Should you avoid the stock market? kcchongnz

ENCLOSED BELOW IS AN ARTICLE OF KC CHONG, IN WHICH RAIDER....HAVE A BIG ARGUEMENT....HOWEVER OUR DISAGREEMENT HAS COME TO AN AGREEMENT....THAT STRIKE A SOLUTION LOH...!!
KC CHONG ARTICLE IS VERY VALID MAH ;

Should you avoid the stock market? kcchongnz
Author: kcchongnz | Publish date: Wed, 23 Mar 2016, 06:50 PM

In my last article “Secrets of Tycoons revealed part 3, real time cases study”, I receive a comment as below.

Posted by stockraider > Mar 21, 2016 03:13 PM | Report Abuse

"IF U R NOT COMPETENT U SHOULD NOT INVEST AT ALL LOH....!!

So what do you think, should you avoid the stock market completely and place all your money in bank?
Let us see some statistics of investing outcome of ordinary retail investors in the stock market first.
ALTHOUGH RAIDER SAY AVOID THE MARKET...IF U R NOT COMPETENT....WHAT RAIDER MEAN, IS THAT U SHOULD ACQUIRE THE COMPETENCY BEFORE U INVEST LOH....!!
THERE IS GOOD OOPORTUNITY TO MAKE MORE....DO NOT AVOID MAH.....!!

2016-03-23 22:58

The investing experience of retail investors.

Below shows a chart in JP Morgan’s 1Q 2014 Guide to the markets.

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. To put that into perspective, an investor invested $100,000 in the S&P500 20 years ago would today have a total portfolio of around $502,000-compared with only $156,000 for the average investor. This return is not even enough to beat inflation and the total money left today can’t buy the things one could buy 20 years ago. WHY THE AVERAGE DO SO BADLY ? BCOS THE AVERAGE IS PLAYING A LOSER GAME LOH....!!
IN ORDER TO WIN IN STOCKMARKET....THEY NEED TO PLAY A WINNER GAME LOH....!!

Brad M. Barber and Terrance Odean in their paper “The behaviour of individual investors” confirms that collectively individual investors trading on their own under-performed the market. However, this average performance of individual investors masks tremendous variation in performance across individuals. This means those savvy individual investors would have done much better than the average, and the lower half of individual investors much worse than the average. The underperformance was due to information asymmetry, overconfidence, sensation seeking and action chasing, failure to diversify, easily influenced by rumours, tips, media and internet forums etc.

Back in Bursa, I have also shown that individual retail investor could lose big of more than 50% speculating in the market by chasing rumours, hot tips and hypes in this link, “2014 Christmas Reflection of Pitfalls Investing in the Stock Market” below.

Most recently in my last article “Secrets of Tycoons revealed part 3, real time cases study” in the link below, I have also shown that the stock market is unpredictable, and even a seemingly good portfolio of stocks, which many people think would have won big, can fall in value by more than 30% now within a short duration of just three months.

Hence the comment above that “If you are not competent, you should not invest at all” may be a valid good advice, or is it?
“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.”- Robert G. Allen

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.

Back in Malaysia, from the data from Yahoo Finance, the KLCI has a total return of capital gain and dividend of a compounded annual rate (CAR) of 9% for the last 10 years, compared to the average bank deposit rate of 3%. $100k invested in the 30 component stock of Bursa would have grown to $237k, almost twice compared to the $134k from the bank for the last 10 years.
Using a proven fundamental value investing in Bursa, investing in a random diversified portfolio of 19 stocks would have yielded a CAR of 24.4% for the last 10 years as shown in Table 2 in the link below.

$100000 invested in that portfolio becomes $572000 after 10 years, 3.3 times more than if money placed in bank fixed deposit!
For those who are interested in the performance of some other established portfolios using proven fundamental approach of investing, you may refer to the links below.

You can see the consistency and the magnitude in extra-ordinary returns from all the portfolios above.

I believe the portfolio of mostly good stocks which has lost 30% above now should also be able to earn a decent return over a longer term.
Hence many people who are fearful about the stock market and avoid investing in it would have lost a great opportunity of building long-term wealth.

2016-03-23 22:59

Why do most individual investors perform so poorly?

1.“Nothing in the world is more dangerous than sincere ignorance and conscientious stupidity.”

The main reason why individual investors perform poorly is because in the stock market, the odds are leaning heavily against them in an uneven playing field. In Bursa, most retail market players are traders and speculators, rather as investors. Trading and speculating, unlike investing, is a zero-sum game, no doubt about that. It is not difficult to guess who the winners and the losers are in this type of game. No prize for the correct guess. The problems actually go deeper than that. The herd mentality and psychology of fear and greed, overconfidence, sensation seeking etc. also play a very important role in the outcome of investing experience of individual investors.

