Hi Ian, is Airasia Group Bhd (Airasia) worth investing at RM 2.75 today over the medium term (1-2 years)?
Lately, I received the above WhatsApp Message from a subscriber.
It is a common question often asked by ‘investors’. Hence, I believe, it would be educational to share my views in writing. Hopefully, from it, you’ll understand a bit about what stock investing is and how do savvy investors assess a stock deal from scratch. So, what is my answer?
My answer is – I don’t know.
As truthful as my answer is, I too understand that it is a disappointing reply. The answers that are to be expected would be either a ‘Yes, it’s worth it’ or ‘No, it is not worth it’. In my opinion, if I dish out such answers to him, I’ll be doing him a great disservice. It is not responsible.
Instead, I replied him with a few questions. They are as follows:
#1: Why Airasia?
As I write, we have 900+ stocks to choose from to invest into in Bursa Malaysia.
So, why Airasia? What do you like about the stock?
Understandably, I have posted this question back to my questioners. I can feel a sense of ‘dumb-foundedness’ as they try their best to answer my question. This is quite normal because most people do not study about Airasia, or any stock in the stock market, before investing.
That is a big ‘No-No’ in stock investing.
What do I want to know?
As an investor, I want to know about Airasia’s business model, how it generates income, how much it made for the past 10 years, its financial standings, and its future plans towards sustainable growth. That is my step #1.
The reason why I want to know the above is because stock investing is first and foremost an act to acquire shares of businesses. I would like to accumulate and earn my share of profits from stocks that grow profits consistently.
How am I supposed to differentiate a good stock that grows profits consistently from a bad one that doesn’t without reading up its annual reports?
So, if you are sincere in looking to invest in Airasia, would you mind taking time to read up its annual reports to find out as much as you possibly can on Airasia before investing?
#2: Why Hold 1-2 Years?
Supposedly, Airasia is a good stock.
Why do you want to hold it for only 1-2 years? Why not longer if it is that good?
If a good stock is able to consistently grow profits, wouldn’t it be better to hold onto the stock for as long as possible, preferably forever?
The above is usually asked if he is an investor because an investor is one who is asset-focused and is into share ownership.
Understandably, the reason why the duration is set at 1-2 years is because he is interested to achieve capital appreciation from this transaction. Hence, my next question is: ‘What would be the price of Airasia in 2020 or in 2021?’
Will it rise to RM 3? RM 4? RM 5 and beyond?
What is the basis for it to go up? How do you come out with a figure?
This explains why my answer to the above question is – I don’t know. But, it led me to ask the next question:
#3: What if It Drops to RM 2?
What would you do?
Would you be buying more shares of Airasia? Would you cut your losses?
If you are not sure on what you should be doing, it is best not to get into stocks. This is because you do not have an investment or a trading plan. Both plans, be it investing or trading, are different. In most cases, it is next-to-impossible to try to be both investor and trader at the same time.
If you are an investor, you invest. If you are a trader, you trade. Focus is key. The danger lies in not appreciating their differences.
For instance, if the price of a good stock falls, an investor would buy more as he intends to accumulate shares of good stocks at a discount. That is me. But, if he is a trader, he would cut his losses to minimize his trading losses.
So, the question above is directed to the wrong personnel. If you intend to hold onto a stock for 1-2 years, you should ask a professional trader and not investor for the above question is a trading question. Also, you may rephrase the above:
‘Is Airasia worth Trading at RM 2.75 today?’
You should ask a trading question to traders, an investing question to investors.
#4: Why Do You Want to Buy Stocks?
‘To make money!’, you may answer.
Okay … How then do you measure your profits from buying stocks?
Is it based on capital gains? or cash flows?
Obviously, my questioner is into capital gains. He mentioned nothing about the stock’s earnings and dividend payouts. If he bought Airasia at RM 2.75 and sold it for RM 5.50, then, he would double his capital.
To me, as discussed earlier, how do you know that it will hit RM 5.50 a share for the next few years? This is what I mean by people treating the stock market like a gigantic casino to speculate, bet, and gamble. There is no knowledge about its business, its management, its financials, and its expected returns.
It leads to inconsistent results in the stock market. That is not what investors do to achieve consistent investment returns from their stock portfolio.
#5: What’s My Profile as an Investor?
I’m a value investor who invests primarily for dividend income. Period.
My investment plan is simple. It is to identify good stocks that has the ability to consistently grow profits and to accumulate these shares at their lowest prices.
To sum it up, it is to ‘Buy Good and Buy Low’.
I measure my investment returns by using dividend yield. Currently, I’m earning 5-7% in dividend yield per year from my stock portfolio. I’m collecting dividends in 8-9 months out of 12 months a year.
As such, it is easier to measure how well I’m doing in stock investing. Personally speaking, I don’t know how much would the price of a stock be exactly over the next few years.
I just know that every single stock that I bought pays me dividends. That is what I believe as investing with greater certainty. I’m certain of my dividends and it is great cash flows.
But, what about capital gains?
Most stocks that I own have appreciated in prices today. However, I don’t think that capital gains are worth measuring. This is because stock prices fluctuate on a daily basis. Everyday, the value of my stock portfolio changes. So, I believe it is a futile effort to measure capital gains unless I want to hype myself up.
Conclusion: I Want to Achieve What You’re Achieving
This is quite possible for I started with very little.
It is not about the amount of capital. It starts with having an investor’s mindset. It is learnable. I read plenty of stuff when I started off as a newbie investor. The book authors include Warren Buffett, Robert Kiyosaki, Jim Rogers … etc. When I started, I bought their books and studied them.
I reckon that you do the same.
KC is an avid reader too. He has an encyclopedia of books on investing and also variety of subjects in personal finance.
Reading is beneficial. But, what if you don’t like to read?
You can attend webinars (KC’s included), sign up for workshops or join a club or society that allows you to network with other fellow investors … etc.
The key is to appreciate learning. Your Return On Investing into anything will go up as you become more educated as an investor. Never stop learning.
All the best.