kcchongnz blog
Stress-free investing kcchongnz
It is saddening to read and hear about people who treat the stock market as a “game” give in to unbearable stress and commit suicide due to heavy losses “playing” in the stock market.
How did they get themselves into such situation?
One probable way I can think of is they get greedy by using margin finance in the hope of getting exaggerating return by using other people’s money. But when the market or their stocks tanked, which they often do, they faced, instead of exaggerated gain, amplified losses which wipe out all their capitals, plus still owing the banks, or Ah Long huge sum of money.
Many of those who lost huge amount of money speculate on rumours, hot tips, hypes and fads. The share prices of these stocks move up and down hugely every day, often manipulated by big boys, insiders and syndicates. Speculators of these stocks must “monitor” their stock prices every day, every hour, and every minute, whether to cut loss or average down, while they are working during a normal day. The outcome is quite certain as shown in this link below, all of them eventually lost huge amount of money. How not to be stressful speculating like that?
http://klse.i3investor.com/blogs/kcchongnz/104168.jsp
Even investing in a seemingly reasonably good company can be very stressful as you could lose a lot of money chasing it when it is already jacked up sky high, and you have no idea how to assess it but merely following hot tips from hot hands. If you have bought Focus Lumber at its height at RM3.09 on 12th January 2016, you would have lost more than 50% in just 8 months later, wiping out all your capital if you are with a margin of 50%.
http://klse.i3investor.com/blogs/kcchongnz/102572.jsp
Even investing in Gadang, which so many investors and investment bankers are super bullish of, with the push by the company with all those freebies at its height of RM3.30 can cause you plenty of stress if you are on heavy margin finance, and sailang all your money in it when it was heavily touted as a sure win bet.
What if you speculate in Genetic following the “golden rule” speculating on its just one quarter good results without understand the details and use that to extrapolate future performance, or XingQuan with highly suspicious accounting practice, and some other hot tips? I have no eye see. One could lose 60%, or 70% within just a few months.
Why should one want to get himself into such a stressful situation in investing? Doesn’t he have a better choice of investing in a stress-free manner as that of Walter Schloss, Warren Buffett, or Joel Greenblatt?
Walter Schloss
Schloss was a high school graduate and had worked under Benjamin Graham. If I were to use golf to describe Schloss, he would be the “nearest to pin” in Graham’s investing philosophy
We can sum up Schloss investment philosophy in one sentence: “He buys cheap stocks”. That was precisely the cigar butt investment approach of his mentor, Benjamin Graham. He liked to look at the balance sheet more than income statement because,
“I try to establish the value of the company. Remember that a share of stock represents a part of a business and is not just a piece of paper. … Price is the most important factor to use in relation to value…. I believe stocks should be evaluated based on intrinsic worth, NOT on whether they are under or over priced in relationship with each other…. The key to the purchase of an undervalued stock is its price compared to its intrinsic worth.”
Schloss practised adequate diversification. He repeatedly said “I don’t like losing money”. So, he needed to take a diversified approach so he could “sleep well”. He often owned 60 stocks or more at a time, sometimes as many as 100.
“I like the idea of owning a number of stocks. Warren Buffet is happy owning a few stocks, and he is right if he is Warren….”
Schloss invest with a long-term view. He did not expect his investment strategy yielding results in a short time. He often owned his stocks for an average of 4 years. Obviously, he doesn’t look at stock price movement every day, every hour, and every minute, and thus get stressful.
“Don’t buy on tips or for a quick move.”
Schloss rarely talked to management, choosing to invest only on the numbers. He spent very little time on thinking about the economy, or the quarterly performance of a company, unlike the analysts nowadays, and their followers, chasing every quarterly result and make moves all the time, and hence get very stressful. He simply felt that if he could get a good price backed by as much quality tangible assets as possible, the upside can take care of itself.
“I don’t like stress and prefer to avoid it, I never focus too much on market news and economic data. They always worry investors!”
