kcchongnz blog
“I Always Knew I Was Going to be Rich” kcchongnz
[Dear KC,
I am a follower of your blogs & postings in i3investor and I like what you wrote.
I have a 25-year-old son who has been in the rat race for 2 years and I would very much like him to pick up investing skills while young. How do you charge?
Appreciate a reply from you.
Mum]
[Hi KC,
I had read through the details you sent and actually in the middle of discussion with my children on their participation to your course. Both my elder children are currently studying in private university, one studying finance and marketing and another one studying music.
My objective for their participation at this young age is to generate their awareness and interest into acquiring this investment knowledge and skill as well as to enable them to create a steady income pipeline from investment by taking action plan after the course and to achieve a successful, meaningful and better living style.] HS
First a clarification. The saying above, “I Always Knew I was Going to be Rich” is from Warren Buffett, not me. I did not say I am rich.
How lucky the children above are! I wish my parents had done that for me when I was at that age. Then I am pretty sure I could say what Warren had said. Yes, I really believe so. It is not because one will automatically become very rich in a year, 10 years or even 20 years, following some investing methods, any method for that matter. But, imagine with scores of years for the children to build up their long term wealth, with the eighth wonder of the world, the power of compounding, and a proven and plausible way of investing with higher probability of success, the sky is the limit.
“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” Albert Einstein
Power of compounding
Professor Jeremy Siegel, in his article, “Stocks for the long run”, made a study of the long-term returns of stocks at various periods from 1871 to 2012 in the United States. 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 3% is 6.6%, or a gross return of 9.6%. The return in most of the developed and developing countries in the world do not differ much, including that of KLSE.
A young person starting work at the age of 23 who saves and invests $1000 a month, slowly increasing according to the increase of salary of 4%, in the stock market for a long term horizon yielding 9.6% a year will accumulate a total of $5.5m by the time he retires at the age of 60.
What if he can compound it at a higher rate of return? How to get a higher return with little risk?
The Super Investors of Graham and Doddsville
In a paper titled “The Super Investors of Graham and Doddsville”, Warren Buffet showed the track records of each of nine disciples of Benjamin Graham showing that they all generated annual compounded returns of between 18% and 29% over track records lasting between 13 to 28 years investing in the equity markets over a long period of time, out-performing the broad market by wide margins. Let’s have a look at their profit history as shown in Table 1 below.
Table 1: Returns of the Super Investors of Graham and Dodd
|
Investor |
No. of Yrs |
Annualised Return |
S&P / Dow Return |
|
Buffett Partnership |
13 |
29.5% |
7.4 % (Dow) |
|
Walter Schloss |
28 |
21.3% |
8.4% |
|
Tweedy Browne |
16 |
20% |
7% |
|
Bill Ruane |
14 |
18.2% |
10% |
|
Charlie Munger |
14 |
19.8% |
5.0% (Dow) |
|
Pacific Partners |
18 |
32.9% |
7.8% |
|
Perlmeter Investments |
18 |
23% |
7.0 % (Dow) |
All the above investors came from just one school of thought in investing, the principles and methodologies of fundamental value investing (FVI). Their performances were well documented.
Take for example of the investing experience of Walter Schloss who had made a CAR of 21.3% over a 28 years investing period. The young person above who can save and invest following Schloss’s simple investing methodology for 28 years would have accumulated a whopping sum of $71m by the time he reaches 60 years old!
More recently, more super investors such as Joel Greenblatt, Seth Klarmen, Howard Marks, 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, making billions for themselves and their investors.
http://klse.i3investor.com/blogs/kcchongnz/88007.jsp
What about long-term investing in Bursa? Why are there so many investors, some seemingly very experienced investors say it is not advisable to invest in individual stocks listed in Bursa for more than three years? Do they have statistical significant results to prove that?
I really don’t know about this too as there is no academic research carried out on this, unlike in the US and other more developed markets. What I can do is to do a simplistic back testing on some stocks listed in Bursa. I would use those stocks I have had in the two established portfolios of mine in i3investor about three years ago, and back test them for a longer period of 10 years, and see if holding them for 10 years can provide a good compounded return.
