Past Experiences 2 - Stocks

Going into Stocks

With this initial success with unit trust, I begin to take an active interest in stocks listed in SGX.  At that time, I knew nuts about stocks except that many people are speculating in the stock market. Most of them lost a lot of money when the Malaysian government stopped the trading CLOB shares in Singapore in 1998. My business partner who was active CLOB Shares was hit hard.  Therefore I was a little more careful with stocks.

I started using the internet platform as my source of information especially shareinvestor.com on stocks.  I actively followed the discussion in forum; picking up bits and pieces of information and knowledge on share investing. I started with mainly small caps but in small amount.  That may be reason I survived. 

I followed one guru, “Moses”, who posted regularly on shareinvestor.com and learned to buy “value small caps” especially Pertama, Kingboard Copper, Kian Ann.

The most valuable lesson I learned and agreed fully with whatever investment one made, one must be able to sleep at night.  This simply means investing with money that I do not need for at least 10 years.

  

I also brought “dormant stocks” like Intraco and WBL waiting for it to “run”.  Yes, I made as much 200% of my purchase value of WBL when I sold it in Feb 2006. I incurred paper losses in Intraco (-50% of the purchase value) and Kingboard Copper(-30%) which overwhelmed gains in Kian Ann (18%) and Pertama (10%).   

Before the sale of WBL shares in Feb 2006, I was suffering about 25% losses of my funds invested in these stocks.  It is only with the enormous WBL profit, I was fortunate to be profitable to the tune of 31% of total amount invested in these stocks.

I was simply lucky.  Like my purchases of unit trusts, I am betting on the stocks and not investing in them.  I was able to hold on to WBL for a duration of about 4 years and made great gain. 

I am still holding Intraco today.  Its price today is still 40% lower than when I purchase it.

Value Traps – bargain hunter bewares

Investors often fall prey to value traps when they go hunting for a bargain. These "bargain" stocks may appear promising, but at the end of the day they are a big letdown for investors and they don't go anywhere.

Companies that have been trading at low multiples of earnings, cash flow or book value for an extended period of time are sometimes doing so for good reason - because they have little promise - and possibly no future.

Cutis, G. (2008). Value Traps. Investopedia, http://www.investopedia.com/articles/stocks/08/value-trap.asp.

The key point here is that I invested with spare funds not required in the short term.  However, after more than 9 years holding on to Kingboard Copper which I sold sometime in 2009, I still lost money on it. 

Friday, finance professor Elroy Dimson of London Business School will publish his periodic update of long-term investment returns…. vast amounts of reliable data on 17 stock markets around the world all the way back to 1900.

The report hammers home another uncomfortable truth. The belief that stocks become virtually riskless if you just hold onto them long enough -- popularized a decade ago in books like Jeremy Siegel's "Stocks for the Long Run" and James Glassman and Kevin Hassett's "Dow 36,000" -- has been shattered by reality.

No matter how long your investing horizon may be, the risk of owning risky assets can never go to zero.

Zweig, J. (26 Feb 2009). After the Crash, Stocks May Face Long Road Back. WSJ,  http://online.wsj.com/article/SB123561056456077505.html.

The best advices for investors ….

He urged investors to regard their gains as a kind of loan that the lender -- the financial market -- could yank back at any time without any notice.

In 1970, he asked rhetorically, "What are the consequences if I am wrong?" and said "no investment decisions can be rationally arrived at unless they are [based upon] the answer to this question."

He counseled investors to take big risks with small amounts of money rather than small risks with big amounts of money.

Zweig, J. (13 Jun 2009). Peter L. Bernstein 1919-2009 Remembrances. WSJ , http://online.wsj.com/article/SB124486041357112031.html#mod%3Dtodays_us_opinion%26articleTabs%3Darticle.