Many here may say his way of investing is no use using historical records, that he must know the management, read and must be well versed in industrial and economic news and get the up-to-date information of whatever the companies he invested in etc. But he didn’t because he just wanted to invest in a stress-free manner.
But do you know how well he had done for himself and his investors in that stress-free manner?
He is one of the most influential investors based on his 5 decades long performance from 1955, returning 20% per year, almost three times the 7% return of the S&P during the same period. If you placed $1000 investment with Scholss in 1955 for 50 years, your $1000 turned into $9.1m, 300 times more than the just $30000 from the return of the broad market!
There has been hardly anyone who can break his long-term track record.
Schloss is also a very happy man too, because for him, wealth with no health, no true friendship, no family love, no principles, means nothing to Walter Schloss.
Warren Buffett
Warren Buffett requires little introduction. He is the most successful investor in the world. Buffett is the chairman, CEO and largest shareholder of Berkshire Hathaway, and is consistently ranked among the world's wealthiest people with a net worth of USD62 billion.
Buffett is noted for his adherence to value investing, and a notable philanthropist.
That $1,000 invested in 1964, when Buffett took over the company and shares cost just $19, would be worth about $11.5 million dollars today. This is equivalent to a compounded annual growth rate (CAGR) of about 20% for a long period of 51 years.
Buffett loves investing. He used to say he taps dancing to work every day. What stress? He doesn’t look at stock prices every day like most of us do because his investing horizon is long-term. This is the implication in this paraphrase of his famous quote:
“No matter how great the talent or efforts, some things just take time. You can't produce a baby in one month by getting nine women pregnant.”
Buffett, unlike Schloss who just buy cheap stocks, takes value investing to another level. He likes to pay a little bit more for a great business producing great earnings potential, and more focus on his investment, rather than too broad a diversification.
This is a good advice from Warren Buffett for investors regarding the greed in the stock market:
“I've seen more people fail because of liquor and leverage—leverage being borrowed money. You really don't need leverage in this world much. If you're smart, you're going to make a lot of money without borrowing.”
Hence if you follow Buffett’s way of investing, investing in good companies for long-term, rather than chasing each quarterly result, you are likely to produce good outcome in the future, and without any stress.
Joel Greenblatt
Joel’s investing principle amalgamates both the philosophies of Buffett and Schloss. He invests in good companies at cheap prices.
I have mentioned about Joel Greenblatt in my investment articles in i3investor a lot because my investing principle is mainly based on his Magic Formula Investing. Here is one of the articles.
http://klse.i3investor.com/blogs/kcchongnz/51631.jsp
Joel Greenblatt is an American academic, hedge fund manager, investor, and writer. He is a value investor, and adjunct professor at the Columbia University Graduate School of Business.
In 1985, Greenblatt started a hedge fund, Gotham Capital, with $7 million. Through his firm Gotham Capital, Greenblatt presided over an impressive CAGR of 30% from 1985 to 2006. The $7 million capital turned into $1.7 billion 21 years later.
Joel focus on buying good companies at cheap price. Good companies again mean companies with high return on invested capital, ROIC and not earnings growth, and cheapness measured by earnings yields, and not the simplistic PE ratio.
This is Joel’s thoughts about stock price and value:
“I just want to take advantage of prices away from value. If you do good valuation work and you are right, Mr. Market will pay you back. In the short term, one to two years, the market is inefficient. But in the long-term, the market has to get it right—it will pay you back in two to three years. Keep that in mind when you do your analysis. You don’t have to look at the next quarter, the next six months, if you do good valuation work—Mr. Market will pay you.”
“Buying good businesses at bargain prices is the secret to making lots of money.”
I particle like what Joel says here:
“Look down, not up, when making your initial investment decision. If you don’t lose money, most of the remaining alternatives are good ones.”
On leverage in investing, Joel said:
“If you are going to be a very concentrated investor, you should not use leverage. You can’t leverage because you need to live through the downturns and that is incredibly important.”
Joel also warned investors about stock tips and advice from people purportedly want to make you rich.
