Dear Fellow Investors / Readers,

After getting a lot of encouragement from the 1^st blog post, I pondered on what to write in my 2^nd Blog here at i3investor.

I do not want to start “lecturing” and giving free unsolicited advice or stock tips on how you should invest in the market or manage your personal finance. After all, I am no super investor or Guru (think: Charlie Munger, Warren Buffett, John Templeton or Carl Icahn) even though I have been inspired by many of these great individuals and have tremendous amount of respect for them.

Instead, I think I will share with you my journey beginning as a rookie speculator (not investor) and how I grew and groomed into what I consider myself today: “Consistent Dividend Focus Long Term Investor”

It is through my journey in the market that I found my identity which is 6 words long to describe myself. Long title, but each word is very meaningful.

I will explain that meaning that I found for each of these 6 words, in 4 parts.

Let us start with the word “Investor”

When I started out, like most retailers in Bursa (KLSE back then) I was not investing (although I thought I was).

These days, some people take offense when I say that they are not investing. Many youngsters (and oldies alike) think they are investing when they buy and sell shares or properties or Cryptocurrencies. I do not mean to offend anyone, but only want to spread the awareness to a large population out there that are speculating but think they are investing.

So, what’s the difference between investing (an investor) and speculating (a speculator)?

             Is it the time horizon? Is it the type of shares? Is it the amount you buy?

To date, the best analogy and description I got to differentiate an investor from the rest goes as follows (extracted from Investopedia) –

” Speculators are forever trying to be smarter than the market. Investors simply participate in the markets. Speculating is akin to gambling. Investing is like going to work.”
 

There is this example given in this story –

Amy uses the $100 to buy lemons, sugar, an old table, and some poster board and sets up a lemonade stand on a busy road. Business is brisk, and she reinvests her profits by buying more supplies. By the end of the summer she has turned $100 into $500. Some days (rainy, cool days) business was slow, some days (the hot sunny ones) it was brisk. She was never discouraged. She did not throw up her hands on the first rainy day and say "no one is ever going to buy lemonade again - I'm going to sell my stand".  She is an investor. 

Johnny on the other hand goes and spends his entire $100 buying lemons, which he hopes to sell to Amy next week at a higher price. He heard the price of lemons will go up because the forecast is calling for record heat and lemonade is popular in the hot weather. Lo and behold, the forecast is wrong, the price of lemons drops, and Johnny is wiped out. Johnny is a speculator.  

In the story above, Amy starts a business (investing) by carefully allocating her capital of $100 to buy lemon, sugar etc (diversify). In doing this, she is managing her risk. Johnny, on the other hand decides to speculate and put all his capital into lemons, taking the high-risk approach. Amy does the “hard work” and to make and sell the lemonade earning “small profit”, while Johnny decides to wait for the “right timing” to make the “big profit”.

Any reinvest her profits(dividends) back to the business to grow and earn the sustainable income. Johnny relies on news that there will be hot weather. Amy does not get affected by price of lemons in the market as she is focus on the business, which is in her control. Price of lemons will go up and down but is not in her control. Johnny is burnt when the price of lemon drops.

Folks – if you buy and sell shares in the market considering them nothing more than a “counter” not knowing the business and company behind that “counter” or its management competency merely with the “hope” that this “counter” will get some deal/contract or market conditions will work in the favor or maybe because the “chart is showing you the signal” for a quick gain – it is mere Speculation.

However, if you invest in a company because you believe in the business and management competence and have fair knowledge of the company’s fundamentals and financial position then it is an investment.

Some quotes from the super investors (Munger, Buffett etc)

 “Investing is like watching the paint dry or the grass grow - it requires patience and perseverance, if you want the excitement, go to Vegas!”

“Investing is not easy, anyone who said it is, is stupid”

“Investing is simple, but not easy”

Not everyone has the bandwidth to spend time studying a company and analyze the business, understand the financial statements, let alone read the annual report of the company they intend to invest in.  For such people, it is then better to buy mutual funds (unit trust) or ETFs. This way, you are protected from making mistakes and will adhere to the 2 cardinal rules of investing –

Rule 1: Do NOT lose money

Rule 2: Do NOT violate Rule #1

I will stop here to conclude that buying a share just with the hope that the price will go up because the company “will win government contract” or “RM is going up/down” is mere speculation and may “win” and make you some money those trades. However, I am not sure how many times you can be successful. Market is full of syndicates and there is no way you can outsmart them.

Investing however, is very different – if you invest, especially if you go for value, you are almost guaranteed to reap the fruits of your investments and it is sustainable.

In my subsequent blogs will continue to elaborate on the next words “Long Term”, “Dividend Focus” and “Consistent”

AK