Warren Buffett’s Biography from Biography Channel




Advertisements

Mixing Up Investing and Trading

I started investing in stocks back in June 2009 once I turned 21. It has been around three years and I have learnt lots from this experience. Putting my knowledge into practice is a better teacher than merely reading books on investing.

My investing mentality was grained by the theories of Warren Buffett, Benjamin Graham, Peter Lynch and the likes. They have always espoused that investors should see stock prices not merely as numbers but should understand that there is  a business behind these prices. Theories like this have been stuck with me but lately, I found that they were getting diluted due to a trader’s mentality.

I think it started back in August 2011 and was reignited last month. Markets were coming down but the businesses I was monitoring did not come down to the price point where I would be comfortable investing in for the long-term. Since I could not take opportunity of the price drops of my favourite companies, I thought of trading by buying other companies that came down in price a lot like Capitaland. So, at least by buying Capitaland, I could make some money when it recovers. This trading mentality caused dilution of the investing theories I had read over the years. Scarily, I began to see stocks as merely numbers moving up and down and not businesses. What made it worst was that this traders mentality made me have a short-term view of the stock market! I wanted to make quick bucks. Businesses take time to flourish and decisions made by the management will take time to come to fruition. This fundamental knowledge of investing was getting thrown out of the window.

I realised that I had to separate the investing arena and the trading arena and not mix up the theories. Investors have a longer term outlook and see a business behind the stock price. Traders have a shorter term outlook and just buy and sell based on the prices. Having a traders mentality on stocks meant for the long-term will only hurt returns as one would sell when the price goes down and buy when the price goes up. Instead of buying low, selling high, one can end up buying high, selling low.

This post serves as a reflection for me. Some of you investors might have been in the same situation as me. Share with me your thoughts in the “Comments” section. Cheers!

Update on OKP’s Half-Year Results

OKP released their half-year results on Friday, 20th July 2012. I will not be analysing the numbers from the results in this post. Their results can be viewed from the SGX annoucement here. Rather, this post will be about my views of their results.

When comparing the yearly results (1HFY2012 vs 1HFY2011), their net profits dipped close to 50% and their cash flow from operations went into negative territory. This is a slight concern for me. However, OKP is a contract-based business and their profits dipped due to lower revenue recognition from their ongoing projects. It is better to look at full year numbers for such companies. A major $119 million CTE project they undertook is already completed and they need another such huge contract win to prop up their order book again. Having said that, their order book is actually healthy at $340 million with projects lasting till FY2014 but I’m still hoping for a major contract win.

In their press release statement, OKP has stated there are three projects likely to be awarded by LTA this year and they are for the expansion of Kallang Paya Lebar Expressway/Tampines Expressway Interchange, extension and reconstruction of Newton Flyover and construction of New Lornie Road. I believe OKP is bidding for this project since they mentioned the projects in their press release. If they are not bidding or had not bid for the projects, I don’t think they would cite the projects in their press release. PUB’s canal projects worth $750 million in total are also up for grabs and OKP will be looking to tender for those as they have expertise in canals construction and widening. I’ll be monitoring their order book closely. It will be extremely surprising if they do not win any of the contracts stated above, even though competition is getting keener. OKP has a solid track record and is a reputable local construction company.

Looking at a longer term, the construction of the North-South Expressway will be called for tender around 2015 and the total cost is around $7 to $8 billion (according to SIAS Initiation Report in May 2010). I believe OKP will be tendering for this project as OKP has expertise in building viaducts and around 8km out of the 14 km expressway will be viaducts (as mentioned in my post on OKP AGM). The Outer Ring Road System is also expected to start construction in 1st Quarter of 2013 (according to LTA site) but the tender results are not out yet. I’m not sure if OKP bid for this project as nothing about this project was stated in their press release. They have also recently ventured into the property development business but that will take a longer term to bear fruition though. I will not be expecting anything huge from there in the next one to two years.

On a side note, OKP won the Best Chief Financial Officer Award, Best Managed Board Award (Bronze) and Best Investor Relations Award (Bronze) under the ‘Companies with less than S$300 million in market capitalisation’ category at the recently concluded Singapore Corporate Awards (SCA).

Update of “2008/2009 Bottom Fishing” Portfolio

Back in June 2011, I blogged about investing in the darkest days of the financial crisis. I stated that if you had bought shares of fundamentally strong companies around the rock-bottom prices, you would have made some handsome profits. It has been around one year since that post. Aren’t you curious to see how this portfolio has fared thus far?

Below is the screenshot of the portfolio as of the closing on 20th July 2012:

The percentage of profit stands at a whooping 204%! The percentage grew substantially over the past few days thanks to Asia Pacific Breweries (APB). The profits stood at around 190% a month back.

While tracking the portfolio over the year, I noticed that after the two times the general market dropped (in August 2011 and June 2012), the portfolio came up even stronger and made more money. That is why I love corrections or even better, market crashes. You can buy your favourite stocks for cheap and wait for the market to realise its true potential.

Coffee with FFN and Sean Seah

Sean is an ordinary person who chanced upon an extraordinary investing methodology, Value Investing that had helped him build his wealth and passive income. Prior to learning and applying Value Investing, he employed charts to study price movement but had loss money through the process. Sean’s philosophy now is to be a “Business Collector not a Speculator” and to  “Buy Business Performance not Guess Market Emotions”. Sean is the author of “Winning the Money Game” and “Gone Fishing with Buffett”.

FFN: When and how did you get interested in investing?

