By: Jay When people say they do investing, there is a tendency for most people to focus on the capital gain that each investment will bring in. Eg. Ah Beng buys SGX at $2, today is $6, so his perceived capital gain is 100% and he is happy like a bird. Or Ah Gou buys a property at District 10 for $1mn in 2006 and today it is valued at $2mn, his capital gain is again 100% and he goes and buy a Ferrari. This is very natural and it's got to do with our primitive wiring and we cannot easily re-wire our brains. However as long as we don't sell and lock in whatever gains, there is no cashflow coming into our pockets. And in most cases, it is actually not to our advantage to lock in the gains. Take the example of Ah Gou's house, if he sells, he gets his $2mn but the a similar house in District 10 will now cost $3mn. So he has to downgrade. And for Ah Beng, he sells and lock in his gain, but now he needs to find something else than to park his money, and in this market, it is difficult to find things that are cheap and safe. Furthermore, price that Mr Market dictates has nothing to do with the true value or the intrinsic value of the asset. ie Mr Market may say that SGX can sell for $6, but it is really worth $6? And so did Ah Beng really double his money? Again the Mr Property Market says Ah Gou's house can sell for $2mn but is it really worth $2mn? If we cannot be sure, then why do we always look at our portfolio value at the end of the month and go smiling when Mr Market says your portfolio is up 10% this mth or down 20% next mth? Read more...