I have written an article discouraging individual investors who have no knowledge nor experience of investing from dabbling in the stock market here:

http://klse.i3investor.com/blogs/kcchongnz/104168.jsp

That was because of my own personal experience those of many of my friends, and friends of friends. Most, if not all, have lost money, some have lost huge amount, dabbling in the stock market.

Very few people have any knowledge about investing, about the business of a company they invest in, and they speculate based on rumours, hypes and fads, and any kind of recommendations from other people, including the analysts and investment bankers, who have their own agenda. Bear in mind that speculation is a zero sum gain, in fact, it is a minus sum gain when transaction costs are taken into account. Your gain is their loss, and your loss is their gain. Hence it should not be difficult to see who will be the winners, and who are the suckers.

I have also shown a couple of research that most individual investors lost money, or underperform the broad market, often by a wide margin. It is not difficult to comprehend that too.

I have also shown a portfolio of hot stocks which many people were speculating on more than three years ago. I gave my opinions on them then when some people asked me about. The portfolio of stocks was well documented in my articles in i3investor since then.  The underperformance of these hot stocks was astounding. The mean and median return of the portfolio was a whopping -51.4% and -64% respectively, compared to the return of the broad market of 11%. All the nine stocks in the portfolio, without exception, underperformed the broad market, with heavy double losses in 8 out of 9 of them!

Someone then asked me this in the comment section:

[Posted by wkitwing > Sep 11, 2016 09:00 AM | Report Abuse

hello,kc,how about we put our fund in mutual fund or unit trust if we dont want to burdened by dilemma and stress of investing on our own.So what do you think about this leaving our money to those fund managers to handle?]

I wrote an article about unit trust and closed-end-fund here just yesterday:

http://klse.i3investor.com/blogs/kcchongnz/104256.jsp

My conclusion is, the average return of unit trusts and managed funds, despite the sales pitch of the unit trust consultants and the financial advisors, is often far below expectation because of the layers of fees, the upfront fee of 5.5% is a killer, the annual management expenses, cash drag, high portfolio turnover, costs of play etc. These unit trusts and managed funds make up the bulk of the market players in most stock markets, and it is hard to be above average in performance consistently. Regulators in this industry must prohibit marketers from using the fraudulent sales pitch as that below:

“I am writing to share with you about investing in unit trust specifically in Public Mutual Berhad which can give higher return or yield than EPF, Fixed deposit and even ASB.”

“I have done a comparison on the performance of the various funds under Public Mutual Berhad and I can confidently conclude that the returns from some of them are much higher than the return from ASB. Investing in the right fund and with the right timing can give a return of between 20 – 50%.”

“Rather than leaving your money in EPF or ASB earning only about 5% and 9% respectively, it is better to invest in unit trust with Public Mutual Berhad.”

In the article above, I have shown my own experience investing in unit trust in Malaysia and personal managed funds in Singapore. The return of my investments, at first I didn’t even know or care about how to compute, were far from satisfactory.

What were the experience of others? Here are some comments of my post above. Judge by yourself:

Posted by chokra > Sep 14, 2016 12:18 PM | Report Abuse

Everyone who follows Mr kcchongnz columns will agree that kcchongnz gives out good and well thought out advices. For that, we cannot thank him enough. His opinion on mutual funds especially Public Mutual is spot on target. I once got so frustrated with Public Mutual that I wrote a 3-page letter and handed it over to their Wealth Manager and asked her to forward it to their HQ. In my letter, I asked Public Mutual why I would want to waste my time and money investing in many of their non-performing funds. I highlighted that the rates of FD returns were higher than their non-performing funds and named some of the funds I held or had sold off. From my experience, I can safely conclude that their fund managers push their agents to sell slow moving funds that does not benefit its investors in the long run. After carrying out my research, I emailed my Public Mutual agent and asked him whether he was asked to promote slow moving or non-performing funds to their clients. He did not bother to reply to my queries, so I made my own conclusions. The agent had years earlier persuaded me to switched my portfolio from some performing funds to what he claimed was " sure Winners" at no cost in switching. Sad to say, I held those non-performing Public Mutual funds for many years and finally sold it off last year with no profits. These funds were Far East Dividend and China Select fund. Another was a Sukuk fund that the bank Wealth Manager says could pay out 4% to 6% per annum. I sold it off 18 months later because upon reading the annual shareholders report, Public Sukuk was lending out our money to "Highway concessionaires, plantation groups and Power plant operators at below 4% interest. So how can they pay me 4% to 6% per annum. Better invest on your own but with your eyes wide open. Learn from lessons taught by kcchongnz even if it is just discussions in a forum. Keep it up Mr KCCHONGNZ.

Posted by smalltimer > Sep 14, 2016 02:31 PM | Report Abuse

My experience with unit trust is this:
1. i use to DCA amb unit trust for 5 years; then sometime in late 1990's my units grow from 1000 to 3000 plus. However, by the time i need the money in late 90's it was consolidated to 0.30 each. So after 10 years, i get back my capital.
2. I invested in pru guaranted capital for 5 years. I get dividend for 3 yrs totaling 6% but 2 years without dividend. I finally withdraw upon maturity my capital...gain only 2%.
3. I try again with HLG. After getting div. only for 2 years...i think 5%, the principal depreciation by 20%. I sold at a loss. And the staff did tell me that the whole team was kicked out.
4. Last year i purchase eastspring...after 1 yr the div, after receiving 2 dividends, i still cannot cover my fees. I switched.
That's my sad story.