Sean Seah (SS): I was first exposed to the idea of investing when I was in Business School, but was warned that most people cannot beat the market. So after I graduated, I did not dare to invest until a colleague of mine, Suffian showed me that he had made money from the stock market. That really got me interested because it was one thing to read about successful investors but it is all together another experience to have someone you know personally show you that it is really possible to invest successfully. Subsequently, I learned to trade the stock market using a trading system which uses technical analysis by attending a course. Using that system, I lost a 5-figure sum within 3 months. Later, another friend, Jasper Bong, shared the idea of Value Investing and that really started my journey as an Intelligent Investor.

FFN: How do you choose which stocks to invest in? What are some of your strategies?

SS: I gather stock ideas from a few places. I always start by looking at industries I can understand, really simple ones such as businesses selling food, apparel, banks. These are things I personally use and contribute to their earnings. Another place I look at will be the portfolio of famous investors such as Warren Buffett, Charlie Munger, Walter Schloss. And one extremely valuable resource I have now will be Value Investing Academy Community. This community has given me the best ideas and through it I found some of the best Value Stocks ever.

My only strategy in choosing stocks to invest is Value Investing. I do use options to enhance the returns or use it to bargain for better deals, but whatever I do, it is based on the fact that I have analyzed the stocks as businesses and found those that are going to be profitable.

FFN: What are some of the stocks in your portfolio currently?

SS: As to date, I am only holding US Stocks such as BK, WFC and ESI.

FFN: I believe you have many US stocks as you follow an options strategy. However, USD is depreciating against SGD and this would actually translate into losses when converting back to SGD. Despite this, is it still viable to invest in US stocks? What’s your take on this?

SS: My take is very simple. US has a strong economic engine. When we think of the best schools, the best businesses, the best softwares, the best systems, these companies are still based in US. So in my opinion, in the long run, US businesses are sound. When do I convert USD back to SGD? The rule is the same as when I sell my stocks, I fall back to rule #1: Never Lose Money. So there are times my stocks go down in price, but I will not sell them at a lower price than I buy because based on calculations, they are worth much more than what they are priced. The good news is that now US is on a great sale, with its weakening currency and the low stock price, what would you do if you are a Value Investor?

FFN: What are the mistakes you have done pertaining to investing and what are the lessons learnt?

SS: With regard to investing, I have learnt to make my own decisions. There was once I invested heavily into a stock that had suffered bad news at $5 per share and a friend of mine told me that he heard from a guru that the stock is not going to survive. So I quickly sold it off at $3, making a loss of 40%. The stock subsequently went up to $50 within a year. Quoting Benjamin Graham, “”You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.””

FFN: What psychology do people need to succeed in investing?

SS: The key is to look at each investing opportunity from a business lens and then be disciplined so you can stick to it.

FFN: What lessons have you learnt over the years as an investor?

I am really still learning. I learnt many lessons, one of which is that Investing is not a “good to have” but a “must have” so that we can be good stewards of money.

Another lesson I learnt is that people who seek to get rich quick seldom get rich. Ironically, it is those who dropped the idea of getting rich quick who eventually becomes rich quickly.

FFN: What do you thing is the biggest misconception people have about money?

I can’t speak for “people”. But for myself, I once had the misconception that money is not important that wanting to get rich takes me away from God. Now I know that in order to be a good steward, I have to learn to manage whatever that is given to me and be faithful.

FFN: What is the one thing, in your opinion, do people need to succeed in investing?

SS: Action.

FFN: Congrats to you and your wife on your third baby! How are you going to impart your financial literacy to your young and lovable kids?

SS: I love this question. What I have been doing is to train my children to learn to allocate whatever amount of money given to them. They each have 3 coin banks for different purposes and each Sunday, they will receive their pocket-money and will divide into 3 portions for each coin banks. I wrote a post about it at http://crossroadmoneyskills.wordpress.com/2012/04/28/how-to-prepare-your-child-for-finances/

After my eldest son understands the value of allocating funds, I am adding another skill to him, which is to earn money by providing value. He loves art and we make cards to sell to relatives. Of course, lessons must be gradual and stacked. After he made the money, he will take the profits and apportion them into the 3 coin banks. I will be teaching him how to invest when he is ready.

FFN: What advice would you give for beginners who want to start investing?

SS: The ideal case is to find a friend who is already successful in investing. The alternative is to look for a community that has proven records and is willing to share their methods. Otherwise, read books about Warren Buffett and use whatever you learn about it. Oh yes, read my book, “Gone Fishing for Buffett”. It is written for a total beginner and let me be thick skin and say that it is a very useful book. =)

FFN: What are the habits one must follow to have a sound financial life?  

SS:

Step 1: Make it a habit to save a portion of your income

Step 2: Make it a habit to invest a portion of your savings

Step 3: Make it a habit to give

FFN: What does financial freedom mean to you?

SS: It means that I have enough to do God’s will and live a life pleasing to him.

FFN: Can you sum up your investing philosophy in 10 words or less?

SS: Buy profitable and honorable businesses at a profitable price

FFN: If you could summarise your whole life in one word, what would it be?

SS: Grace

FFN: A parting shot for the readers?

SS: Financial Success is by choice, not by chance.

Visit Sean’s Investment Blog at http://www.investment-in-stocks.com/The titles of two of Sean’s books: “Winning the Money Game” which talks about Sean’s experiences and a step-by-step formula for achieving Financial Freedom and “Gone Fishing with Buffett” which is a story-based book that teaches Value Investing in a light-hearted manner for beginners.