An Exit Strategy

Well, I must qualify that I'm not a professional in the finance industry, nor finance trained. Nope, no CFA, CPA, IFA. No As.

In case you are still reading my blog, what I'll put together are tiny bits of information that I've read from books, forums, research reports or from CNBC (it's always on, as background noise). Nevertheless, I think until you put such titbits together, they stay in your grey matter taking up space. And so here I am, blogging my thoughts.

Anyway, back to my topic. An Exit Strategy. Fund managers have it. Do you? Should you? A typical Exit Strategy.

"To safeguard the interest of the Group, every investment or undertaking by the Group must be against acceptable collaterals and have a clear exit strategy. The principal risks of the above strategy include market risk, specific stock risk, interest rate risk, exchange risk, credit risk and liquidity risk."

A clear exit strategy. Hmmm..... sounds foreign to you? Did you have one for your last trade? A clear exit strategy forces you to think of why you are entering a trade and just as important, when to get out. Is the stock under-valued by the market? If so, when the gap closes, should you exit? Or do you yearn for more, thinking that you're one hell of an investor? (shhh... don't answer it. It's a rhetorical question.)

Or were you putting your money on the company to win the rights to, say, operate casinos? Were you expecting the company's new production facilities to boost growth? Was it a situational play? (Think of Section 44 tax credits plays, or de-regulation of industries...)
This works for not-very-value-investing trades aka punting aka gambling too. With the avalanche of covered warrants on the market, a clear exit strategy would do you good too when u succumb to the temptations of a quick buck. A clear exit strategy would remind you that you were in it for one and only one reason - for a quick buck. If it doesnt materialise, and goes the other way, get out. You took a gamble. You lost. No reason to be there anymore. You got an exit strategy. Do it.

With a clear exit strategy in mind, a lot of emotion is removed from your trades. That is of course, more often than not, a good thing. In the first place, you entered a trade because of an expectation of an event to occur. Once that happens, is there still a reason to be invested? Or if it doesnt pan out the way you wanted it, do you still hope and pray?

Market has been kind to all. With STI hitting new highs daily, the last painful loss has been forgetten. Don't. Have a clear exit strategy. Especially in a volatile market. It would certainly save you some time and money.

Eventually I'll get to value investing... ... ... I think. Hang in there.