Ten-year compounded return of some stocks in Bursa
Table 2 in the Appendix shows the returns of the individual stocks in the combined portfolio of 19 stocks invested from 1st March 2006 to 29th February 2016. The 10-year period of study is reasonable representative as it has included a complete cycle of boom and bust in 2009.
A few stocks have shorter listing history and the actual shorter periods of listing are used. Some, for example Jobstreet, has no complete records and partial and shorter records were used. The share price data were obtained from the adjusted prices given by Yahoo Finance. It is assumed that a total of RM100000 was invested in equal amount for each of the 19 stocks in the portfolio.
In this 10-year period, KLCI has increased by 80%, or a compounded growth rate, CAR, of 6%, an underperformance compared to the historical long-term return of about CAR of 10%.
However, the portfolio of the 19 stocks has returned 470%, or a CAR of 24.4% over the 10-year period. Seventeen out of the nineteen stocks made positive returns, ranging from a low of 49% for Plenitude to a high of 1843% for SKP Resources. Four of them are 10-baggers; SKP Resources (+1843%), Datasonic (+1675%), Pintaras Jaya (+1424%), and CBIP (+1005%). The CAR of these 10-baggers range from 27.2% to 34.5% for those stocks which have more than 10 years’ records.
What is the risk in investing in these stocks for the long-term?
There are only two losers; Pantech and Fibon, with only a minimal loss of only 22%, and one other under-performer in Plenitude, which only managed to garner a cumulative return of 49% for the last ten years, underperforming the broad market of 80%.
So who say one cannot invest in Bursa stocks for more than 3 years for compounding return?
Super parents
The above two parents who have encouraged their children to learn about fundamental investing, I consider super parents, but not yet until their children have “graduated” from my course, or other courses in FVI. Why? It is not easy. It is not easy not because those stuff are difficult but the contrary.
First, I can’t even convince my children, two of them are accountants, to learn about FVI. Three of my high school friends, had enrolled their children to learn about FVI from me, but just in the dinner three days ago, they told me they were too busy to learn because of their demanding career. A number of my course participants had also enrolled their children to the course, but I hardly heard of them discussing or asking in our forums, all for the same reason; no commitment, no interest, or too busy. Can’t blame them, it is a rat race out there.
I have responded to “Mum’s email and thought that she would quickly enrolled her son to learn from me on the FVI. However, I have not heard from Mum since. That was more than a week ago. I think it may not be the money as it is just a meagre sum. Most probably she can’t convince her son to spend some time to learn. Who cares about FVI? What use is that? I don’t have time!
I have a couple of very close University mates whom I also used to go minum occasionally. They are very successful in their career and they were able to send their children studying overseas full time and graduated as professionals. When I emphasize the need to convince their children to learn about investing, they responded as not necessary, because they will be rich from their career. Probably so, not until they get itchy and start investing without the proper knowledge in investing, I thought. That will be my next topic.
My question is, isn’t building long term wealth as important if not more important from your work? Apparently none agree with me.
But actually we can’t blame the children, almost all my friends as parents are also not willing to spend time and effort learning FVI themselves, although they kept on telling me they agree with me that FVI is important. Most of them simply have no interest. Some may even laugh at me what this FVI is, like some of them in i3investor do to me. Yes, I strongly believe FVI is very important for financial success in the long term. I have no doubt about it.
“value investing is either.... You either get it or you don't.” Seth Klarmen
Conclusions
Our school and university curriculum do not teach us and our children about personal finance and investing, but this, in my opinion, is very important for our financial future.
We as parents should provide some proper guidance to our children in their personal finance in order for them to be successful in their financial future.
It is not that easy though as first of all, many of us as parents are not well equipped with the awareness and knowledge of personal finance and investing. Few have any interest in FVI or even believe in FVI although I have given all the reasons and provided with evidences that FVI had worked and will continue to work. Our children are also very busy in their work and career. Getting our children to be interested is already a big chore.
But what other choice we have in order for them to have good financial future, more so for avoiding the pitfalls in investing? This is something we as parents must ponder and wonder about, deeply.
