kcchongnz blog
Investing in the stock market on your own Kcchongnz
Investing in the stock market on your own Kcchongnz
“Knowing is not enough, we must apply. Willing is not enough, we must do.” ~ Bruce Lee
Bruce Lee was a value investor when he wasn't kicking ass.
Historical Stock Return
We have read about the research carried out by Professor Jeremy that stocks has been the best investment that provides a good return of 13.4% from 1871 to 2001. So for those planning for building up a fund for buying a house, children’s education, retirement, or to simply protecting the real value of their money against inflation, they would like to invest in the stock market for a long term basis in order to achieve their numbers:
http://klse.i3investor.com/blogs/kcchongnz/49384.jsp
Performance of individual investors
On the other hand, Brad M. Barber and Terrance Odean in their paper “The behaviour of individual investors” in the link below shows that individual investors under-performed the market due to information asymmetry, overconfidence, sensation seeking and action chasing, failure to diversify, easily influenced by rumours, tips, media and internet forums etc.
http://faculty.haas.berkeley.edu/odean/Papers%20current%20versions/behavior%20of%20individual%20investors.pdf
Hence if investors are not careful, they could end up instead of building up their children’s education or retirement fund, losing their life saving as shown in the link below:
http://klse.i3investor.com/blogs/kcchongnz/45373.jsp
Yes, investing is full of risks, risks of losing our money in the market, but so is our life. We just have to manage these risks with the right education, knowledge and experience. Otherwise we just have to leave them to lady luck. For me, losing my life saving punting in the stock market is a prolonged nightmare and hence I won’t leave it to luck. What about investing in unit trust or mutual funds?
Performance of mutual funds
Michael Jensen (1968) measures the performance of 115 mutual funds in the 1945-1964 period using the risk-adjusted Jensen alpha measure, and shows that they do not outperform on average a buy-and-hold strategy. It also mentioned that these conclusions hold even when we measure the funds return gross of management expenses. He concludes in the following link that:
“there is very little evidence that any individual fund was able to do significantly better than that which we expected from mere random chance”.
http://www.performance-measurement.org/Jensen1967.pdf
What can an individual investor do?
So where does this lead us to now? If the knowledgeable fund managers cannot beat the market, how can you and others do? For this I invite you to read this article on value investing written by Warren Buffet, “The super investors of Graham and Doddsville” below:
http://www4.gsb.columbia.edu/null?&exclusive=filemgr.download&file_id=522
The article shows that there were many super investors earning extra-ordinary return following the value investing strategies, and there are ample evidence that these events were not due to c random chances.
Still want to invest by your own? Do you think you can rely on rumours and tips to profit from the market? Do you think there are many kind people around who would generously give you great tips so that you can earn extra-ordinary profit from the market? Do you think you are better than the fund manager and can get better return from the market than them? Or do you want to follow the school of Graham and Doddsville which has shown that the value investing strategies provide extra-ordinary return to your investment? If so, you would have to answer most of the following questionnaires affirmatively:
- Do you have the proper mindset and the right philosophy in investing?
- Are you able to think independently, take charge of your own responsibility and not influenced by the “noise”?
- Are you willing and able to continuously learning about investing?
-
Are you fully equipped with the necessary education and knowledge?
- Do you understand business?
- Read and know how to read and interpret financial statements?
- Are you able to spot financial shenanigans?
- Do you understand the term intrinsic value, or the present value, one of the most important concept in finance?
- Do you know how to estimate the value of a business?
- Do you spend time practising the above?
- Do you know the rules and proven strategies of investing?
- Are you focus in investing?
- Do you understand risks and aware of the perils and pitfalls in investing in the stock market and know how to manage them?
- Do you have the right information, tools and analysis of stocks?
- Do you have the proper and continuous guidance?
My guess is most people would not be able to answer most of the above questions in affirmative. However, I also think they would if they are willing to take the first step, i.e. spend some time and effort to educate themselves about investing. Take thing easy and learn at your own pace, a small step by another. Get some proper and continuous guidance to steepen your learning curve. Investing needs not to be complicated and it is not that hard.
