kcchongnz blog
Some Dangerous Myths about Investing kcchongnz
Recently, I wrote an article titled, “The Most Important Thing: 2017 Christmas Reflection in FVI” in the link below,
https://klse.i3investor.com/blogs/kcchongnz/142299.jsp
The article received a total 137 comments. Thank you very much for all the comments, good or bad. I am always very happy to receive comments, although you may find me defensive. What is the point of writing when no one comment? No fun. Please continue to do so.
The comments motivate me to write this new article. Here it goes.
There is an awful lot of bad advice out there when it comes to investing in stock markets. Like rumours, these myths get told and retold as if they were true. They spread like wildfire even though they are flat out wrong.
Some of these myths are just plain dumb, some are deceptive…but almost all are downright dangerous! It is time you know what these dangerous myths are, so that you are in a better position to side-step them.
So, let’s get started right here, right now!
- In investing, you don’t need to know how to read financial statements.
Really ah? Are you sure you are talking about “Investing”, or something else?
How do you determine if a business is a good one, a bad one, or an ugly one?
“An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.” Benjamin Graham.
Now you know why 90% of investors don’t succeed.
-
Speculation is fun. I made a lot of money from it over the past few months.
Smoking is fun for those who do it. A small percentage of them can live very long too. But for most, it kills if you do it for long. The problem is most punters brag about how much money they made, but always conveniently forget about how much they have lost. -
You need to make complicated calculations, formulae in investing.
Who said so? The only thing which may be complicated is the discount cash flows analysis to have a feel of the value of something. It is just like an extra wedge in your golf bag, but one doesn’t really need it in investing. - In investing, you don’t need to calculate anything. You only need common sense, and business sense.
I don’t know how other disciplines decide on how to invest. FVI practitioners do use some calculations. They are however very simple calculations involving just additions, subtractions, divisions and multiplications. Anyone with a secondary school education with a calculator can do it.
Otherwise how does one determine if a business is a good business?
Is a business a good business if you need to invest RM1m to get a return of RM10000 a year?
Is it worthwhile to buy the business above for RM500k?
Isn’t that “common sense”, and “business sense” to get answer to the questions above before “investing”?
Otherwise, what “common sense”, or “business sense” you are using? That you hope the business above can be sold to someone at RM10m the following year?
- This stock is recommended by this popular investment blogger, sure make money one!
I am sure you have made some money following some popular bloggers. But did you consistently make money from all their recommendations?
!@#$%^&*
I have been following one very popular local investment blog a few years ago but I have stopped doing so for a long time already. I recalled most stocks recommended came with beautiful stories but none accompanied with any solid fundamentals. Most of them went to big losses even though KLCI has been in the uptrend for the last few years.
- I must follow this super investor, sure make money one. After all, he has made so much money in the stock market and that is why he is so rich. He must be always right.
Good on you to follow him and if, only if, he is always right, or at least right most of the time. Bear in mind, some people can become very rich for many reasons. Even they become rich in the stock market can also be from various means of making money. But think about it, in the stock market, unless you are investing in a good business for long-term, at good price, which everyone will make money due to the growth of the business. In the short-term, some people will win and some will lose, and the winners must be making it from the losers.
-
It is unwise to invest for long-term in Bursa. In the long term, everyone is dead.
That’s true, but if you play for the short term, you can die of shock even earlier.
In my article appended below,
https://klse.i3investor.com/blogs/kcchongnz/132542.jsp
I have shown The Busy Weekly compiled a list of 20 “bull” stocks which returned over 1000% over the last 10 years.
- Investing for long-term means one must hold the stock forever.
While Warren Buffet may never sell his See Candy, Gillett, Coca Cola, etc., that is not what FVI does. FVI buys good companies at reasonable prices, hold them until there is structural change and the companies are no longer good companies, or prices may have risen so much above its intrinsic value, then they sell and look for another one.
- FVI 100% sure make big money
That is not what FVI practitioners claim. We don’t think others can sure to make money in investing too. It makes me don’t know want to laugh or cry when someone claimed that the banks guarantee investors of this company make money. It is outrageous!
FVI practitioners do believe, in the long-run, FVI will probably provide satisfactory return, with lower risks.
-
It’s easy to time the market.
I always amazed at some day traders claiming making so much money getting in and out from the stock market with all the transaction costs. They sure count every time they win, but wonder did they count when they lose?
