Saturday, July 21, 2007

Investment Journey – A Summary

Most reader would be curious to know how I arrived at my value investing philosophy which I firmly believe in now and which I also currently advocate to all readers, be they of my blog or on local share forums. Admittedly, it was a road which was bumpy and full of potholes but the learning I received was invaluable. I have been documenting my investing mistakes up till now and will continue to do so for the foreseeable future. Readers, however, should see how I have built up my investment philosophy based on my experiences, and decide if value investing is right for you. Remember that it is more than just about careful research, extensive reading and thoughtful analysis. Temperament and the ability to control emotions is also a key aspect of successful value investing.

Here is a summary and rundown of my investing journey (note the mistakes along the way and how my state of mind evolves to incorporate what I have learnt). Note that mistakes subsequent to MIIF (mistake no. 4) will be reviewed in detail in future posts (this is just the summary).

a) December 1, 2004 – Purchased my first stock called Suntec REIT at IPO, added more at S$1.11 later. This was to become my first and only yield play, bringing in 2 cents/share dividend every quarter. State of mind: Buy Companies

b) February 22, 2005 – Purchased MCL Land because of attractive dividend and committed mistake no. 1. Sold at a loss on May 12, 2005. State of mind: Buy companies with good prospects

c) May 4, 2005 – Purchased Yellow Pages and then sold on May 27, 2005 because of historical trend analysis (the stock had reached a historical high and retraced downwards), and committed investment mistake no. 2 by failing to consider the business aspects of the company. State of mind: Buy companies with good prospects and good earnings growth

d) July 22, 2005 – Purchased Keppel T&T and sold on July 26, 2005 on a whim and tried to contra for a quick gain but instead, lost out about 5.2% of my investment amount. State of mind: Buy companies with good prospects, good earnings growth and do NOT contra.

e) May 27, 2005 – Purchased MIIF and sold at a loss on Dec 15, 2005 after attending the company’s EGM (explained in investment mistakes part 4). State of mind: Buy companies with good prospects, good earnings and good Management. Do not contra.

f) March 29, 2005 – Purchased Asiapharm and sold at a loss on June 9, 2005 by blindly following gurus and buying at too high a PER. State of mind: Buy companies with good prospects, earnings and management at a reasonable price. Do not blindly follow gurus and do not contra.

g) January 9, 2006 – Purchased Trek 2000 and sold on Nov 13, 2006 because of inability to maintain a sustainable competitive advantage and also because of technological obsolescence. State of mind: Buy companies with good prospects, earnings, fundamentals, management and sustainable competitive advantage at a reasonable price. Do not follow gurus and avoid contra.

h) February 26, 2007 – Purchased C&O Pharmaceutical and sold at a loss on November 9, 2006 due to industry changes and Chinese government intervention. State of mind: Buy companies with good prospects, earnings, fundamentals, management and which have a durable competitive advantage in a growing industry at a reasonable price below intrinsic value. Do not follow gurus, avoid contra and margin.

i) June 9, 2007 – Purchased UTAC and sold at a profit on February 23, 2007 due to unfamiliarity with the industry. State of mind: add “circle of competence” to the previous statement.

As one could have guessed, I had already caught on to value investing concepts close to the early part of 2006, and proceeded to read up more on it by buying books, surfing value investing websites and visiting Berkshire Hathaway’s (Warren Buffett’s holding company) website. My last “speculative” stock purchase was actually made on Feb 26, 2006 for C&O Pharmaceutical; subsequent purchases were UTAC in June, Boustead in Sep and Nov 2006 (averaged down) and Swiber in Feb 2007. You can see that for the past 1 year from July 2006 till June 2007, I had only purchased two companies and made a total of 3 transactions ! As my value investing philosophy began to solidify in my head, I realized that it was beginning to get more and more difficult to find companies to buy.

So dear readers, this is what I had to go through in order to learn my lessons on value investing. For those who think it has been a breeze, I would say definitely not ! I had my share of bad losses and cut all my speculative counters to the point where I currently have no speculative, under-performing companies.

Perhaps those punters out there have to learn the hard way too before they embark on their own value investing journey of discovery !


gimz said...

Hi musicwhiz,

Thats a very detailed summary! I do see similar mistakes that i have made myself. I would like to add on a few more errors i made.

1. Selling off a good business too soon. A good business can be priced at a premium, i overlooked the point and sold off for gains too early. e.g. food empire

2. Buying into a poor business, e.g full apex. High oil prices drove the share to all time lows. In potter's terms: they were in a situation of having high bargaining power of customers.

3. Failure to identify trends. I was vested in suntec at IPO as well, but sold it off after the management was slow at expansion. But i overlooked the trend of rising office rents where income can grow naturally without acquisitions. I kicked myself in the leg...