For those parents (or not parents) who are keen to equip themselves with the proper personal finance and investing knowledge, and wish to encourage their children to do the same, there are many resources out there, one of them is with the email below who have tried to train participants in a structured manner.
ckc15training2@gmail.com
K C Chong
Appendix
Table 2: 10 years return of some stocks in Bursa from 1st March 2006 to 29th February 2016
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Discussions
25 people like this. Showing 50 of 60 comments
Investment is not easy to this day
One can simply go broke but go rich
Businessmen is the one very rich
See the facebook founder Apple founder
They do not invest
2016-09-27 23:21
PlsGiveBonus: Apple and Facebook create future need. Warren buffett invest future need as a investor.
2016-09-27 23:26
Banker will tell you property and paper is different
They can make 1000 reasons
2016-09-27 23:28
Apple do not create anything, since smartphone exist before they make it
Facebook also do not create anything, social web exist before him too
People just like to invest I to them
2016-09-27 23:31
Businessmen is the ultimate winner, they make nothing and get everything
2016-09-27 23:32
Alibaba’s Jack Ma Buys $23 Million Property in New York’s Adirondacks
The Chinese billionaire has conservation plans for the 28,100-acre property.
2016-09-27 23:33
If you start small in share, how to become rich?
May be just enough for paycheck
:(
2016-09-27 23:36
If you start big in share
You may end up broken like any singaporean retiree who need to go for repayment plan and work forever until die
2016-09-27 23:39
Whoa!
From the Chart only now I can SEE MG9231 Stock Picking Skill
In Year 2016 MG9231 my Johor Sifu picked PTaras Jaya at Rm1.40 (After bonus and split it is only 21 cts from Sifu KcChongNz price chart). I gave him Kfima at 44 cts then and I thought Kfima has beaten PTaras Jaya.
How wrong was I.
Final Amount of PTaras Jaya is Rm80,201 beating Kfima by almost 400% at only Rm21,172
MG9231 has made millions and millions but kept very very low profile
Where are you MG9231?
2016-09-27 23:40
KC, do you know who runs Pacific Partners? Googled to read about them but it didn't show up. One possibility is they retired before the internet age.
2016-09-27 23:42
If I had bought Panasonic 20 years ago with RM 1,000 now may be worth RM1,000,000
Can the next 20 years Panasonic turn RM1,000 into 1,000,000 again?
2016-09-27 23:44
ronnietan: Pacific Partners was run by Rick Guerin. He now helps Charlie Munger manage Daily Journal’s portfolio.
2016-09-27 23:47
This is the homework you need to do and study, fitness will be survive according to Darwin law.
Nokia CEO: I tak buat APA APA, cuma competitor I keep improving.
2016-09-27 23:48
If I had bot Apple 20 years ago with RM1000
Now it may turn into 1,000,000 too
2016-09-27 23:50
I had yet to see a person who became rich like buffet
Even icap founder is losing in the track
Many unknown fund manager also gone missing
:(
2016-09-28 00:01
Buffet is tycoon of the west should just stay in the west
Tycoon of the east is non existence.
2016-09-28 00:03
Icap of the east want to devest
Buffet of the west want invest
:( how irony
2016-09-28 00:08
KC, why don't you give us 5 stocks to buy today or soon to keep for 10 years
and see the result in 2026. That's the challenge to U to prove your theory.
2016-09-28 09:26
I feel that it is easier for us if we shares others valuable experience.
2016-09-28 11:01
You know why China became so rich?
Because they only buy house
They sell paper share
And they do it in every country
Even in other western land they buy house and sell paper share until the white people is so angry that they want to limit their house ownership
2016-09-28 14:04
If you had 1000 Genting shsres when it was listed in 1971, you would be a multi millionaire by now!!
2016-09-28 16:47
It is easier said than done. To hold a stock fr 1971 till now. One have to go thru some many big downturns which offered great opportunity for those who sold off during the highs to buy it again. It is great in theory but is hard to put into practice.
2016-09-28 17:04
Cultivate the discipline in applying the value investing approach. A mindset shift to focus on "Return on invested capital - ROIC", EVA, Free cash flow, net debt to equity, EV/EBITDA and dividend yield.
Risk comes from not knowing what you're doing, it is better to pay a fair price for a well run company - a business that can prosper in good and bad time.
2016-09-28 17:27
Posted by JN88 > Sep 27, 2016 10:54 PM | Report Abuse
Only counter with >1000% gain can beat property.
