesterday the portfolio of five shares had recovered 5% of its value.
You see what I mean about risk. If I had gone into that market just a few days before I would have made 13% in just a few days instead of losing it. But it took me time to build the courage and I missed the opportunity. And when I did take the plunge someone drained the tank of water and my dive into the market left me with a bloody nose. There's nothing to say what today will bring but taking risks is the only way I can make the money. I have to keep reminding myself: I've done it before, I can do it again.
Not a game for sissies.