I understand most people have a lot of commitments and priorities in life; work and career, family, socializing, golfing, fishing, gardening, watching sports programmes and Korean soup operas in TV, play candy crush etc. But shouldn’t personal finance in wealth building and preservation a top priority too, or have you got your priority right?
KC Chong (19/4/2014)
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Discussions
6 people like this. Showing 19 of 21 comments
I must say THANK YOU, kcchongnz and Huang. I read through both the articles available here. Very useful to understand where we are in investing.
2014-04-19 14:50
thank ou kccchongnz, I hope you can kindly advise me if my strategy is correct and safe. I divide my investment in 2 groups. the first group is my core investment (70%), here i invest only in debt free company, double digit roe and earning.these stocks i will keep for long term ,as long as i can if the condition is still favourable . I will sell half is the price fall 15% from the height and start slowly buy back if it fall further 15% and more if te earning of the company is still good, good mean not making losses. your ptaras and kfima ,gadang, lbs, mbb, are some of my core investment Second group i invest for excitement base on the research report. sell all if the price fall 10% from the height. I follow this priciple strictly.
Mr kccchongnz and all the sifu here please kind provide me your professional advice. How can i improve my margin of safety in my investment. is my strategy of investment appropriate in this market.
2014-04-19 19:34
Investors basing on fundamental analysis do not sell a stock because it drops 15%, and then buy back when it drop further 15%. Or sell when it rises 15%, and then buy back when it goes up further 15%. They don't see the logic of doing so.
Investors based on fundamental only buys a stock if it is trading at a safety margin below its intrinsic value; and sell only when the stock price has risen close to its intrinsic value, unless the fundamentals of the company changes. Or if they need money to buy a better value stock. They don't buy and sell just because the price has risen or fallen by x%.
How to improve your margin of safety in your investment?
First you must understand what "margin of safety" means, and how to estimate the intrinsic value of a company and hence its stock.
2014-04-19 20:06
kchongnz might to share knm reduction par value from 1 to 0.50 sen.beacase need money to do big project in pengarang (rapid).tq
2014-04-19 20:14
Posted by yungshen1 > Apr 19, 2014 08:14 PM | Report Abuse
kchongnz might to share knm reduction par value from 1 to 0.50 sen.beacase need money to do big project in pengarang (rapid).tq
Companies such as Datasonic, Jobstreet etc went for stock split and their share prices skyrocketed. Par value reduction is the opposite of it. So how can you view par value reduction as a good thing?
yungshen1, congratulation for keeping KNM despite my all negative comments of KNM. In my opinion, the fundamentals of KNM as well as my view on it has not changed a bit. The runup of its stock price is purely due to the stock price manipulation and syndicate play. Some punters will make money but a lot more will get burned.
2014-04-19 20:41
may be u are right.knm need more project to secure the high debt.the most important thing profit margin should improve and eps and pe and cash flow as well.tq kcchongnz
2014-04-19 22:01
Mr kcchongnz, TQ for you reply, at the moment when the overall sentiment of the market is bad, thing may be getting worst. Is it advisible to sell part of our core stocks so that we can lower the cost price. What do you think of the training loss strategy to safeguard our capital. Pls kindly advise.TQ
2014-04-20 00:43
Posted by bintang21 > Apr 20, 2014 12:43 AM | Report Abuse
Mr kcchongnz, TQ for you reply, at the moment when the overall sentiment of the market is bad, thing may be getting worst. Is it advisible to sell part of our core stocks so that we can lower the cost price. What do you think of the training loss strategy to safeguard our capital. Pls kindly advise.TQ
Why do you think the market sentiment is bad at the moment? How do you know it is getting worse? Why sell core stocks and not others? What do you mean by "core stocks"?
I may reduce my stock holding if the overall market is too overvalued and may even get out of the market. This is because when the overall market drops badly, few stocks are spared. If I am jittery of the market, I may reduce my holding too. It is important to be able to sleep well.
