Maturing as an Investor

As the months go by, our experience as a human being continues to build up; whether it be with work, relationships or, investing! Every now and then, I will take a step back and reflect on what I had learnt in the past few months as a result of either reading, observation, thinking or analysis. On this occasion, I realized with a start that I had matured a lot as an investor compared to the “Dark Ages” back in 2005 to 2006 when I was still fumbling around for directions. It turned out that value investing became the framework with which I would build my investing foundation, and over the years I have moulded this discipline to fit my own personal character and competence.

So to summarize the lessons learnt, here is a simple laundry list (not in order of significance):-

1) Understanding Valuations and Emotions – After reading many books on behavioural finance, I finally learnt the effects of over-confidence and loss aversion and how it could devastate one’s portfolio. Throw in patience and discipline and you would have a very robust philosophy on how one should approach investing, and I am currently putting that into practice. Value investing also would not be complete without an understanding of human psychology in the stock market and the factors which drive sentiment. At the same time, I was also refining my valuation techniques (still currently a work in progress) and striving to improve to become a better investor.

2) Avoidance of Scams – Not to sound too caustic or cynical here, but the recent proliferation of scams in the news has caused me to be extra wary of the numerous “get-rich quick” schemes out there. As a mature investor, one should be very aware of the long-term average which the stock market can return (roughly 8-10% including dividends) and how even the best investor in the world, Warren Buffett, achieved compounding of about 22% over 25 years. Yet, many of these so-called “seminars” promise quick and easy gains through forex trading, options trading and technical analysis. One may be quick to point out that these are not “scams” per se as they simply contain a promise and the participant is free to choose not to pay to attend. However, some of the claims are nothing short of preposterous! Any investor worth his salt would be quick to steer clear of such talks which promise fast and easy money. In my world, there’s only hard-earned money; and when one invests properly one has to put in the hard work, diligence and patience to sift out bargains. There are no short-cuts to becoming rich (unless you win the lottery!).

3) Absolute Returns versus Relative Returns – This was actually mentioned in Sham Gad’s book “The Business of Value Investing”, which I am currently still reading. In it, he mentions that value investing itself is a framework and philosophy which emphasizes on consistent and steady gains through both bull and bear markets, as one focuses on the business rather than the stock market. Therefore, it makes sense that returns should NOT be benchmarked to an index; as the main objective of an investor is to get a consistent return on investment, regardless of market conditions. If one uses relative returns as a yardstick, then one would have “out-performed” the index assuming one’s portfolio dipped 8% while the index dipped 15%, for example. But absolute returns focus on getting a steady and consistent return from investing in well-run companies with a stable business and competitive moat; hence one should not stress too much on relative performance.

4) The Importance of always having cash – OK, I guess this is more of a personal finance topic, but then again I have learnt that having constant opportunity fund means that one is poised to take advantage of favourable situations as and when they arise; for example when attractive valuations emerge all of a sudden due to an unjustified sell-down in the stock market. Therefore, it is important to have free cash flows in one’s personal life too, in that spending must always be less than earnings.

5) Avoiding Mistakes previously made by myself, as well as others’ mistakes – I have spent the last 12 months continually reading through the mistakes I had made with regards to China Fishery, Swiber and Ezra and sought to avoid making the same errors of judgment. At the same time, I have also studied mistakes made by other astute investors by reading books and noted down exactly what to look out for and what to avoid, as part of my continuous learning process to become a better investor. Moving forward, I am sure I will still make mistakes, as I am only human, but the aim to avoid major mistakes which will derail my wealth-growing path and to keep the mistakes small and manageable.

There is still much more room for me to grow and mature as a value investor; as my journey is still young at just slightly over 3 years. As I am constantly reading, observing, analyzing and learning, I can feel my knowledge base increasing as the months pass, and my analysis time is also lessened as I am more aware of what to look out for; and to ignore the irrelevant or unimportant. There is still so much more I have to learn as an investor, and I look forward to many more years ahead to hone my skills as an investor and to achieve much better returns.

Readers can expect another update perhaps 6 to 9 months later as part of my update on my investment journey.