2. Bursa is dominated by 60% of fund managers and institutional investors, local and foreign. The investment bankers and fund managers especially have all the financial, human and computer power and all kind of resources at their disposal. Furthermore, there are syndicate players, insiders who can easily manipulate the market at the expense of retail investors. They can move the market where retail investors dwell.

3.It is really a jungle out there for retail investors. They as a whole have little chance, unless he is the “chosen one”. It is a loser’s game for retail investor.

If the odds are against investing successfully, what should an investor do?
It should be clear that individual investors are, on average, not good at investing. What are the options available for them?

The better option for retail investors in the USA and other part of the developed world can invest in a variety of low cost exchange traded funds. However, there is no variety of exchange traded funds (ETF) in Bursa and for those regional ETF, they may not be representative of the sectors or regions they are in. INVESTMENT IN ETF KLSE INDEX GIVE AVERAGE RETURN ABOUT 6% PA STILL BEAT THE FIXED DEPOSITS OF 3% PA

There are many unit trust funds in Malaysia though. However, due to the upfront fees, annual management expense, and many other costs, most unit trust underperformed the market and will continue to do so. My personal experience in investing in unit trust funds had not be positive. Unless one is good at selecting a good fund manager who has good and consistent track record, and one who places your interest above his, it may not be a good option by putting your money at risk with meagre returns. ALTHOUGH UNIT TRUST CAN BEAT FIXED DEPOSITS BUT THE OUTPERFORMANCE IS NEGATED BY THE HEAVY UPFRONT LOADING FEES PLUS THE HIGH YEARLY MANAGEMENT FEES CHARGE LOH....!!

Is there any chance that you can earn better return other than from the unit trust funds without having to spend too much time and effort?
Yes, I believe individual investors have good chance of earning better returns by taking some of the steps below.

1.Learn the basics of the language of business, after all investing in a stock is investing in a small piece of a business, and knowing the language of a business and some knowledge of how to value a business, and hence a stock, which is not difficult, is a prerequisite if you want to be successful in investing. The other important thing you will learn is the psychology of investing, having a proper mind set when investing, and some useful philosophies and methodologies of investing.
Let see what some people in this website said:

2016-03-23 23:01

Post removed.Why?

2016-03-23 23:04

Posted by Intelligent Investor > Dec 21, 2015 08:24 PM | Report Abuse

An investment in Mr. Chong course provide me the ever best return.
2.Subscribe to the stock picks of some proven fund managers or individual successful investors for a small fee. I have just received this email.

KC
Thank you for your reply. I really appreciate for you have so generously included me as a subscriber
to your stock pick service for just a small fee.

I have just finished reading your analysis. Very obviously, I can feel you have really
put in plenty of time and expertise, and more importantly your heart to extract and
exploit all the financial numbers to produce a very detailed and comprehensive report
to determine the future value of the company.

Yet, it is not very difficult to follow and comprehend. Being a course participant for just 3 months,
I can understand the principle and methodology you applied in this analysis. I appreciate the value of the contents and the potential gain I can possibly derive by taking a calculated risk in which I have great confidence in pursuing.

Thanks and best regards

3.Get a proven good fund manager to manage your fund for an affordable fee, with the proper alignment of both yours and his interest.
Posted by coolio > Oct 22, 2015 11:58 AM | Report Abuse

KC, I just want to take this opportunity to say thank you again because recently I have achieved 7 figure in my investing journey...hehehe. Thanks for your investing methods, no 8 wonders in the world is really amazing!

Conclusions
Historically, the stock market has been providing much better return than other forms of investment. If the future resembles the past, the stock market should continue to earn extra-ordinary return for investors looking for building long-term wealth. It will be a pity if you continue to shun the stock market.

If you are not proficient in investing, you should start to learn it as it is a very important aspect of your personal finance. It is not that difficult to learn some simple accounting and investment knowledge.
If you are not confident in investing by your own yet, you may be able to get some help in investing from someone who has a proven record, and who places your interest above his.

Do you wish to benefit all of the above? “There are those who don’t know and those who don’t know they don’t know” - John Galbraith,

IN CONCLUSION RAIDER SAYS....U PAY A DOCTOR, LAWYERS, ARCHITECT FOR CONSULTATION FEES ??
WHY U R NOT WILLING TO LOOK FOR A FINANCIAL AND INVESTMENT CONSULTANT FOR A SMALL FEES ??

MOST PEOPLE....WHEN COME TO INVESTMENT...WANTED FREE LOH ??
BUT...IF U GET A GOOD INVESTMENT CONSULTANT AND TRAINER...PAY HIM A SMALL FREE...IS A GOOD INVESTMENT LOH...!!

2016-03-23 23:05

Post removed.Why?

2016-03-24 08:03

Post removed.Why?

2016-03-24 08:11

Raider say basing on 3i issue on compounding is valid loh....!!
But u need to make sure, the stock u purchase is undervalue b4 u can compound meaningfully mah....!!