Posted by Johnnys > Sep 14, 2016 06:15 PM | Report Abuse

pb mutual is worst, PRS 3year return is 0%!!!!! PSF 3 years return is 4% only.. niasin

4% is total return in 3 year no cagr

There is only one happy investor in unit trust commented in my post as below:

Posted by winston1 > Sep 14, 2016 01:56 PM | Report Abuse

I have invested some RM130k in Public Mutual using EPF over the past 10 years with current value at RM205k. Returns 75% for the period. It all depends on what funds you have invested.

He may not be happy anymore after I told him that his compounded annual return (CAR) is only 4.7%, way below the CAR of the broad index as well as EPF return, both at about 6% during the same period.

The problem with many unit trust investors is most if not all, including myself some years ago, do not know how to compute CAR, or compare returns of alternative investments. I can also tell you many unit trust consultants, or licensed financial advisors do not know how to do that too.

Long-term return of equity

Professor Jeremy Siegel made a study of the long-term returns of stocks, gold and bond at various periods from 1871 to 2012 in the United States. He presented his findings in his book, “Stock for the Long Run”, the Fifth Edition, as shown in Figure 1 below:

Figure 1

For a 141-year period from 1871-2012 in the USA, stocks’ total real annual return including dividend yield and after adjusting for inflation of 2% is 6.6%, or a gross return of 8.6% as shown, compare to gross return of 4.7% for bonds and 2.7% for gold. It shows that stocks historically have been a much better investment compare to bonds and gold for the long term. $1 invested in 1802, with reinvested dividends, would have accumulated to $10.5m in 2012. Even the catastrophic crash in stocks in the Great Depression in 1929 appears as a mere blip in the total stock return index.

Investing in the equity market for long term has been proven to be the best for building long-term wealth. As shown above, investing on your own can’t do that, and in fact, it destroys wealth for most cases, and investing in unit trust and managed funds is also not dependable, what can one do if he is still interested in building long-term wealth?

In US and some other matured and developed market, there are much better alternatives with low cost exchange traded funds (ETF) which I have mentioned in my last article. What about in Malaysia where is very limited choice of ETF?

One way is to find someone who has proven record and with plausible investing strategies to do the investing for you, while you are rid of the troubles and perils of investing yourself. However, there should be alignment of interest between you as an investor, and him as a portfolio manager. Fee is only charged if make money, and not irrespective of if you make money or not, which is often the norm in the industry.

The other way is to acquire all the necessary investment skills, and invest yourself. One must treat investing in a stock akin to investing a part of a business. In order to be successful, he must understand the language of a business; i.e. he must understand the financial statements which convey to investors how the business is doing. A good business may not be a good investment if it is selling unreasonably high. Hence, one must also know how to estimate the value of a business to see if it is worth buying.

Numerous academic research shows the various fundamental value investing strategies have worked as compiled in the book “What has worked in investing” by Tweedy, Browne Company LLC (TBC), a well-established investment advisory group in the US managing approximately $21.4 billion for individuals, institutions, partnerships, off-shore funds and four mutual funds as of September 30, 2014. It is a collection of about 50 studies of value investment approaches used in the US and the world, including Malaysia, for many decades. Each of the studies evaluates the results of following a particular value-oriented strategy in a particular market over a particular period.

In a speech in the Business School in Columbia University, Warren Buffett detailed the track records of each of the nine disciples of the Master of Fundamental Value Investing, Benjamin Graham, who had generated CAR of between 18% and 29% over track records lasting between 13 to 28 years.  

Other super investors using the fundamental value investing, such as Joel Greenblatt, Seth Klarmen, Howard Marks, Charles Munger, Mohnish Pabrai, Peter Lynch and many other fundamental value investing fund managers have all generated high return of over 20% CAR over an extended period of time of 20 years or more, purely using fundamental value investing.

At home, we also have our truly home grown super investors such as Dr. Neoh Soon Kean, Fong Si Ling 冷眼 who have used the fundamental approach in investing and built enormous wealth in the long term.

Why fundamental value investing works?

There are five key principles and concepts that underpin the value investing mind-set and are central to the philosophy espoused by Graham. They are,

1.      Price is not value

2.      Mr. Market is a crazy guy

3.      Every stock has an intrinsic value

4.      Only buy with a margin of safety

5.      Diversification is the only free lunch

Once you understand those key principles, and know how to go about them, you will have a much higher probability of building long-term wealth slowly but surely in the stock market. This I strongly believe.

“Investing is ultimately a function of two things- A good story and a judgement call that the story is not in the price.”

Conclusions

Forget about speculating in the stock market and hope for extra-ordinary return if you do not know anything about the business. Investing through unit trusts don’t seem to be a dependable way as you have read all the grouses expressed in the comments of my previous article. If you still interested in investing in the equity market to build up long-term wealth in Bursa, try getting someone who has proven record using plausible investing strategies at a low cost. Otherwise, invest in yourself with the knowledge of business. That would be more dependable to build long term wealth.

Tis goeth down to a fundamental aspect that “An investment in knowledge pays the best interest”

If you are interested to learn about this fundamental value investing for a small fee, please contact me at

ckc15training2@gmail.com

KC Chong