“The odds of anyone calling you on the phone with good investment advice are about the same as winning the Lotto without buying a ticket.”
So, how can investing be stressful if we follow Joel’s way of investing judiciously?
Conclusions
Investing should be treated as an enjoyment, and at the same time build up long-term wealth. The way to do investing in a stress-free manner is to follow some of these real super investors:
- Buy companies at very cheap price like Schloss did
- Buy great companies at reasonable price like Buffett does
- Buy good companies at cheap price like Greenblatt does
- Carry out assessment of the value of the company you invest in
- Diversify
- Invest for long term, not focussing too much on the next quarter or the next six months
- Don’t follow rumours, hot tips, hypes and fads
- Don’t use money you can’t afford to lose, especially margin financing
- Take care of the downside, and let the upside takes care of itself
- Don’t bother to look at your computer screen all the time
Happy investing
K C Chong
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Discussions
8 people like this. Showing 49 of 49 comments
KC,
now you are back on the right path.knowledge sharing ,fair and unbiased
forgive me to express my view frankly, the article title " another lesson from Gadang" I feel itis biased and unfair. not a comprehensive analysis of your usual style. you talked about gadang deceiving growth but you did not offer any good explanation.
I dare not ask because I know you may answer "can't you read from the article" or "I do not owe you any explanation".
you are a well accepted and respected sifu ,if you are willing to share your knowledge and your view, then I believe you will not feel annoyed to explain if requested
"can't you read from the article" or "I do not owe you any explanation".
The above answers were given to those who asked abusive questions or made abusive statement such as these:
[Posted by Xuewen > Nov 27, 2016 03:27 PM | Report Abuse
KC
If you know Gadang is a good for nothing company , highly overvalued
Why you tell the story now but not when the price is still hot above 3.00 like you have done for VS?
Am I not right to call you horseback canon sifu
Posted by paperplane2016 > Nov 28, 2016 11:56 PM | Report Abuse
The thing is this when stock going up, someone will claim credit. When down, someone will said when did I recommend you to buy, buy at own risk. I only analyze for you. I never said good or bad. Deny everything if going against him or her .
That typical politicians!!!
Now thinking about tht , kyy not really tht bad at all even though he calls ppl stupids. At least he will openly admit he is wrong and ask ppl sell. He is mOre noble lah.]
You know I have been sharing for years in i3investor, spending lots of time and effort. Do you think I should like before sit down in front of computer and spend hours and answer their abusive questions politely and patiently? Gosh not me. I am not a saint.
As for Gadang, try to understand what I was trying to share. Someone said FA is useless, and I am trying to say that you could see some concern for Gadang's results, its poor cash flows. Try analysing its cash flows last year, and also the past few years then you understand what I am trying to convey to you, instead of saying i am trying to create fear. I am also telling you it is dangerous to follow others who especially has a lot of money to dispose,with heavily borrowed money, to buy the shares he keeps on promoting. Because when things turn the other way, he will dump the shares like no tomorrow, and you will suffer.
I have no motivation to create fear. I am giving you some facts and figures for you to ponder and study in detail, hopefully you will see something which may be important. But whether you want to accept my view or not, which may not turn out true too, is entirely up to you.
In investing, only hear things you like to hear, is not good.
2016-11-29 10:58
The only stress free investment is : high dividend gem, but many con-pant don't want to give dividend, instead give false prosperity
:)
We should propose all company to pay dividend
2016-11-29 11:07
Not true.
Every thing said in this article not true.
Buy and hold a selected portfolio based on the best ability is no guarantee of success.
One financial crisis can take you back to the beginning.
2016-11-29 11:21
stockmanmy, it is still better than investing kyy stocks mentioned above. no need to wait financial crisis, anytime can wipe u out.
2016-11-29 11:38
jason................
KYY is 83, around for many crisis.
Universities and Index Fund Managers try to convince you that knowledge and skills no use.....no better than a monkey throwing darts......and if you are following the news.....the Index Fund Managers are winning hearts and minds and pockets.
