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Many investment psychologists think
that some of the following 7 traits or characteristic features cannot be
learned once a person reaches adulthood. By that time, your potential
to be an outstanding investor has already been determined. It can be
honed or improved, but not developed from scratch because it mostly has
to do with the way your brain is wired and experiences you have had as a
child.
That doesn’t mean financial education and
investing experience are not important. Those are critical just to get
into the game and keep playing. As a result, your income will be more
than the average earning of most people.
Let me first test your boldness to go against the crowd.
Trait 1: Be a contrarian investor.
Develop the ability to buy stocks while others are panicking and sell
stocks while others are euphoric. How many of you are willing to hold on
to your share after it has gone up more than 100% within 12 months? How
can you ignore people or friends who advise you to sell and take
profit.
Let us look at the price charts of Latitude, Lii Hen and VS Industry.
Latitude has gone up from Rm 1.00 to above Rm 6.40 within the last 24 months.
Lii Hen has gone up from Rm 1.40 to above Rm 5.50 within the last 24 months.
VS Industry has gone up from Rm 1.50 to above Rm 5.50 within the last 18 months.
As you can see these 3 stocks have been shooting up so rapidly. How can you not sell?
About 7 or 8 months ago, Jimmy Chee
invited me to talk in Calgary Hall, KL where I recommended a buy of
Latitude at Rm 3.50. Some of the attendees who bought and would thank
me.
Almost all of you would have sold when
the price went up 100% within one year. After you have sold and the
price keep going up, will buy it back? This is a test of your true
quality!
After I started buying Latitude, Lii Hen
and VS I only sold to meet margin call or to buy another counter which I
expect to go up faster, bearing in mind that all shares do not move up
or down at the same rate. But once the prices went up, I dare to
increase my borrowing to buy more.
Substantial Shareholders: As
a result, I have to declare as a substantial shareholder of all these 3
counters on Bursa Malaysia. Besides these, I also have some Poh Huat
and Xingquan.
Out of more than 1,000 listed companies, I only own shares in 5 companies.
I started serious investing in public
listed shares after I retired from active work in 1983 at the age 50
year. I am not an accountant by training. I was a civil engineer and I
hardly knew how to read a balance sheet at that time.
I started by reading to understand the
basic fundamentals of share selection as practiced by Warren Buffet,
Peter Lynch and other great investment gurus. Of course I made some
mistakes at the beginning, which in retrospect seem so silly. But I was
prepared to learn from my own mistakes.
In 1983 when China wanted to take back
Hong Kong, the people were selling as if there was no tomorrow. I bought
with all the money I had and used margin financing to buy even more.
As soon as H.K. was given 50 years
extension of the capitalist system, the market rebounded. How I took
advantage of the situation is history.
Trait 2: Obsession in playing the game
and wanting to win. These people don’t just enjoy investing; they live
it. They wake up in the morning and the first thing they think about,
while they are still half asleep, is a stock they have been researching,
or one of the stocks they are thinking about selling, or what the
greatest risk to their portfolio is and how they are going to neutralize
that risk.
They are obsessed in the investing game.
Trait 3: The willingness to learn from
past mistakes. It is hard to acknowledge your own mistake. But you need
to learn from your own mistake. Most people would much rather just move
on and gross over the dumb things they have done in the past. I believe
the term for this is repression.” But if you ignore mistakes without
fully analyzing them, you will undoubtedly make a similar mistake later
in your investing decision.
Trait 4: An inherent sense of risk based
on common sense. Most people believe analysts’ reports which are
invariably ‘a buy’ recommendation. They cannot recommend ‘a sell’
because they would lose the companies’ business. You must always take an
analyst report with a pinch of salt.
I believe the greatest risk control is common sense which is not so common.
Trait 5: Confidence: Great investors must
have confidence in their own convictions and stick with them, even when
facing criticism. Buffett never get into the dot-com mania though he
was criticized publicly for ignoring technology stocks. He stuck to his
guns when everyone else was abandoning the value investing ship. He was
proven right when the dot com bubble burst.
Trait 6: Clear thinking. If you can’t
write clearly, it is my opinion that you don’t think very clearly. And
if you don’t think clearly, you’re in trouble. There are a lot of people
who have genius IQs who can’t think clearly, though they can figure out
bond or option pricing in their heads.
Trait 7: And finally the most important
and rarest trait of all: The ability to live through volatility without
changing your investment thought process. This is almost impossible for
most people to do; when the chips are down they find it hard to sell
their stocks at a loss. They find it difficult to average down or to put
any money into stocks at all when the market is going down. People
don’t like short term pain even if it would result in better long-term
gain. Very few investors can handle the volatility required for high
portfolio returns. They equate short-term volatility with risk. This is
irrational. Risk means that if you are wrong about a bet you make, you
lose money. A swing up or down over a relatively short time period is
not a loss and therefore not risk, unless you are prone to panicking at
the bottom and locking in the loss. But most people just can’t see it
that way. Their brains won’t let them. Their panic instinct steps in and
shuts down the normal brain function.
To become a super investor, you must have the patience to master the above 7 traits.
How did I pick these 5 stocks?
Out of 1,000 listed companies, I do not
buy GLC, Bank shares, Plantation shares, Property shares, and
construction contracting shares. In view of our ringgit at 9 year low, I
concentrate on companies that manufacture products for export.
Check from Bursa the quarterly result.
As soon as you see any company reporting a sudden jump in profit, study
its business more carefully to see its future profit growth prospect.
Golden Rule: Do not buy
if you are not sure it can make more profit this year than last year
because when the annual result shows reduced profit, the price will not
go up.
Increase buying when you see the profit is improving from quarter to quarter.
Invest like a businessman: How does a businessman look at the business of the company?
He does not worry too much about the
audited accounts because it is a recorded history of the company. He
looks at the future profit growth prospect. The future may not be so
clear and straight forward but he is willing to take some risk.
For example when a businessman buys a
piece of land to develop houses, shopping mall or a hotel, he cannot be
100% sure that his project will be successful. But he is willing to take
a chance.
When I buy Latitude, Lii Hen or VS
shares, I consider myself as part owner of the companies. I can foresee
their future profit growth prospect.
Charity to help the poor:
As I mentioned in my opening paragraph,
your experiences when you have had as a child would help you become a
super investor. As I came from a poor family, I know how hard it is to
survive without enough money. My ambition is to make more money to help
the poor. I have given about 300 scholarships to help poor students to
complete their tertiary education and I also have written in my will
that all my remaining wealth will be for charity to help the poor and
needy when I die. I think my objective for wanting to make more money
has helped me make better investment decisions.
I am obliged to tell you that I am not
responsible for your profit or loss if you decide to buy those shares I
recommended. You buy at your own risk.
Koon Yew Yin,
21st July 2015
