During the webinar I hosted featuring Ken Chee, a self-made millionaire who practices value investing, he shared with us why we should practice value investing! Here is what he said:
We know that we need to invest but how do we invest?
To me there are four asset classes:
I don’t treat gold as an investment because gold is a trading tool. Why these four? Because these four instruments, basically, pay out income to the owner. There’s a productive value and a cash value that’s paid out.
First, equity pays dividends, because you invest it in companies. Second is your property. Because you can rent it out, you get a rental income. Third is cash. You can put cash into a bank and you collect interest. The challenge here is that the interest income is very low. Fourth is bond which can actually pay out a coupon rate. These four, to me, is defined as asset because asset is something that’s putting money in your pocket.
Let’s take a look right now on how to invest. Before we invest, we must look for Sound, Proven, and Sustainable Theory. Why? Close your eyes and visualize this: I hold a pen in my hand right now. If I release the pen from my hand, what will happen to the pen? It will fall to the ground, right? If I release this pen a hundred times, what happens to the pen again here on the planet earth? It will fall to the ground a hundred times. Why? Because there is a theory called the Law of Gravity. What this means is that it’s proven and it works.
It is the same thing when we want good results especially in investing, we need to look for a theory that is actually proven, contested, and consistent. I think that is a very important thing that a lot of people don’t realize.
Allow me to share this theory from this guy called Warren Buffett. Why? Why do we need to actually learn from Warren Buffett? Simple: If you invest US$10,000 in Berkshire Hathaway in 1965, today, you are worth over US$60 million. This means that for the last forty-eight years or so, you have actually grown your money on a compounding basis of 20% year to year. If you invested in 1965, went to sleep, and today you woke up with $60 million.
I will urge everybody, if you don’t believe me, go and find one theory that can beat this result. So far I can’t. It’s very difficult. I tried. If you can, please inform me in case you had found one.
Back then I asked a question, “Wow! What did Warren Buffett use?” I have discovered he is a Value Investor. He applied Value Investing Principles. He learned from Benjamin Graham, and now he does a hybrid of assured value and growth investing together although he is still fundamentally a 60% Value Investor.
The next question then in that case is, “What is value investing?” In a nutshell, it’s very simple. It means you want to buy a dollar worth at only 50 cents and below. Isn’t it great? You want to buy something worth a dollar at only 50 cents and below.
I want to share this quote: “The stock market is filled with individuals who know the price of everything but the value of nothing.”