2016-11-29 11:48
KC,
You gave a general statement of negative cash flow of gadang for some of the years, did you explain where the cash was spent. Did the company debt keep increasing . Did you provide any fact and data the company is burning cash? Did you provide such fact and data ? NO !
Unbiased? Fair to those who had invested based on the FA may be learnt from you?
Hope this does not sound offensive to you .
Thanks
2016-11-29 11:50
You talked about Gadang deceiving growth. What and where is your fact and data. Are you going to ask me to read the article again? Or are you going to tell me you do not owing me and readers here any explanation
2016-11-29 11:55
Posted by bintang21 > Nov 29, 2016 11:50 AM | Report Abuse
KC,
You gave a general statement of negative cash flow of gadang for some of the years, did you explain where the cash was spent. Did the company debt keep increasing . Did you provide any fact and data the company is burning cash? Did you provide such fact and data ? NO !
Unbiased? Fair to those who had invested based on the FA may be learnt from you?
Hope this does not sound offensive to you .
Thanks
"Fair to those who had invested based on the FA may be learnt from you?"
Young man, please bear in mind. I truly don't owe you so much explanation. As a matter of fact, anything at all. And also bear in mind,nobody owes you anything in this world.
And I am not a saint.
2016-11-29 11:58
Posted by stockmanmy > Nov 29, 2016 11:21 AM | Report Abuse
Not true.
Every thing said in this article not true.
Buy and hold a selected portfolio based on the best ability is no guarantee of success.
One financial crisis can take you back to the beginning.
"He is one of the most influential investors based on his 5 decades long performance from 1955, returning 20% per year, almost three times the 7% return of the S&P during the same period. If you placed $1000 investment with Scholss in 1955 for 50 years, your $1000 turned into $9.1m, 300 times more than the just $30000 from the return of the broad market!"
"That $1,000 invested in 1964, when Buffett took over the company and shares cost just $19, would be worth about $11.5 million dollars today. This is equivalent to a compounded annual growth rate (CAGR) of about 20% for a long period of 51 years."
"In 1985, Greenblatt started a hedge fund, Gotham Capital, with $7 million. Through his firm Gotham Capital, Greenblatt presided over an impressive CAGR of 30% from 1985 to 2006. The $7 million capital turned into $1.7 billion 21 years later."
These are all publicly available information. Not true?
Can you show me the super investor in your mind his record in the last 20 or 30 or 50 years record and see if he can smell anyone's fart above?
Don't just talk empty!
2016-11-29 12:04
stockmanmy, he is 83 but still making simple mistake, asking ppl to chase high with margin. all above example show the fact that you really got burnt.
2016-11-29 13:07
KC
I cannot say one cannot learn any thing from great books, and great investors but I dare say it is not sufficient to guarantee success.
Even the great Warren Buffett says people are better off placing money in Index Funds than in the hands of the best Hedge Funds / Stock picker that can be found. ......that surely suggest skills and knowledge go up in smoke.
But I also have a few points that I firmly believe...........
- that contra kaki sure die
- that risk and rewards are inseparable twins but only side will reveal itself at any moment. It is just like the quantum theory
- that FA and TA combined but without a good business sense is next to useless
- that you cannot make big money without big positions and hold it long enough and you can also die trying.
- that the winners are living a blessed life. And who can determine who lives a blessed life? who live a cursed life?
Is knowledge and skills a necessary and sufficient condition ?
Is knowledge, skills and financial intelligence a necessary and sufficient condition?
I do not think so
That is because I see lots and lots of billionaires who are definitely less knowledgeable, less skillful and with less financial intelligence than I have.
So, who becomes the blessed? Who becomes the cursed?
Ask God.
2016-11-29 13:13
well, using historical doesn't guarantee same will happen. every crisis is different.
2016-11-29 13:21
accountants also seldom make money
they too focus on minute details
engineers do well as investors. KC and KYY are good examples
2016-11-29 13:57
Just teasing you lah, don't be mad
Long time no see, happy that you are back
I missed your packets of wisdom , despite the Poh lan pah ....
