This article was written in partnership with IG, the world’s No.1 CFD provider (by revenue excluding FX, published half yearly financial statements, June 2019). All views expressed in the article are the independent opinion of Dollars and Sense and do not in any way reflect the views, opinions, or endorsements of IG Asia Pte Ltd (Co. Reg. No. 20051002K) (“IG”).
We all understand the need to start investing or trading as early as possible to allow us to maximise the effects of compounding our nest egg through market ups and downs over the long-term.
However, the recipe to being a successful investor may not be a straightforward one – we need knowledge and expertise to make the right investments or trades, we need the time to monitor our positions and adjust if our rationale for keeping them in our portfolio is no longer relevant and we need the discipline to stick firmly to our investment strategy as well as not letting emotions get the better of us.
Despite having all these attributes, we can still fail if we are hit with an early loss that can cause us to lose confidence, capital and interest in the markets. To show you that even the best traders can fail, DollarsAndSense brings you #MyFirstLoss, a column in collaboration with IG featuring real stories of investors and traders and how they failed in their investments – but not letting it hold them back, and used it as motivation to become better, wiser and more profitable investors.
In this feature, we talk to James Yeo, the founder of SmallCapAsia, a website dedicated to producing unique content on companies with small market capitalisation but large growth potential, and helping investors safely take advantage of these opportunities.
In his full-time job, he is a product specialist at ShareInvestor.com, which allows him to gain a deeper insight into the companies that he is focused on as well.
DollarsAndSense (DNS): Hi James. Thank you for agreeing to being interviewed for this column. Let’s jump straight into it. Can you share with us your experience of dealing with your first loss in the markets? #MyFirstLoss
James Yeo (JY): I remember investing in Chinese steelmaker FerroChina Ltd (which has since become bankrupt) during my National Service days. At first, it soared double digits and I was elated, after all I had just started investing.
However, the company was soon caught up in financial irregularities and saddled with debt. It was later announced that FerroChina was a fraudulent company and its share price came crashing down. I lost almost 50% of my savings back then.
Looking back, I think I was complacent to invest 50% of my savings in a company that I had done very little research on. This was a real learning point for me, and one that ignited my desire to later start SmallCapAsia.
DNS: Incurring a big loss in the markets can be a painful experience, especially in your early days. What did you do to overcome that setback and become a better investor and trader?
JY: Mistakes are painful but necessary lessons when trading in the markets, and I have made tons of them! Despite losing a 5-figure sum on my first investment, I believe in the saying that we need to continually ‘sharpen the saw’ to become better at anything.
Ultimately, success is the mother of failure – and that means we cannot be successful without learning from our failures. I took the loss as an experience I needed to grow as an investor, tried to learn from that mistake by enriching myself with more knowledge and doing more thorough research on a company before investing my money into it.
DNS: SmallCapAsia writes about stocks that may fly under the radar for many investors. Why do you think it is important for people to be exposed to these companies?
JY: Capital gains!
Small cap companies have the potential of jumping as much as 100% and be multi-baggers. Nobody really bats an eyelid when this happens either. On the other hand, this is less likely to happen to large cap or blue chip companies.
Of course, there are also higher risks involved when investing in small cap companies. Hence, from a portfolio perspective, it is important to diversify and manage our risk. One possible way is by holding REITs / blue chips as our core holdings and small caps stocks as a smaller supplementary component to bring us substantial gains.
DNS: The best lessons we typically learn in life is when we make mistakes. Why do you think people don’t share stories about their losses and mistakes in the market?
JY: Probably because they are “malu” (embarrassed).
I also had a tough time explaining to my then girlfriend (and now wife) that I lost a 5-figure sum in a single investment. Until today, she regularly reminds me how I “burned” this huge sum of money instead of bringing her on a luxurious European holiday. Sorry dear, I will make it up to you, especially after I learned from my investment mistakes and start making back profits in the market!
DNS: If you’re going to be a successful investor or trader, your first loss will only be the beginning of your losses or mistakes in the markets. Do you react differently when you make a mistake today?
I definitely still make investing mistakes today. Even the most famous investor in the world, Warren Buffett, acknowledged that he made investment mistakes on Tesco and Kraft Heinz; and recently he sold off his newspapers stake at a loss too.
Having learned from prior mistakes, I do think I am less prone to make certain rookie mistakes now. One of which is not putting 50% of my savings into a single investment and instead keep a more diversified portfolio with stronger companies for stability and inclusion of small caps equities as a tool to grow my portfolio.
Whenever I do make mistakes today, I am also more level-headed in analysing what went wrong and what can be done better, in order to keep refining my investment processes.
The Journey To Becoming A Successful Investor Or Trader Is Never-Ending
While failures and losses in the markets can leave a bitter taste for anyone, we need to understand that it is common for every investor to make mistakes. Rather than turning our backs to investing and trading, we can use it as an experience to learn from and improve.
Becoming a successful investor or trader is a continuous process of learning from our mistakes, and also pursuing new knowledge. Apart from managing our exposure to mistakes by diversifying our investments and limiting the impact any one investment has on our entire portfolio, we can read more to learn about investing and trading. There are a wealth of information online today, such as James Yeo’s SmallCapAsia and IG’s online resources, which includes news and trade ideas, strategy and planning and risk management tools that can help you not only become a more profitable trader, but also to reduce the risk you face when it comes to trading. For example, the IG platform allows you to set stop-loss, guaranteed stop and trailing stop to protect your positions in the market.
IG also offers guides for you to learn about trading-specific products, economic calendars to stay in touch with the latest happenings around the world, a comprehensive glossary of trading terms and an introduction programme for those hungry for more information.
We can also attend events to hear from the horse’s mouth. DollarsAndSense compiles a list of monthly events you can attend to brush up your knowledge about personal finances, investing, trading and policy-related matters. IG also hosts free seminars and webinars that allow you to learn and ask questions.
Another great way to learn is from your peers. Participating in discussions, asking questions and interacting with like-minded people can be uplifting and promote healthy learning. Sure, events are one way to mingle with your peers, but you can also go on online platforms such as InvestingNote and also the IG Community forum to bounce ideas and exchange thoughts on investing and trading.
Lastly, the best way to learn is by trying it out. While James Yeo had to swallow the bitter pill of experiencing a big loss in the markets early on in his investment journey, we can instead open a demo account to try investing or trading. While going into markets with real money is a very different beast from trialling with virtual funds, it can help us gain an understanding of our weaknesses. You can open a Demo Account with IG that gives you $200,000 in virtual funds to start learning to trade and understanding the areas you need to focus on improving.
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No responsibility is accepted by IG for any loss or damage arising in any way (including due to negligence) from anyone acting or refraining from acting as a result of the information. All forms of investment carry risks. Trading in leveraged products such as CFDs carry risks and may not be suitable for everyone. Losses can exceed deposits.
This article has not been reviewed by the Monetary Authority of Singapore.