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Friday, 11 December 2009

6/6 Hindsight vs 0/6 Foresight

6/6 Hindsight

Comment and analysis articles started popping up everywhere after Dubai World requested creditors to delay debt repayments for 6 months. Articles explaining how the collapsed of these property castles built on shaky grounds of leverage was just a matter of time and listed so many warning signs that any idiot could predict this crisis with ease. This kind of postdated prediction also occured after the subprime crisis erupted in the United States.

While it is true that genuine warning signs were indeed present and if people took heed, many of such crises could have been avoided. But in this era of information barrage, where one has to sieve real information from fake, good from bad and useful from useless, spotting a few true red flags from countless fake cry wolves are always a challenge.

0/6 Foresight

Future cannot be predicted but with adequate preparations and precautions, adverse consequences could be mitigated or potential opportunities exploited. That's precisely the reason why I neither believe nor made sense of technical analysis. Looking back, any bottom or peak looked so obvious, but looking forward, how many times had a double-top resulted in even higher 'top' when the forward 'obvious' would have been a sell down or profit taking? But understanding and appreciating economic cycles would give one a much better 'foresight' as all good things must come to an end one day or fine weather will one day re-emerge after a terrible storm.

Mistakes in investment

Commenting on the China-based firms listed on SGX and their corporate governance concerns following a year of scandals afflicting a few such firms, SIAS chief, Mr David Gerrad, mentioned business failure and human failure. I could not agree more that investors are already prepared for the first failure but not the second. That is what investment is about. Looking at my past mistakes (right up to the most recent one involving Macauthurcook Industrial REIT, MI-REIT), I need to add that human failure has another dimension- human failure by the investor.

Human failure on the corporate end cannot be tolerated but sad to say, can't really be avoided (if the management is out to be shady). But human failure on the investor side can be avoided if he exercise more care in his research on the company. Blame my luck if the CEO or chairman runaway with the company's cash but blame myself if I count my beans wrongly. Thus MI-REIT is my most painful mistake despite being one of the least costly simply because it is a systematic error on my part.

To me, business failures are random errors that can be mitigated by diversification & margin of safety. 0/6 foresight dictates that luck plays a part in the eventual outcome. However, human failure by the investor is a systematic failure that will skew the final result for the worse.

Conclusion

I neither bother to improve my 0/6 foreight nor believe it is ever possible unless I have privilege information, so all I can do is to be more careful and meticulous (being careless or lazy is a fatal flaw for any investor profile) in my future investment adventures.

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4 Comments:

Blogger Akatsuki said...

Your blog is very interesting and heartfelt..i must say. Loads to learn from you. Wishing you a happy new year ahead. =]

17 December 2009 at 02:19  
Blogger Musicwhiz said...

Hi Market Uncle,

Hindsight is always crystal-clear. Haha. It's foresight that is legally blind.

Wishing you a Merry Christmas and Happy New Year in advance! May 2010 be a better year for all of us.

Cheers,
Musicwhiz

17 December 2009 at 11:35  
Blogger Market Uncle said...

Hi Akatsuki,
Thanks for visiting and happy new year to you too!

19 December 2009 at 08:37  
Blogger Market Uncle said...

Hi Musicwhiz,
Legally blind... haha, like that phrase!

Wish you a merry christmas and happy year for you and your family and yes, better 2010 for all of us!

19 December 2009 at 08:40  

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