This is what the founder of Vanguard Group, Jack Bogle, not me, said:
“In 30 years in this business, I do not know anybody who has done it successfully and consistently, nor anybody who knows anybody who has done it successfully and consistently. Indeed, my impression is that trying to do the market timing is likely, not only not to add value to your investment programme, but to be counterproductive.”
- You use RM1m to buy this hot stock for RM10. Its share price has doubled from a year ago to RM20. Now you should use your share collateral to borrow another RM2m to “sailing”, and this stock will double again in a few months and you will make another RM4m, or 200%. If you don’t do it, stupid!
Of course, margin magnifies your return and it is so easy to get rich, very rich. Money sure fall from sky.
But what if after doing that the share price drops back to RM10, or even RM5?
-
In order to make money in the stock market, you must take high risk.
FVI doesn’t believe in the above, instead, they believe in,
Good stocks bought at cheap prices = Low risk = High return.
Bad stocks or even good stocks bought at very high prices= High risk = Permanent loss of capital.
Why must one take high risk to make high expected return when you can get high return with low risk?
- To make big in the stock market, I must “sailing” (all-chips-in-one)
This brings back to point no. 8, is there such thing as sure-win stock?
What if you “sailing” on it and it turns out you are wrong, very wrong?
Concentrate in a reasonable number of stocks to grow your wealth. Diversify to preserve it.
Now what to do?
That is the question! But what do you think?
You see, anyone can be successful in investing, provided you follow the “right path”. And so can you. But you need to have the right mindset in investing and treat investing in a stock as investing in part of a business. Have some knowledge on the language of business so that you can understand the business and knows how to evaluate the business. Have your own independent thinking and not follow blindly.
Even though you may engage someone knowledgeable in investing, you must also know how to evaluate him if he does the right thing for you.
Remember, you and you alone are the most capable and reliable person alive to manage your money. It’s high time you start believing this. It’s high time you start making your own investment decisions, and take control of your financial destiny.
Don’t worry if the magnitude of the effort bothers you. As the famous Irish poet Oscar Wilde once said, “The final mystery is oneself.”
Happy New Year and a new beginning in investing, I hope.
K C Chong (ckc13invest@gmail.com)
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Discussions
11 people like this. Showing 23 of 23 comments
John Lu
Kindly share here for our education, all your previous Hengyuan equivalents of past years?
Are you a 1 stock (Hengyuan) pony?
2017-12-29 07:21
Thanks for sharing KC. Don't be disheartened by the naysayers and continue writing articles. I'm sure there is a group of silent readers appreciating your writing.
2017-12-29 11:13
Dear KC Chong,
As the year came to a closed and a new year began, I would like to take this opportunity to thank you for the sharing of your investment knowledge with the i3 community. I believe many people have benefited from your teaching of Fundamental value investing (FVI) I included. It have been a good learning curve for me as I start to look into i3 and learned from all the Sifus in i3 for that Holy Grill or Magic Formula for successful investment. Please allow me to summaries what I have learned:
Form KC Chong: FVI where you need to read the financial report, know the business, do the calculation, (EPS, ROE, Profit margin, PE ratio, P/B, P/cash flow, Dividend yield, EV/Ebit and etc) take care of the downside and the upside will take care of itself.
From OTB: FA plus TA. FA will take care of FVI and TA will able you to time your entry and exit. A very good investment strategy with cut-loss and TP target.
From Calvintaneng: Bottom-Fishing. Deep value stocks with great undervalue assets that waiting for realization. A risky investment strategy as stock price is depressed for a reason and may not bounce back for many years to come.
From CPTEH: Stock alert, Cut-loss and Day trading. With internet trading and special discount on transaction cost for day trading most likely with some skill, TA chart and a laptop you can make a living by day-trading.
From Stockmanmy: Dynamic investing and sailang which I cannot understand what he actually means? But can only guess; in other word follow a hot/momentum stock and all in. I do sincerely wish he is in Hengyuan as his aim is to drive a Rolls-Royce car and be as rich as Mr. Koon when he reaches Mr. Koon age.
From General Stockraider: Margin of safety investment or Spring theory where a spring is compressed down, down and down till it cannot go down any more then it will finally spring up. The only truth of his theory is without profit growth the spring is as good as a broken spring. Anyway he got it right in Hengyuan but wrong in Bjcorp.
From Super-Investor Mr. Koon Yew Yin: His investment golden rules; PE below 10, business sense of impending good profit growth catalyst. Of cause he got it right in Hengyuan (A heart stopping moment of price swing from RM 19.20 to 15.94 and end the last trading day for 2017 at RM16.30 a drop of RM1.66 from yesterday closed). But not so on JAKS and EVERSENDAI as he jump the gun on these two stocks (too early to see the profit growth).
