I was asked by FFN, a fellow acquaintance in the investment community, to share my thoughts on investment (thanks FFN!)
Below is the interview extract:
FFN: How did you get interested in investing and who inspired you to get started?
Ken: It started off with my former colleague in the education industry about five years back. He hinted to me that the opportunity had arrived as there was widespread negativity in the worldwide markets.
When I queried further, he strongly encouraged me to take the year-end bonus and buy into shares of companies. At that time, I have almost zero knowledge about investment and thought that the stock market was a risky game of money.
I was a salaried worker and the point of purchasing something that can’t be touched and felt was not attractive to me. Few days later, his words of wisdom struck me when I self-reflect. Something came upon me. I researched online and discovered that my perception was one-sided. Slowly, my interest and knowledge developed when I continuously studied about the dynamics over the past two years. I bought into property stocks as I figure the time to buy is at the trough of the cycle – the trend is shaped by foreclosures and debt overruns.
Ironically, I met my same colleague two years back and he did not put his words into action, thus missing out the chance of cheap valuation during the global financial crisis!
FFN: What was your life like before investing and how is it now?
Ken: My belief was to work hard like any normal employee while getting my pay cheque every month. However, I found that my life was no different than a rat on a wheel. When the motion stopped, my income drastically dried up. And how would the rat survive?
Now, I am delighted to create multiple streams of income via dividend from my shares, my full-time job and other ad-hoc tasks. I do not need to solely depend on a single source and worry strongly about the financial lid. The key is to ensure that you are managing your investment like a holding company where the firm, like yourself seeks opportunities to grow her bottom line – for example enter new markets (new source of income such as buying assets to create more assets).
FFN: Where and how do you look for companies to invest in?
Ken: The world is full of information. However not many is able to extract the essence and develop into an investment thesis. You do not need to be a qualified analyst. Look around you and notice that we live in a marketing zone. The various products and services offered would paint a trend as demand increases for specific goods. For example, luxury timepieces and jewellery are well sought after, not just the wealthy but the growing middle class segments as their wages rise across Asia.
Therefore, prior observation may help. Another possible way is to pick out top five reading sources to grasp investment ideas. These are your daily newspapers, online journals to short business articles. Pick up an interesting commentary from your top five, write it down, reflect and find out the growth drivers behind it. Do you understand about the story and where this leads to?
This would help to start off a topic of your interest (if you know what’s going on) and probably the next potential story to reap future returns while Mr. Market has not taken any notice yet.
FFN: You are well-known for your brand of qualitative analysis. What are the things you look out for when researching into companies?
Ken: To put it short on qualitative basis, I would ask the basic questions first such as how does this business operates, the origin of their revenue, how majority of the company funds are spent, the company track record and in what way does the management plan to take the company forward (forecast).
Most importantly, what’s special about the firm’s capabilities such that the drawing power to generate revenue is great? For instance, it could be cost leadership to product differentiation.
Combine with the state of the industry to future trends expected, so that you will gain a wider perspective. Lastly, if you can, don’t be an armchair researcher only.
Talk to professionals in the particular field, invite them for coffee or link up with them via social media, so that you can ask questions (give something in return like a barter trade). Cross-regulate the details with your primarily observation and secondary research.
The truth is – if I do not understand the dynamics of the above, I will not be able to comprehend their business model. I will invest through my circle of competence and key areas that I know well. At least, I will sleep comfortably and focus my energies on other worthwhile things in life!
FFN: What are the mistakes you have done pertaining to investing and what are the lessons learnt?
Ken: When I first started, I bought into shares of companies based on the recommendation of brokers. I did not realize the true nature of certain businesses such as soy-based businesses. What made it worse was I did not exit early and that the advice by analysts changed fast. When I reflected back, I realized that my knowledge in this field was minimal. Furthermore, I did not stick to my principle but was lured to the promising returns by looking at the depressed share price only. The price went lower and lower and I sold it at a loss. Eventually, the company was suspended from the stock exchange due to corporate governance lapses. I believe the fundamentals of the company to the business model remains essential in the first step towards sound investment.
FFN: What psychology do people need to succeed in investing?
Ken: Be confident of your own abilities in investment and avoid the market noise. If you have a sound plan and did prior research, stick by it as you know your strengths well.
Wealth comes at a price, not a gift.
FFN: How has the investor in you evolved over the years?
Ken: I have learnt to invest based on my strengths, not to overly diversify and to void out the unnecessary destructive market noises. You just need a few “ultimate winners” in your portfolio.
FFN: What advice would you give for beginners who want to start investing?
Ken: Set aside a small fund to buy up the common shares of the companies. The objective is not to make a profit but to put your strategy into real-time action. Through the experiences and mistakes made, you can find out the type of investor profile while polishing your investment skills. Then, you can cater the relevant asset class to your goals and expectations. You can have a wonderful reference figure to learn and replicate but your investment style is uniquely YOU.
FFN: What do you thing is the biggest misconception people have about money?
Ken: To be rich is to take shortcuts and this explains why money scams exist always!
FFN: What is the one thing, in your opinion, do people need to succeed in investing?
Ken: EDP– Effort, Patience, Discipline
FFN: A parting shot for the readers?
Ken: Have fun while investing because true interest breeds success
You can visit FFN (financially free now) investment blog at: http://financiallyfreenow.wordpress.com