Monday, February 12, 2007

Have intelligent investment strategy

Last year the Securities Industry Development Centre (SIDC) organised an essay competition titled My Investment Experience with the objective of getting investors to share their investment experience, good or bad. This week, we feature a winning essay by GAN HONG LEONG from Bentong.

"INVESTMENT is most intelligent when it is most businesslike.” Benjamin Graham, widely known as the father of value investing, taught Warren Buffet this philosophy.

Based on this wisdom, Warren Buffet invested in the stock market. Today, he is the second richest man in the world. Learn from him, learn from his success, and you too can become rich.

The stock market was virtually a virgin jungle to me when I bought my first share. That was in 1960, and I was 21. At that time, I was as naive and ignorant as a schoolboy regarding stocks and shares.

So long as the price was low I would call it cheap. Undervalued stocks, fairly priced stocks, or overvalued stocks are all the same to me. The chaff and the grains have no difference.

However, I was lucky to insist that the stocks which I bought must give good dividend yield. Buying shares on a cum-dividend basis was my preference.

I would sell whenever I had a good capital gain of more than 50%. I continued to invest in that manner which turned out to be profitable. Little did I realise I was actually buying fundamentally sound stocks at fairly low prices. My investment strategy was businesslike.

In April 1993, the Malaysian stock market had a super bull run. From a low of 645 points, the KLSE Composite Index hit its all-time high of 1,332.

Speculation was rampant. Price rise was spectacular. The market was a hive of activities. To get a seat to watch the market in the broker firm, you need to queue up as early as 7:30am!

Warren Buffet invested in the stock market based on the philosophy ‘investment is most intelligent when it is most businesslike’
In every corner of the town, people were talking about the market. There were no losers. Everyone was a winner. I sold at the later stage of the bull market and made a windfall.

By February 1997, the value of my portfolio appreciated to RM300,000 from RM48,000 about 20 years ago. However, I was still none the wiser about the stock market.

The years 1997 and 1998 were traumatic. The KLSE Composite Index was at 1,279 in February 1997. I bought the shares of an investment holding company listed on the main board and the share price was around RM15 per share in early 1997. By August 1997, it had declined to RM7.70 per share.

After I bought some at that price, the price kept on declining. Against the principle of wise investing, I started averaging down whenever there was a small decline.

By November 1997, it had declined to RM1.83. I thought it would stop there. Alas! It was not to be. The price continued to decline. By August 1998, it reached a low of 40.5 sen per share.

Meanwhile, my portfolio depreciated from RM300,000 to a mere RM50,000. Suddenly I realised that buying in a downtrend and holding on to a falling stock was extreme stupidity. “Never catch a falling dagger!” became my favourite phrase.

After the introduction of exchange controls in Malaysia in September 1998, the country slowly nursed itself back to health.

By then, I had become smarter, having learned fundamental and technical analysis. My investment was starting to become intelligent and more businesslike.

In April 2001, I started to accumulate some stocks based on fundamentals. I chose companies that had excellent management and great potential for growth. If it pays good dividends and the company was undervalued, I held on to the shares.

By September 2003, the stocks that I had bought had appreciated and together with the dividends received, I got another windfall.

Success in any field requires your labour. The stock market is no exception. To be successful, ensure that you have the knowledge and wisdom to plan your strategies, the discipline to carry out your plans, the patience to wait, the perseverance and temperament to endure, the capital to implement, and above all, the will to win.

Incidentally, these are traits of a successful businessman; hence, the usefulness of Graham's advice.

Investment in knowledge pays the best dividends. I share this philosophy.


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