2016-11-29 14:03
I hv no idea how koon did in hk stock mkt years ago. But i dont think he did very well in bursa prior to second half 2014. After second half 2014 he did very well till now thanks to koon bee.
2016-11-29 14:03
He bought his stocks at low prices using margin ac n he came out to promote at high prices encouraging people to buy n use margin ac to buy his shares
2016-11-29 14:06
If i m not mistaken koon confessed that he buta buta hentam hk shares in 1989 n made his first barrel of gold fm stock mkt....at certain extent i think he is like malaysia Ting Hai....buta buta hentam buta buta kaya..lol
2016-11-29 14:13
But he did make a smart move in 2014 appointing few guys to manage his funds knowing that luck alone may not ensure consistency in making profit fm stock mkts....eventually he chosed otb n thats y we have koon bee....
2016-11-29 14:16
Share investment is not an easy game
But learning is a joyful and rewarding experience.
2016-11-29 15:11
he force his sons jumping off the building, ting hai the old, ego, stubborn man end up in prison if i remembered correctly.
2016-11-29 17:04
KC, u r doing a good job..... i have learned a lot from your posting in i3..... i am also an avid value investor...there is no substitute to hard work in share investment...however there r numerous websites now providing financial metrics ie roic,roe,ev etc of companies..... r they reliable ? is it advisable to use the numbers provided?
2016-11-30 12:40
Stress free? What a misleading article. There is no such thing as stress free in investing. Many people say buy more when it drop more. It is easier said than done my friend. I would love to see how will you react when your stocks drop 50% with nonreasons and no more cash to add.
2016-11-30 12:45
Posted by Tryingtogetrich > Nov 30, 2016 12:40 PM | Report Abuse
KC, u r doing a good job..... i have learned a lot from your posting in i3..... i am also an avid value investor...there is no substitute to hard work in share investment...however there r numerous websites now providing financial metrics ie roic,roe,ev etc of companies..... r they reliable ? is it advisable to use the numbers provided?
I am glad you like what I write.
I guess you may use those metrics from the various website as initial assessment. It may be advisable to go deeper by looking at their financial statements and evaluate yourself as financial statement interpretation is often different from different people, especially things like ROIC and EY of a firm.
2016-11-30 13:06
Posted by Flintstones > Nov 30, 2016 12:45 PM | Report Abuse
Stress free? What a misleading article. There is no such thing as stress free in investing. Many people say buy more when it drop more. It is easier said than done my friend. I would love to see how will you react when your stocks drop 50% with nonreasons and no more cash to add.
Misleading? What is misleading?
What has stress free investing to do with your statement below?
"Many people say buy more when it drop more. It is easier said than done my friend. I would love to see how will you react when your stocks drop 50% with nonreasons and no more cash to add."
My article doesn't tell you to buy more when the share price drop until you pok kai. Does it?
2016-11-30 13:10
Long time never commend on Coastal Contract. Just find out only worth RM 1.28, meaning someone will lose RM 2 if bought in 2015.
2016-11-30 13:14
Posted by donfollowblindly > Nov 30, 2016 01:14 PM | Report Abuse
Long time never commend on Coastal Contract. Just find out only worth RM 1.28, meaning someone will lose RM 2 if bought in 2015.
You are the most unlucky person in the world I have ever known. I have written tens of stocks published in i3investor and you choose to buy one of the very very few stocks of mine which gone wrong. And the rest on average have made more than hundred percent in less than 4 years.
It is a six sigma event of following blindly.
Sorry, you only have yourself to blame for not doing the homework, but follow blndly.
Try harder next time.
2016-11-30 13:19
Posted by stockmanmy > Nov 29, 2016 01:25 PM | Report Abuse
funny but true
finance professors never become rich
Most finance professors are not very rich, but they are doing much better than the average investor and those who criticize them.
None of them got bankrupt investing, I think.