You sure?
Have you bought a house? if so, you can work out what is your internal rate of return by putting all the periodic inflows and outflows of cash you have put in, and assuming you can sell it at the market price now.
Your cash input would be rental, and final cash in of a lump sum left, after legal fee and agent fee etc., and also paying balance of loan to bank.
Your out flows should include your initial outlay of deposit, renovation to make it fit to move in, including air conditions and chattels,legal fee, agent fee if any. There will be periodic outflows such as installment, quit rent and assessment fees,insurance, repair and maintenance etc.
Work out what in the net present value on the year you bought it, and of course internal rate of return which you can compare with other alternative investments.
In my experience, only houses in a very good location may yield positive net present value, or an IRR > 10%.
Try out and see.
2016-09-28 18:28
Posted by stockmanmy > Sep 28, 2016 09:31 AM | Report Abuse
and Deutsche Bank share is at multi year low
yeah, compounding.
Why did you choose Deutsche Bank as an example out of thousands of companies?
The legendary investor Shelby Davis, whose approach was essentially to buy and never sell. "His belief was the best time to invest in stocks is whenever you have the cash,"
When he died he owned more than 1,000 different stocks!"
The end result of Davis' low-trading approach? Even though several of the companies he bought went bankrupt, he turned $50,000 in 1938 into more than $900 million by the time he died in the mid-1980s. He had returned an astounding 24% a year with almost no taxes.
2016-09-28 18:36
Posted by Blacksails > Sep 28, 2016 09:26 AM | Report Abuse
KC, why don't you give us 5 stocks to buy today or soon to keep for 10 years
and see the result in 2026. That's the challenge to U to prove your theory.
That is not the way to prove a theory. You got to have statistical significance results from proper research methodology, rather than spurious occurrence.
By the way, you don't need me to give you the 5 stocks. Use some value investing strategies to buy a portfolio of about ten good stocks. I am sure you can do well with that. There are scores of good stocks selling at good price now in Bursa. More in SGX and HKSE.
2016-09-28 19:53
Thanks, abangadik, just looked up Rick Guirin, who posted great long term returns in Pacific Partners, which also had great volatility during market breaks due to use of leverage.
2016-09-28 21:28
By right why not treating investment lesson as an additional subject which is not cover in school or university or part time lesson that may be useful in future, who knows?
I remember in Dr. Neoh Soon Kean's book, Stock Market Investment in Malaysia and Singapore. There was a case where a Doctor's son was forced by his Doctor father to pursue and complete his medical course , but the son was not actually keen with his medical study. However the son tried to pick up extra courses in his University, He saw a lecturer who drove a beautiful Porsche in his campus, later , he found out that lecturer was teaching investment course, he told himself that the lecturer must be good in his personal investment and be able to drive nice sport car. In oversea university, the student is allowed to participate other courses on his personal capacity without sitting examine. He followed that lecturer's investment course and picked up his investment knowledge.
when he was back to Malaysia after practised a few years and after accumulated some capital, he started to invest in Malaysia market and make many time more than his medical practice.
I think it is no harm for others to have extra skill as long as he has spare time.
It reminds me Hong Kong tycoon Lee Ka Sing use to advise young people " everyone has equal 24 hours per day, during the office hours, you must contribute your best to your company, you must also pursue 2nd career after office hours by read as much as possible or do what you like best because who knows, that may turn out to be your lifeline either you got retrenched or meeting misfortune event."
I believe those people who follow his advice will live better and comfortable in life .
2016-09-28 21:54
Agreed 100% with JN88 - only counter with >1000% will beat investment in property over time.
2016-09-28 23:32
Posted by MG9231 > Sep 28, 2016 09:54 PM | Report Abuse
By right why not treating investment lesson as an additional subject which is not cover in school or university or part time lesson that may be useful in future, who knows?