Happy Birthday to Mr. Koon Yew Yin, he celebrated his 85th birthday on 28th Dec 2017.
Also not forgetting many of the Financial Analysts (Steel sector, Petro refinery sector, O&G sector, Electronic sector, IT sector, Plantation and etc) who had spend their time in gathering the facts and figures and presenting them in i3 blog for the benefit of i3 community, so that we can make our informed investment decision and have a good profitable year 2017.
Many thanks also to our old-timers readily giving their experience advice to newbie.
Wishing all a Happy New Year and May 2018 bring another profitable year to all.
Thank you.
2017-12-29 17:57
Dear sslee,
Pls allow Raider correct ur wrong perception in investment ON RAIDER LOH, actually hengyuan and bjcorp represent opposing investment technique mah:
1. HENGYUAN INVESTMENT IS DRIVEN BY STRONG EARNINGS GROWTH, HIGH EPS, STRONG CASHFLOW, VERY LOW PE AND IMPROVING PROSPECT LOH...!!
ALSO HENGYUAN IS A FOCUS COMPANY !....FOCUSING ON REFINERY, A STRONG REPEATATIVE HIGH VOLUNE ESSENTIAL CONSUMER PRODUCTS MAH...!!
IT IS THE INVESTMENT METHOD OF PHILLIP FISHER.
HENGYUAN IS ESSENTIALLY THE MAKING OF A BLUECHIPS, DYNAMIC INVESTMENT AND WARREN BUFFET INVESTMENT TECHNIQUE OF HOLDING ONTO A COMPANY WITH GOOD PROSPECT FOREVER LOH....!!
2. BJCORP IS BASICALLY A CONTRARIAN INVESTMENT METHOD PROPOSE BY BEN GRAHAM.
THE COMPRESSED SPRING THEORY COME FROM THE POINT, WHEN THE STOCK HAS SO LOW EXPECTATION THAT WHENEVER THERE IS BAD NEWS, IT WOULD HAVE NO IMPACT ON THE SHARE PRICE LOH...THIS IS THE POINT WHEN MR MARKET IS REALLY EXHAUSTED LOH...!!
WHENEVER THERE IS SOME GOOD NEWS, IT WILL BE THE CATALYST THAT TRIGGER A RERATING, THAT WILL SHOOT THE PRICE UP LIKE A ROCKET MAH...!!
MR CALVIN TAN IS A GREAT PRACTIONER OF THIS TECHNIQUE.
INVESTOR NEED TO BUY AND WAIT, WHENEVER THERE IS A BIG MARGIN OF SAFETY MAH.....!!
USUALLY U NEED TO HAVE PATIENCE TO HOLD LOH....!!
BEN GRAHAM SUGGEST 2 TO 3 YRS HOLDING PERIOD LOH...!!
IT IS NOT WRONG YET FOR BJCORP, U JUST NEED TO HAVE LITTLE BIT OF PATIENCE LOH..!!
From General Stockraider: Margin of safety investment or Spring theory where a spring is compressed down, down and down till it cannot go down any more then it will finally spring up. The only truth of his theory is without profit growth the spring is as good as a broken spring. Anyway he got it right in Hengyuan but wrong in Bjcorp.
2018-01-01 22:41
I feel like the purpose of this article is pron to attack Mr.kyy only. Kc, move on,stop condemning the old man, although he is not always right, but when he is right he earn few millions more or few hundred millions?
2018-01-02 00:36
John Lu 《HENGYUAN upgrade to SIA LANG》 TP RM30
This KC only know how to condemn people...uncle Kyy earning so much in Hengyuan...no jokes...I think Kyy unvle earning more than 50 million from HYC whereby KC still crack his head to earn peanut from subscription fees, u know la, 1 year return only 9%, KC need find other way to survive also ma...who is the winner now?
2018-01-02 07:35
Say what you like at least Mr. Kyy really invest in the stock he believe in not just talk2
2018-01-02 07:36
Happy New Year, KC! Don't let them stop you from speaking the truth.
On Sailang point 13, they just have to make sure they sell before the newbies.
2018-01-02 08:20
no perfect human in the world.....if u are so perfect then why u point the finger to others ppls...
2018-01-02 08:55
just my 2 cent. those ppl that criticizes Kyy, compare yourself to him? who are you? he was previously MD of several public listed companies now. he willing to share his purchase for benefit of others and even justify his purchase. You guys not even half of his generosity and capability. I say you guys crawl back into hole you came out from and give him the respect that he deserves.