Looking at 3i stock list of dlady, nestle and Pet dag....with Pe 30x and dividend yield of about 3%pa...a long term investors...will get about 3% to 5% pa....this negate the advantage of compounding if u overpay mah...!!

Benjamin Graham...theory on taking advantage of Mr Market and the strategic technique of margin of safety will be a better option for most value investors loh...!!

Btw...B Graham is not the big proponent of compounding...actually Philip Fisher is the one who believe in growth and compounding loh..!!
Having say that...it is very good to invest in growth company for long term and compound your investment loh...!!
But make sure u do not overpay loh....!!

2016-03-24 09:30

valuelurker

The better comparison would be in Property/Real Estate returns in Malaysia (or the USA if no choice). Gold and Bond are not available to your 'average' Malaysian investor. Should have thought of that when you made wrote the article

2016-03-24 12:29

valuelurker, you have a good point. Property/Real Estate returns are very cyclical too. In my opinion, nothing beats owning a great business outright. Next I will put owning the shares of a great business in the stock market. Real estates / properties can be included in the asset allocation too. Always have some cash ready too.

2016-03-24 12:36

SALAM

Hi KC, how to be your subscriber and what specifically do I get for being a subscriber how much do you charge?

2016-03-24 13:06

i4investor

wrong title, the correct way should be "Buy quality companies, avoid lousy companies", market is market, company is company, a quality companies will bring long term value

2016-03-24 17:46

Posted by i4investor > Mar 24, 2016 05:46 PM | Report Abuse

wrong title, the correct way should be "Buy quality companies, avoid lousy companies", market is market, company is company, a quality companies will bring long term value ....RAIDER SAY BUY STOCKS WITH BIG MARGIN OF SAFETY OR UNDERVALUE....PREFERABLY WITH GOOD QUALITY TOO....!!

OF COURSE IN REAL LIFE...U CANNOT HAVE THE BEST OF BOTH WORLD...USUALLY THERE IS A TRADEOFF...BETWEEN QUALITY V MARGIN OF SAFETY UNDERVALUATION MAH....!!

2016-03-24 21:24

Posted by stockraider > Mar 23, 2016 10:58 PM | Report Abuse

ALTHOUGH RAIDER SAY AVOID THE MARKET...IF U R NOT COMPETENT....WHAT RAIDER MEAN, IS THAT U SHOULD ACQUIRE THE COMPETENCY BEFORE U INVEST LOH....!!
THERE IS GOOD OOPORTUNITY TO MAKE MORE....DO NOT AVOID MAH.....!!

Wise words. The stock market is a good place to build up long-term wealth, slowly but surely.

But that only applies to competent investors. Competency can only come with knowledge, skills and experience, in that sequence.

2016-03-24 23:48

Posted by 3iii > Mar 24, 2016 08:11 AM | Report Abuse
KC, On this topic of yours, perhaps I may add. It is great to know you are conducting courses to educate and equip those interested in fundamental investing. This is commendable. The truth and this is also borne out from my observations and interactions, only a minority will be in the position to benefit totally from everything you share.

3iii, you are right. The biggest hurdle is most people won't commit to spend some time and effort to acquire this knowledge of investing, something which is so important for their life long personal finance. It is psychological and some kind of strange mindset which is hard to comprehend.

Once this hurdle is cleared, one would be able to fully arm himself to build long-term wealth slowly but surely.

2016-03-24 23:56

Posted by SALAM > Mar 24, 2016 01:06 PM | Report Abuse

Hi KC, how to be your subscriber and what specifically do I get for being a subscriber how much do you charge?

Do you wish to benefit all of the above? Please email me at

ckc14training2@gmail.com

2016-03-24 23:58

limko1

Most people won't bother to invest in equipping themselves with the right attitude and knowledge on Investing. They just want the easy way by listening to tips and rumours. They just want to gamble.

2016-03-25 10:50

That's why majority retailer usually lose monies...bcos they are playing the loser game mah....!!

That's why raider also always say majority margin holders lose monies, not bcos they are using margin....bcos they are not equipped with the proper investment skill loh...!!

2016-03-25 10:54

limko1 ... and Mr. raider is the biggest supplier for tips.

2016-03-25 12:33

Posted by limko1 > Mar 25, 2016 10:50 AM | Report Abuse
Most people won't bother to invest in equipping themselves with the right attitude and knowledge on Investing. They just want the easy way by listening to tips and rumours. They just want to gamble.

How ironic is it! But it is true. The truth is reflected here.

Posted by stockraider > Mar 25, 2016 10:54 AM | Report Abuse
That's why majority retailer usually lose monies...bcos they are playing the loser game mah....!!
That's why raider also always say majority margin holders lose monies.

It is really hard to comprehend why do they prefer to lose their hard earned money, instead of spending a little money, time and effort to learn some basic and proven useful fundamental knowledge in investing, and play in their own field, to build long-term wealth, instead of becoming a sucker in the stock market.

2016-03-26 09:10