These are just some of stuff i gone through myself, cheers to you for sharing with us. Hope i have not frustrated you with a longer than usual comment. :)

Anonymous said...

i too started off as a trader, herd animal, trying to make a quick buck. take me a decade to learn, mainly by the crash. now that i become an investor (eh...maybe), somehow has the lingering idea: don't be confuse by a bull for a genius!

my biggest lost should be startech, some 90% down, bought from hearsay. my biggest gain must be sgx, some 400% up.

i place company biz top priority, not its stock price, and how competition is weakening it. if you look at the business of sgx, it is monopolistic in nature, like all other exchanges. got in in 2004 after blood in the streets: asian financial crisis, 911 & SARS

i also hold PacAndes, like u, and wish you share the financial analysis - esp on the high gearing, and the management moves - esp after reading their AR and circulars. i thought they have zero competition, until i found american seafood & copeinca, got me worried. wish they can maintain the 20% share in PRC. regards.

musicwhiz said...

Hello gimz,

Hey thanks for the comment, the length does not matter; it's the quality I like and you made a lot of good points ! That's the beauty of sharing knowledge, I always encourage more people to comment and share their insights.

Actually, just to share, I did sell off part of Suntec REIT to lock in some gains while keeping the rest. Now I am also kicking myself for not holding on to the other lots. But on hindsight, the money was re-invested in other good businesses which have generated a far better return (i.e. Boustead and Swiber); so no regrets. hehe.

musicwhiz said...

Hi Anonymous,

Yes, you are right to say that many people confuse a bull market for brains. The share forums are rife with people who proclaim themselves as "geniuses" for discovering the next hot stock; but they fail to take into account the fact that it is a bull market, where prices are naturally ascending. The folly of thinking your analysis is always right because of a bull run cannot be further emphasized, but traders must learn the hard way in order to realize this mistake.

Sorry to hear about your loss in Startech. SGX is a good investment which pays quarterly dividends; but I must caution that the reason for the current high share price could be due to record high volumes being traded on SGX which may not be sustainable in the long-term. The so-called flow of liquidity may run dry anytime soon, and most people avoid the stock market like the plague when it comes to recessions or downturns. If you notice, brokerage companies like UOB Kay Hian have also seen their share prices rising in tandem with trading volumes. The same point applies. While I would agree that SGX is monopolistic, I do question how they are going to increase revenues and introducing trading of forex and commodities next ? Just thinking aloud.

For PAH, I too am concerned about the high gearing and am waiting to see if Management does something about it. For competitors, I see it as a good sign as it means the industry is mature and it will make PAH's Management more mindful of how to control costs and outdo the competition. Sometimes, being in a monopolistic situation can cause the Management to stagnate in their thinking, as complacency starts to set in. Just my views though, you are welcome to disagree. :)

donmihaihai said...

Hi musicwhiz,

You are taking giant steps ahead. learning even while you are sleeping. :)

"As my value investing philosophy began to solidify in my head, I realized that it was beginning to get more and more difficult to find companies to buy."

Totally agree. It is getting harder and harder to swing beside the fact that valuation is shifting upward.

musicwhiz said...

Hi donmihaihai,

Thanks for visiting. Yes, it gets tougher and tougher finding good bargains but I will strive to be patient and wait for the right pitch before swinging ! :)

Anonymous said...

the sgx team has tremendous innovations that can keep revenue up.. ipo from vietnam for e.g. marine and offshore hub, the asian gateway.. agree the current price as stretched but as you said, good investments are hard to comeby, selling out a good biz for nothing better is not the right move. by the way, come recession, nothing will be spare. if you are comparing the brokerage houses to sgx, like the analyst from ocbc, than you have to think again. i also read often from buffett not to believe everthing you read.

for pacandes, read their award scheme, thought that the mgt are thinking for the shareholders when the peg the awarded share price to the current mkt price, very rare compare to most companies who usually give out shares to directors at rediculously low price.

Thanks for the discussions.

musicwhiz said...

Hi Anonymous,

Ok, let's see if SGX can keep up their innovative methods for generating more revenues; I am also curious to see whether they can sustain their growth momentum.

As for PAH, I haven't got down to reading the second part of the AGM resolutions. Haha better do my homework and get down to that too.

Thanks too and you have a good day.

fishman said...

so exciting to read the many wonderful and insightful comments shared by everyone! Really gets me hungry to start going deeper into my value investment journey!

Aiming to start doing my own homework real soon. Can't wait! If only there are more hours each day!

musicwhiz said...

Haha fishman, take it easy. There is always time to gain knowledge and accumulate more experience. Eagerness is a good trait but patience is an even better one. :P

Anonymous said...

Beware of analysis which comdamned a company to DETRACT long term investor to download their shares and defeat the share price.
E.g. when OLAM was S$1.80 some analyst condemned that it is worth only S$1.60 just before its announcement that it had secured a LOAN. Thereafter, the share shot up until S$2.70+ today.

musicwhiz said...

Hi Anonymous,

Thanks for the tip. I guess the message here is to ignore the noise and to ignore share price fluctuations which may have no correlation to the health of the underlying business.


Anonymous said...

I just want people to be aware of what they are doing. many self proclaimed "value investors" are actually not doing any value investing at all. many of these "value investors" would start the correct way eg. identifying durable business etcetc, but after buying the shares of the company, they would check the price at least once everyday so that they can feel good about the choice they made. by doing that, they have a greater chance of letting their emotions to get entangled with their investing. and when the price goes down, instead of buying more shares, their ill-managed temperant would ultimately be their downfall.