2018-01-02 09:54
Dear all,
Everyone should be respected as an individual, but no one idolized. - Albert Einstein-.
No one in this world is perfect and flawless. If you avoid people for their imperfection that you will always be alone in this world. So Judge less and love more.
Learned from all and picks what suit you.
Thank you
2018-01-02 10:20
Dear Kcchongnz,
Ignore the naysayers, your pragmatic approach towards investing is invaluable. Fully agree with every point you have made.
Timing is everything. You can buy a good company but at a wrong price.
Hence with Fair Value Investing and diversification, your risk is spread out. It is like buying many houses at auction prices.
Keep up the good work!
2018-01-02 10:34
Posted by Sslee > Dec 29, 2017 05:57 PM | Report Abuse
Dear KC Chong,
As the year came to a closed and a new year began, I would like to take this opportunity to thank you for the sharing of your investment knowledge with the i3 community. I believe many people have benefited from your teaching of Fundamental value investing (FVI) I included. It have been a good learning curve for me as I start to look into i3 and learned from all the Sifus in i3 for that Holy Grill or Magic Formula for successful investment. Please allow me to summaries what I have learned:
Form KC Chong: FVI where you need to read the financial report, know the business, do the calculation, (EPS, ROE, Profit margin, PE ratio, P/B, P/cash flow, Dividend yield, EV/Ebit and etc) take care of the downside and the upside will take care of itself.
Sslee, I am glad your have learned something from me. This is what I am trying to do in i3investor, already for more than 5 years.
I spent a lot of time doing this, had work, but at least I know some people, like you, benefited. It is satisfying.
2018-01-02 22:14
Posted by John Lu 《HENGYUAN upgrade to SIA LANG》 TP RM30 > Jan 2, 2018 07:35 AM | Report Abuse
This KC only know how to condemn people...uncle Kyy earning so much in Hengyuan...no jokes...I think Kyy unvle earning more than 50 million from HYC whereby KC still crack his head to earn peanut from subscription fees, u know la, 1 year return only 9%, KC need find other way to survive also ma...who is the winner now?
Which part of my article "condemn people"? Please show and elaborate.
Who cares if anybody earn so much money? What value does it bring to the society?
Me, and you have complete different values in life. I love my way.
Great minds discuss ideas; average minds discuss events; small minds discuss people.
And I pride myself for propagating the right things to the community. If I can do something good to the society, like what I am trying to debunk some investment myths here, whether I earn anything or not, it doesn't matter. I will be happier doing so. Making 50m is not my aim in life. Life has a better meaning than that.
2018-01-02 22:24
Posted by csl1991 > Dec 29, 2017 11:13 AM | Report Abuse
Thanks for sharing KC. Don't be disheartened by the naysayers and continue writing articles. I'm sure there is a group of silent readers appreciating your writing.
Thanks for the encouragement. This is the main reason why I am still sticking around in i3investor.
2018-01-02 22:52
Posted by supersaiyan3 > Jan 2, 2018 08:20 AM | Report Abuse
Happy New Year, KC! Don't let them stop you from speaking the truth.
On Sailang point 13, they just have to make sure they sell before the newbies.
I always appreciate supersayan3's motivation. Thank you.
2018-01-02 23:07
Posted by SharehlderOppression > Jan 2, 2018 10:34 AM | Report Abuse
Dear Kcchongnz,
Ignore the naysayers, your pragmatic approach towards investing is invaluable. Fully agree with every point you have made.
Timing is everything. You can buy a good company but at a wrong price.
Hence with Fair Value Investing and diversification, your risk is spread out. It is like buying many houses at auction prices.
Keep up the good work!
Of course I also highly appreciate the above. Thank you.
2018-01-02 23:09
This is only one aspect which i think is important which i think is not wrong. It just form part of good investing
However, long term investing is about the next 30 years, 50 years or forever
Another aspect of investing is really to look into a business who has superior edge over the others, not easy to replicate, good brand etc. You cant strip this thing from the reports.
For example, Would you invest in the newspaper industry now even if its at 50% discount.
I see you buy skpres at a very cheap price at 40c but at what basis. Definitely not because of the growth rate simply because it had not happened yet at that time. Its your hidden business sense that tell you that it will grow.
2018-01-20 10:42
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
John Lu 《HENGYUAN upgrade to SIA LANG》 TP RM30
Hengyuan haha...counting money everyday
2017-12-29 06:42