Often, I received questions:
– Telekom is now RM 2.58. Is this a good time to buy?
– I bought Magni at RM 6.00. Now, it is RM 4.00. Should I cut my losses?
– I see a lot of stocks going down. Is this the right time to ‘Go In’?
I understand, most questioners are expecting simple answers:
– Yes, you should buy more.
– No, you should sell your stocks.
But, in my opinion, dishing out these simple answers is just simply irresponsible and may cause more harm than good to questioners. Here is why:
– I am not You.
– I do not know Your Financial Situation.
– I do not know Your Objectives of Investing.
For instance, I am one who invest for dividend income where my portfolio yield is 6% per annum, on average. My friend invests for long-term capital growth. In this case, my criteria for selecting stocks would differ from my friend. There is a saying, ‘A man’s meat is another man’s poison.’ Thus, a stock that suits me may not be suitable for you.
Remember. Investing is not about ‘I jump. You jump.’
From above, I realise that most questioners are focusing their questions on one thing – Price. Price seems to be the most, if not the only, factor of consideration to decide, whether or not, one should buy, hold, or sell shares. I think, this may be the root cause of all losses, heartaches, and disappointments faced by many people when trying to make money from the stock market.
Personally, I have a problem with that.
If you have been asking these questions yourself, pardon me, I believe that you may be asking the wrong questions. First, let me share with you a quote from a living investment legend, Warren E. Buffett:
‘Price is What You Pay. Value is What You Get.’
In other words, true investors find value in an investment before investing. The rest just ask for the price. Profound? Let me explain:
For example, there is an apartment unit for sale at RM 300,000. Let me ask you this question: ‘Is it cheap?’ What would your answer be. Is it ‘Yes, it is cheap’ or ‘No, it is not.’? Perhaps, you may reply my question with more questions like:
– Where is it located exactly? KL, JB, Penang … etc?
– Freehold or Leasehold?
– What is the size of the apartment?
– Is this an undercon or a subsale property?
– What is the expected rental yield of the property? and so on and so forth …
Why would you ask ‘so many questions’ before concluding, whether or not, the apartment unit is priced cheaply? Isn’t it because you want to find out the ‘value’ of the apartment unit first before having an opinion about its price? If that is so … why can’t we use the same logical thought process when it comes to stocks?
Are you getting the picture?
Likewise, Warren Buffett, an astute investor, would be asking himself the same questions before committing into an investment. Instead of looking at charts & stock prices, Buffett would first assess a stock’s:
– Business Model: ‘Does it have a competitive edge?’
– Economic Moat: ‘Is its edge sustainable over the long-term?’
– Financial Records: ‘Earnings, Returns on Equity, Debt Levels …’
Once the quality of a stock is ascertained, he would calculate a stock’s ‘intrinsic value’. Subsequently, the intrinsic value is compared to its ‘current stock price’. If the current stock price offered is:
– Lower than its Intrinsic Value, then, the stock is undervalued.
– Higher than its Intrinsic Value, then, the stock is overvalued.
Think about it. If we start to ask, ‘What is the value?’ and not ‘What price is it?’ … I believe, we would avoid ourselves from many investment blunders. Let me start by asking:
– What is the value of Bitcoin or any cryptocurrencies in the market?
– What is the value of an unit trust fund recommended by your agent?
– What is the value of ABC Bhd recommended by your stockbroker?
– What is the valuation of a certain property that you are looking to buy now?
If you think about, how many people today are still ‘investing’ their money into ‘investments’ without knowing their intrinsic value. Perhaps, you may read this and found that ‘Hey, I am one of those guys!’, please do not feel bad about it. I can assure you that millions are doing the exact same thing when ‘investing’.
‘So, what do I do?’, you may ask.
Here is my answer: ‘Invest in Learning. Learn to find Value in an investment, be it Stocks, Properties, Unit Trusts, Gold, Bitcoin,… etc. If you know their value, it is easy to answer, whether or not, you should buy, hold, or sell any investment in the future. So, start by Learning.’
Agree? Please leave your comments below.