I just read an article on page 3 in a Chinese Investing periodical, The Bust Weekly.  This periodical has a lot of good information on investing in Bursa.

The title mentions that most retail investors lost money in Bursa, mainly because of the psychological behaviour of individual investor, speculating and punting, instead of investing in the stock market.

That was also confirmed by many of my friends, many of them were already retired. All of them had lost money. Most of them had lost so much that they just refused to talk about the stock market any more. Most of them know many of their friends and relatives who had lost a lot of money speculating in the stock market. None of them know anyone who had become rich speculating in the stock market.

The answers to why most retail investors lost money the periodical gives were summarized as below,

1. Retail investors are not willing to learn about investing
2. They were not willing to put in any effort in investing
3. They are not willing to spend some money and time to upgrade their investment knowledge and skill; buying good investment books and periodicals, participate in investment talks and seminars, attend some investment courses
4. They only hope to ride on the bandwagon of others, hoping others would put money into their pockets by following rumours, touting of sure-win stocks by others in the internet forums.
5. Most retail investors engage in short-term speculating and punting and hope to make quick buck in three days, three weeks, or three months.

The poor performance of retail investors above was consistent with some research findings below.

Brad M. Barber and Terrance Odean in their paper “The behaviour of individual investors” 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.

Another study by a Boston based consulting firm, Dalbar Financial Services in its 2005 report, “Quantitative Analysis of Investor Behaviour” shows that an average equity investor earned over 9% less annually than the S&P over the last twenty years. This huge chasm was attributed to investors’ trying to time the market and thus failing to keep their money in stocks for the entire period.

Based on their analysis, the average investor had a 2.3% annualized return over the 20 years from 1993 to 2012, way underperformed the market return of 8.4% during the same period.

I see no surprise of all the findings above on under-performance of retail investors. Just imagine, without investing in oneself in the knowledge of investing, how is he going to survive in the jungle full of tigers and sharks out there?

Do you really believe they are tooth fairies out there; people who are so kind that they help you to make money in the stock market by giving you free tips?

"Why me God. Why are You so kind to me, and me only?"

This is just simple and logical reasoning, and yet, believe me, few, very few get it.

Hence, most retail investors lost money in the stock market, and they will continue to lose money doing the same thing repeatedly.

Investing is not easy and that is for sure. Trying to make a lot of money from the stock market, especially in a short time is difficult.

But is it that difficult that most must lose money?

In the above article in the Busy Weekly, it mentions that for the last 10 years from the year 2007, just before the subprime housing crisis in the US, which also adversely affected the stock markets all over the world, and up till to date, 70% of the stocks in Bursa had positive returns. In investing, this success rate was considered as very good. It really was.

My estimation shows that the broad KLCI increased by about 52% for the last 10 years from 1414 points to 1784 points as on 18^th September 2017. Together with dividends, the compounded annual rate of return (CAGR) was about 5.5%. This CAGR is better than the return from the fixed deposit from banks, and comparable with the return of EPF.

I would say the return from investing in the 30 component stocks of KLCI the market in the last 10 years is at best satisfactory. It underperformed the long-range returns of the market of about 10% historically. However, it is still way better than the return of most retail investors.

The Busy Weekly also compiled a list of 20 “bull” stocks which returned over 1000% over the last 10 years. The best performer, MYEG, returned 3443%, and the last in the list, Poh Huat, 1147%. Those numbers are equivalent to a CAGR of 43% and 29% respectively, more than 10 times the return of fixed deposit a year, for each of the 10 years.

This shows that if one could identify some good companies with good prospects at that time, would be able to obtain fantastic extra-ordinary return leveraging on the power of compounding, and invest in them for long-term, even after the steep corrections during the subprime housing crisis which affected Bursa badly in 2008 and 2009.

The above is consistent with my own personal experience as shown in this thread in i3investor below,

http://klse.i3investor.com/blogs/kcchongnz/113300.jsp

The article in the thread above shows a portfolio of 19 stocks invested through 10 years from 1^st March 2006 to 29^th February 2016 would have returned an average of 470%, or a CAGR of 24.4%, compared to total return of KLCI of 80% at a CAGR of 6% during the same period.

Four of them were 10-baggers; SKP Resources (+1843%), Datasonic (+1675%), Pintaras Jaya (+1424%), and CBIP (+1005%) during that period. The CAGR of these 10-baggers ranged from 27.2% to 34.5%.

Conclusion

The article in the Busy Weekly shows that long-term investors in Bursa over the last 10 years could obtain positive returns from the stock market.

If the investor has a good knowledge on investing and following a proven successful approach, he may be able to obtain good CAGR by identifying some potential good growth companies selling at good prices to invest in.

However, the truth is most retail investors lost money in Bursa. This was because most of them follow rumours, hypes and tips, and hoping that others would help to put money into their pockets, without having to put in any effort. They believe there is such thing as free lunch in investing.

Few, very few, are willing to spend some time and effort, or some money to learn about the right way of investing. Even fewer believe there is such thing as the right way and a proper process of investing, except following rumours and hot tips.

If you are the exceptional few who are motivated by this article and wish to build long-term wealth safely, slowly but surely, you may contact me in the link below:

ckc14invest@gmail.com

Meanwhile if you are interested, you may read my articles in my blog within i3investor to understand my philosophy and methodologies in investing in the link below,

klse.i3investor.com/blogs/kcchongnz/

I have written about 300 articles on fundamental value investing here.

KC Chong