Wednesday, 16 October 2013
Holding Power refers to the ability to hold onto an investment without selling, and has significant impact on the outcome of your investments. Having strong Holding Power means being able to make more wise investment decisions as you are less affect by negative emotions and needs.
For example, if you've invested in a share using money set aside for your car loan repayment, you can only hold onto your shares for so long as you will have to repay the car loan soon. In the same example, if the counter you've invested in starts going in an unfavorable direction, you'll be in extra pressure to quickly sell it off as you cannot afford to lose that money. However, if you've invested in an undervalued counter, the drop in the counter's price could be only a short term price movement, and end up skyrocketing, causing you a lot of regret and lost profits (plus the initial losses).
We had an interview with our beautiful colleague Elisa (fictional name) to share some of her experiences in the past.
Editor: Do you invest?
Elisa: Not anymore.
Editor: So you had invested before. Why not anymore?
Elisa: I just don't have the luck. Whenever I invest, I lose money. And every time I check the stock after I've sold them, the price had gone up.
Editor: Can you give us an example?
Elisa: One was XXX. I bought it at about RM3.90, and one month later I sold it at RM3.65. One year later my friend told me it was already RM6.10!
Editor: Wow. But why did you sell the shares so soon?
Elisa: The price was going down!
Editor: Seems like you had very little faith in that counter. Why did you buy it in the first place?
Elisa: I always believed that it's a good company, and it was performing even better that year. And I wanted to earn some dividends too.
Editor: So you were confident before that it was a good buy?
Elisa: Of course.
Editor: So what made you decide to sell?
Elisa: I couldn't afford to lose that money. Those were my university fees.
Editor: So if that money was something you could afford to lose, you wouldn't have sold those shares?
Elisa: Hell, no.
According to Elisa, she purchased about 10 Lots of that counter at that time. Not including any Brokerage Fees or Clearing Fees, her loss at that time was RM250. But if that money was something she could afford to lose, thus having more Holding Power, she would have made a profit of RM2,200. What a difference!
Elisa later shared another story where she bought and sold shares for another counter within 2 weeks because the money she invested with was her rent. A few months later the counter she invested in doubled in price.
While Holding Power does not guarantee that we profit from our investments, it does give us that little advantage of being able to hold onto the investment until the right time, especially if we've done our homework on the counter.
After the interview and some beautiful coffee, we explained the concept of Holding Power to Elisa, and she is now a fan of the Young Investors FaceBook page too.
If you think you have a story to share with us too, or if you just simply want to ask us something (no we're not giving Elisa's phone number), go to the Contact page and drop us a message!
By the Young Investors Team