I can at least think of a couple of finance professors who become very rich frominvesting, I mean Billionaires in USD such as Joel Greenblatt and Josef Lakonishok. Many more are multimillionaires from investing.
What is your basis of saying that they never become rich? Not richer than you?
2016-12-01 12:42
in that case, there are billionaire finance professors....I didn't know that.........
I vaguely remembers Nobel prize winning Finance Professor go bankrupt in LTCM case
2016-12-01 12:48
I have decided to repost this
Posted by stockmanmy > Nov 29, 2016 03:11 PM | Report Abuse X
Share investment is not an easy game
But learning is a joyful and rewarding experience.
i
just to make sure you know I am not here to break your rice bowl....but hopefully for the students to take learning journey as a joyful experience and rewarding experience of and by itself.
Share investment is not an easy game .....and only those who take the learning experience and the journey as a joyful experience can succeed.
2016-12-01 12:54
Posted by bracoli > Dec 1, 2016 08:25 AM | Report Abuse
Hi kc would u feel stress when answering those hard headed questions? LOL
No lah bracoli,
On the contrary, most of the time I enjoy it. Too bad when I present truth and facts, they lari already.
But they will come back, whenever they find opportunity to pounce on me. That is ok.
2016-12-01 12:56
Posted by stockmanmy > Dec 1, 2016 12:54 PM | Report Abuse
just to make sure you know I am not here to break your rice bowl....but hopefully for the students to take learning journey as a joyful experience and rewarding experience of and by itself.
Share investment is not an easy game .....and only those who take the learning experience and the journey as a joyful experience can succeed.
Your statement above becomes more sensible.
But please note that teaching people how to do the proper way of investing is not my rice bowl. Those who are willing to learn FA will benefit from learning and will be alright in their investment, at least they will avoid being eaten by sharks.
But it is not easy. Few people invest using FA because they do not believe in it, for example you are one. Despite I have given you all the evidence, and my own experience in i3investors, you still go around shouting FA doesn't work, and only the vague apa ini "business sense" works, without any evidence.
Yet a lot less people are willing to spend time and effort to learn about FA.
No wonder 90% of retail investors lost money in the stock market.
2016-12-01 13:13
KYY has very rudimentary knowledge of FA but a strong business sense.
Seems to work fine for him....for for all the billionaires the world has seen.
Call it Forrest Gump effect, call it blessings, call it luck , call it what you want.
a rudimentary knowledge seems like a necessary and sufficient condition for some blessed people.
2016-12-01 13:27
Posted by stockmanmy > Dec 1, 2016 01:27 PM | Report Abuse
KYY has very rudimentary knowledge of FA but a strong business sense.
Seems to work fine for him....for for all the billionaires the world has seen.
Call it Forrest Gump effect, call it blessings, call it luck , call it what you want.
a rudimentary knowledge seems like a necessary and sufficient condition for some blessed people.
So are you admitting that apa ini business sense works is just like a coin flipping exercise; blessing, luck?
If that is the case, how can you say having some rudimentary "business sense" is suffice for investing success?
By the way, you haven't proved what your statement said yet with published records yet.
2016-12-01 13:44
Too much knowledge is not always a winning formula.
Hillary lost to Trump
Winning big needs some self confidence
The problem with academicians is that world is too complex and academicians may not be able to drag themselves out to woods....see too much can become paralyzed by analysis
Or for some FA experts......they become computers themselves, formulas man but wrongly analyses the underlying factors behind the figures.
2016-12-01 14:42
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KC,
now you are back on the right path.knowledge sharing ,fair and unbiased
forgive me to express my view frankly, the article title " another lesson from Gadang" I feel itis biased and unfair. not a comprehensive analysis of your usual style. you talked about gadang deceiving growth but you did not offer any good explanation.
I dare not ask because I know you may answer "can't you read from the article" or "I do not owe you any explanation".
you are a well accepted and respected sifu ,if you are willing to share your knowledge and your view, then I believe you will not feel annoyed to explain if requested
2016-11-29 10:33