I remember in Dr. Neoh Soon Kean's book, Stock Market Investment in Malaysia and Singapore. There was a case where a Doctor's son was forced by his Doctor father to pursue and complete his medical course , but the son was not actually keen with his medical study. However the son tried to pick up extra courses in his University, He saw a lecturer who drove a beautiful Porsche in his campus, later , he found out that lecturer was teaching investment course, he told himself that the lecturer must be good in his personal investment and be able to drive nice sport car. In oversea university, the student is allowed to participate other courses on his personal capacity without sitting examine. He followed that lecturer's investment course and picked up his investment knowledge.
when he was back to Malaysia after practised a few years and after accumulated some capital, he started to invest in Malaysia market and make many time more than his medical practice.
I think it is no harm for others to have extra skill as long as he has spare time.
It reminds me Hong Kong tycoon Lee Ka Sing use to advise young people " everyone has equal 24 hours per day, during the office hours, you must contribute your best to your company, you must also pursue 2nd career after office hours by read as much as possible or do what you like best because who knows, that may turn out to be your lifeline either you got retrenched or meeting misfortune event."
I believe those people who follow his advice will live better and comfortable in life .
Well said by Great Sifu MG9231 the avid disciple of
GRAND MASTER CHAMPION SIFU DR NEOH SOON KEAN.
In Dr. Neoh's Valuable "STOCK MARKET INVESTMENT" BOOK
he mentioned these in his preface
"Dedicated to the memory of Benjamin Graham" - the Father of Value Investing.
Later Dr Neoh himself became The Benjamin Graham of Malaysia.
And now MG9231 is The Benjamin Graham of i3 Investors' Forum.
So You Better Stay here & Teach all Newbies
Maybe someday an article called
"THE SUPER INVESTORS OF i3 INVESTORS' FORUM" might be written!
YAHOOOOOOOOOOOOOOOOOOOOOO!!!!!
MANY HAPPY RETURNS!!
SOOOO HAAAAAPPPPPYYYYYYYYYYY!!!!!!!
2016-09-28 23:54
While many are struggling to make 5 to 6 figures a year buying and selling; selling and buying stocks MG9231 is making 6 to 7 figures a year just by receiving dividends alone.
6 to 7 FIGURES A YEAR IN DIVIDENDS ALONE?
That's MG9231!! THE CHAMPION OF CHAMPIONS!!!
HIP HIP HOORAY!!!!!!!
2016-09-28 23:59
A buddy of mine did buy GENTING @ IPO, a mere 2K, got rich ,
then he met this DDG Cambodian lady. ......................................and he got richer bcos she is good @ numbers, don't need "sifus".......and they will live happily ever after.
2016-09-29 09:59
"Life is the most difficult exam. Many people fail because they try to copy others, not realizing that everyone has a different question paper !"
2016-09-29 10:28
Posted by Icon8888 > Sep 27, 2016 10:48 PM | Report Abuse
Why invest ? Because not only you need to work hard, your money also need to work hard
Well said Icon8888,
“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.”
- Robert G. Allen
And how would Warren knew this when he said this? From where?
"I Always Knew I Was Going to be Rich”
2016-09-30 17:43
Posted by WB2F > Sep 29, 2016 10:28 AM | Report Abuse
"Life is the most difficult exam. Many people fail because they try to copy others, not realizing that everyone has a different question paper !"
Well said.
Many people are given the opportunities to learn the life lessons and prepare for the examination for all kinds of questions. However few, very few bother to care about them. Some like the above, take the short cut and try to copy. Occasionally they copy the right answer, but most of the time, like a dice, 5 out of 6 times turn out to be different and wrong answers, and as a result, mostly fail.
2016-10-01 09:24
"The reason we have billionaires who are still in their twenties is not because they bought investments. They created investments, called businesses, that millions of people want to buy." He compares investors to people buying tickets to a game. Businesses are the one selling the tickets to the game (i.e., shares of stock).
============
"Today, I notice people becoming instant millionaires, even billionaires, just by taking a company public through an IPO. I often wonder if the company's mission was just to make money for owners or [Venture capital and founding] investors or was the company really formed to fulfill a mission or some kind of service? I am afraid that many of these new IPOs will ultimately fail because their only mission was to make money quickly. Besides, it is in the mission of a company where the entrepreneur's spirit is found."
2016-10-14 00:53
MG9231, can share more with us your invest8ng philosophy and how you pick stocks? We want to learn from you.
2016-10-14 01:18
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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....
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2016-09-27 23:20