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I had a lot of thought about investment lately. Although I didnt really have enough capital to be involved in real big investment, but I had been doing some small investment and also virtual investment.

There had been a lot of tips about how to invest whether is from friends, parents, gurus, analysts, books but I have always been searching of my goal in investing, what do I really want? After giving much thought, I think I roughly know which path I am heading towards and had developed some rule of thumbs based on advice from gurus. (Esp Warren Buffett)

First, when you invest imagine you are buying into a business. Understand high level how a business work first before investing. This can be further separated into 4Ps. Understand its product (profit margin, competitor, price competitive or durable competitive), its people (good management, good manager, good culture, good working environment), its potential (what is the possible area for growth for coming 5 years), its  predictability (what will the business like after this, what factors can affect profitability). I am not a businessman and therefore I can never be good at valuation, what I get is from financial and press report. However I can compensate this  by talking with employees working at the company to understand working environment and do more background research, continue to scrutinize my own valuation (we tend to believe that our decision is the best and right, beware of that). I am still learning this…..For example a simple fact that as an employee of my current company, I know I can speculate in my company stock but not long term investment because the business is unpredictable, it needs people to make right decision and people dont always make the right one, and the product profit margin is ever shrinking from premium to commodity. Additionally, the growth potential is unclear. No one can value my current company more than me as an employee of my company. It is funny sometimes when we made a decision to buy a stock, we dont scrutinize our own decision making process, we just buy and "hope" we made the right choice and get lucky…..like buying 4D….if we lose money, then hai…lets try again. I tried scrutinizing some of my friends decision recently and initially they plan to buy but when I start questioning, they cannot answer, then they change target. So dont believe yourself too easily although being confident is good, try presenting your thinking and valuation to someone close to you, and get input. 

Second, never diversified and rather put all your eggs in one basket, but make sure you choose the right basket and have a hawk eye on that basket. Diversification is a myth of modern economy, I think in the long run, is a try of luck, and most likely you wont get lucky everyday and winner will cancel out loser. Diversification might work for you if you are into the market for one time deal, meaning after you make money, you never return to the market. The worst, when market plunged or go into a real recession, even when you want to take eggs out from basket, no body is free to entertain you. Believe me, you remisier wont pick up your call during market turmoil when you are going to tell him/her to sell over 30 counters with different selling price….haha. You are on your own buddy….

Third, be patient when it is investment. If you cant keep your money in a business for 10 years, dont even hold it for 10 minutes. Some business no matter how wonderful it is, you simply have to wait. You cant make a baby come out in one month by making nine women pregnant. (Warren Buffett quote) Time is the friend of wonderful business, but enemy for mediocre and bad business. Never sell due to market shortsightedness, causes a company stock price to price at below value, dont buy due to overhyped market sentiment, rather capitalize on market shortsightedness. Just 2007 alone, market shortsightedness had created twice wonderful opportunity for investor to buy into some very wonderful business. some bad business…the price just go down and never recover anymore. No offence, but I think Telekom and Tenaga is one of those that have becoming worse as days go by. Even at monopoly state, they cant make their product interesting or more profitable, their people become complacent and their debt alone…..is huge!!! Unless they start becoming smart, else i dont see any growth for these mammoth companies.

Fourth, it doesnt take a fortune to start investing. Everything starts small, although we dont have money at this age which I am thankful for that (becoz out inexperienced might cause the cash end up as a gift to the cunning foxes), It doesnt hurt to start learning young and when you still have the means to do so. Invest into books rather than invest into stocks first. Spent RM 50 on Buffet to understand fundamental investment, and Soros books on how he short sell market and create rumors, panic. It is more worthwhile then buying stock like throwing dart and end up losing thousands. Try to understand what they trying to tell you rather than just hurry rush through the book and plunge into market and start throwing darts.

My final advice to all, do your homework dont trust analyst completely, dont speculate and dont play stock market. Due to the fact we are all minority shareholders, there is no way you can control the market. When you speculate, there is a 50-50 chance and is not a sure thing. It is better you take your money go to Genting and play big-small, only that the game takes longer to take the money from you. Example back in Feb Proton price was high RM7 and analyst said the target price is RM9 based on book value, speculation was on-going about Proton-Volkswagen merger. But if you understand the automobile business and esp Proton dire state, there is small profit margin, poor product (other than price) and poor people management with unknown future. You also know it will take more than Government to persuade foreign partner fast to come up the partnership because the company is beyond the Government control. If you invest into Proton, you will lose almost 20% of total investment by today when share price is at RM 5. It will take many years of effort to drive the stock value back to RM 7. Unless you are insider but again inside trading is illegal in the world, you will never know the details of the merger. So if I am analyst or someone like Soros, maybe I will create wind of rumors once a while to get your money from your pocket.

Dont try to outsmart stock market, you can outsmart it 100 times but it will take only 1 mistake to wipe off your entire investment. Ask people that "invested" in the 90s, that time even blind people make big money, but it is a market seconds from disaster the minute ASEAN currency start floating with US dollar. Again, you dont have to make many rights, you just need to make a few rights in your life to have return.

This is my sharing and I am still green and continue learning, I still havent make any good return from my small investment yet but I have a positive feeling I am on the right track with positive mindset. With that I have a control over my emotion and better financial planning.

Good luck!      

This entry was posted on Tuesday, August 28th, 2007 at 9:46 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.