Wednesday, January 28, 2009

Investing Like an Ox

Let me take the opportunity to wish all Chinese readers a very Happy Lunar New Year, and to usher in the Year of the Ox ! It's somewhat appropriate that this year happens to be the year of the Ox, as I seek to revisit some of the classic investment and wealth-accumulation principles which has served generations of human beings, and will continue to act as a guiding light for investors during times of darkness and gloom. In Lord of The Rings terminology, it simply means the Light will eventually conquer Mordor and the Ring of Power will be forever destroyed !

So what is it about the Ox which has traits for us to learn and emulate ? For starters, the Ox symbolises patience, (good old) hard work and discipline. Along with those attributes, the Ox also conveys steadiness, resilience (as in "Resilience Package" - the name of this year's Singapore Budget !), dependability, calmness, being methodical, tirelessness, perserverence and the capability to endure hardships. One would argue that these are old-fashioned axioms which our fore-fathers would have smiled upon, as they hark back to the olden days even before computers and handphones existed. This is what investing should be about, and I shall elaborate more in the subsequent sections.

Of utmost importance is patience and perserverence in the face of adversity. The Ox is known as a beast of burden and is put to work in fields under the hot sun, toiling day and night. It is only with lots of patience and perserverence that the Ox is able to complete its task, all the while unhurried and unruffled. As investors, we need to absorb this aspect of the patient Ox, to be able to wait for our investments to bear fruit and also to have the patience to wait for an appropriate opportunity to invest in a good company. To perservere through hard times such as these is not easy, but resilience is important for us to be able to bounce back once the crisis is over, and to remain relatively unscathed. The idea is not to make major investment mistakes which would substantially wipe out almost all our capital. If this happens, then it might be extremely difficult to claw our way back to our original positions.

Another important trait to emulate is that of hard work and discipline. The days of easy credit and easy money are over with the near collapse of the USA and UK Banking system. Punters and speculators who used to ride on the wave of easy money from following the bull trend now have to go back to basics and work hard for their returns. For investors, it's a total back to basics formula as the seemingly easy returns of the bull market have all but evaporated. Even in other aspects of life, one has to rely on hard work and discipline (in saving a portion of income) for one to be able to grow wealth slowly but surely. Wealth accumulation is a slow but steady process and the Ox is a symbol of steadiness as it stands unflinching amidst the turmoil. Only through consistent savings and the power of compounding can we begin to see the effects on our wealth, and this will take time to realize.

Finally, I would like to touch on the virtues of calmness and being methodical. We should develop a sort of inner peace within us which shields us from the daily reports of more "calamities" and companies laying people off or banks needing more government bailouts. Calmness helps in soothing the mind and tuning out the unwanted noise which permeates our daily lives. Of course, one knows that this is easier said than done ! We are living in a world where we are constantly "assaulted" by the media, which never fails to constantly remind us of the global gloom and recession through a barrage of news reports and updates. I myself am finding it difficult to stay focused amid the monstrous surge of news reports, 99% of which are negative and pessimistic. In order for an investor to be successful, he must be able to remain calm and rational. As human beings, this can be difficult but with effort, one can adopt selective retention and retain only the news which assists us in our investment decisions, and filter out the rest of the "pollution". For example, retaining knowledge of the Singapore Budget 2009 is helpful as one can know which industries are being directly affected by the Budget's measures (such as fiscal stimuli for example).

Being methodical means going through one's investment methodology in a systematic, uninterrupted fashion. This can be more difficult than it sounds. As investors, we are all prone to taking short cuts or to gloss over certain investment criteria in order to make a potential purchase look more attractive than it really is. I think I have been guilty of such behaviour myself and this can be traced to "confirmation bias", which is another behavioural finance aspect where we seek only information which confirms our beliefs, and tend to reject information which does not conform to what we seek to believe in. This can lead to the dangerous conclusion of giving an investment the "OK" when it is not worthy in the first place. Being methodical would ensure one goes through all the relevant screens before a decision is made, and enables the process to be more foolproof.

As the year of the Ox gets underway, I wish all investors good luck for their investments and most importantly, to remain in good health and good spirits !


la papillion said...

Hi mw,

Hopefully we don't have to work like an ox to survive life. But this kind of down-to-earth approach to investing is perhaps time proof. As the saying goes, if the fundamentals changes with seasons, it's not so fundamental afterall.

Have a prosperous new year ahead!

musicwhiz said...

Hello LP,

Yes, I also hope I don't have to slog like an Ox for the rest of my life ! One or two years is understandable as we are going through a financial storm and deep recession, but to slog like this all our lives is meaningless and takes the flavour out of life eh ? Haha.

Investing is and always will be about owning shares in good companies which have good earnings growth and which generate strong cash flows. I think as long as one knows this, one will not go too far off a tangent when putting their capital to work. Of course, mistakes do occur from time to time but not to the extent of devastating yourself (hopefully !).

Cheers and Happy CNY !