But generally my previous opinion below still holds:
Posted by kcchongnz > Apr 19, 2014 08:06 PM | Report Abuse X
Investors basing on fundamental analysis do not sell a stock because it drops 15%, and then buy back when it drop further 15%. Or sell when it rises 15%, and then buy back when it goes up further 15%. They don't see the logic of doing so.
Investors based on fundamental only buys a stock if it is trading at a safety margin below its intrinsic value; and sell only when the stock price has risen close to its intrinsic value, unless the fundamentals of the company changes. Or if they need money to buy a better value stock. They don't buy and sell just because the price has risen or fallen by x%
2014-04-20 05:02
TQ Mr kcchongnz, I got what you mean. I had read your writing about intrinsic value calculation. Frankly speaking, it is not simple and easy for me, do you mind to share with me any application that can help us to get the intrinsic value of a stock. in fact, I follow most of your recommendation in i3. TQ
2014-04-20 09:37
Posted by bintang21 > Apr 20, 2014 09:37 AM | Report Abuse
TQ Mr kcchongnz, I got what you mean. I had read your writing about intrinsic value calculation. Frankly speaking, it is not simple and easy for me, do you mind to share with me any application that can help us to get the intrinsic value of a stock. in fact, I follow most of your recommendation in i3. TQ
Application? What application? I do have a spreadsheet which is not user friendly. But valuation is an art. It is not that simple as putting in some numbers in the spreadsheet or application(?).
You need to understand and interpret financial statements, know the art of valuations. There are scores of valuation methods, each suitable for a particular situation.
Warren Buffet said before that if he were to conduct an investment course in a university, he will only teach two things; read and interpret financial statements, and the art of valuation.
2014-04-20 10:10
Bintang21 you got all the right stocks which are fundamental . Look at TGUAN it is a fundamental stock. If you have any kindly share with me contact no 0126119153 .
2014-04-20 10:35
Actually I don't bother so much about intrinsic value. I more concern on the past and future earning growth and DY Since Mr Kccchongnz stressed so much about intrinsic value, i hope i can learn a new thing, it might be useful to tell when to exit a stock. like presbhd, i bought at 0.90 and i hold until now don't know when to exit.
anyhow I am still very grateful to those who are very sincere and willing to share.TQ, bye
2014-04-20 15:33
Mr kcchongnz, no doubts about it you are cun in stock selections, looking at ptaras recent share price climb, you got very powerful fundamental stocks, congrats to those who had bought in, may i know 2 of your latest stocks recommendations.
2014-04-20 16:11
Posted by SpeedyBoy > Apr 20, 2014 10:46 PM | Report Abuse
hi kcchong, from what I read you are not too keen to invest in knm. But the hype over this counter is so strong that everyone is start to believe in the counter and has forgotten its history. What do you think based on the current financial situation of the company. Quite a number of institutions have some holding in this company. Appreciate your opinion.
I am written a number of comments on the fundamentals about KNM in i3, some of them are very detailed. My view about KNM has never changed. I have no interest of its share price movement.
Even institutional investors were fooled many years ago. What chance do the retail investors/punters has?
2014-04-21 02:58
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CS Tan
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
Huang
“Any Monkey Can Beat The Market”.
I echo that one should seriously learn and practise proper investment in equity to at least preserve the value of the hard earned money.
I read an article that “Any Monkey Can Beat The Market”. When cross referring to my own trades record, I am shame to admit that I were beaten by monkey. However if excluding those trades with tips, my performance would at par with monkey if not better than monkey.
So, please invest either with proper skills or learn from monkey but NEVER from tips.
FORBES - PERSONAL FINANCE 12/20/2012 @ 9:05AM |7,561 views
http://www.forbes.com/sites/rickferri/2012/12/20/any-monkey-can-beat-the-market/
Any Monkey Can Beat The Market
Give a monkey enough darts and they’ll beat the market. So says a draft article by Research Affiliates highlighting the simulated results of 100 monkeys throwing darts at the stock pages in a newspaper. The average monkey outperformed the index by an average of 1.7 percent per year since 1964.
2014-04-19 14:10