Thursday, 8 May 2014

Ah.. That Long Term View Thingy.


Warren Buffet, ‘If you do not intend to hold on to a stock for 5 years, do not even think about holding it for 5 days.’; ‘It is foolish to expect a stock price to rise the next day after you buy it.’

冷眼 ‘建 房子需要等五年,收割油棕需要等五年,做生意从开业到回本赚钱需要等五年,为什么买股票不可以等五年?’

Master investors had given us enough advice and wisdom on the need to have a long term view on stock investment, as shown in the couple of quotes shared above. However, such long term mentality is exactly what is missing in the investment process of majority of the retail investors.

I was sharing with colleagues FCT and Riverstone Holdings as 2 counters which I see investment merits in. As a fundamental investing guy, naturally I informed them of the good fundamentals of these 2 companies in terms of rising revenue, consistent profit margin, low debts, stable dividends etc. Guess what they responded?

‘These 2 stocks have low volume. I do not know if I can sell them next month for a profit..’; ‘Look at their one month price chart! The stock hardly rise!’

Bingo. Their response was the perfect illustration of the lack of long term mentality towards share investment. They are not interested in companies grow their business and earnings and bring them true wealth over the long term. They are keen in ticker symbol that show an upward trend with much hear-say about how much it will rise next 2 weeks and dream about getting quick profit through rapid buy and sell. And they repeat the process with the next ticker symbol.

Well, human beings are wired psychology to yearn for instant, short term benefits. We adore quick results, and loathe the long wait for a more certain and way bigger rewards. Give kids small candy frequently and they will be happy as playful monkeys; promise them sumptuous meals in Swensens with big Banana Split on coming weekend and they sulk. This is how normal human beings behave.

However, quoting Mr Hu Li Yang, normal people do not earn big bucks in the stock market. You have to be abnormal to invest to riches.

To be abnormal means we can sit still and have the patience to see the companies behind the stock symbols flourish into a cash generating machine; it means to have the mental discipline to go against your immediate demand to feel ‘fulfilled and in control’ from the illusion that we are doing something proactively through frequent transaction; it means to have the immunity to daily and monthly price movements and only be concerned about whether your companies are growing its sales, earnings, cashflow, dividends and reducing its debts.

Having a long term view also helps us to develop the zen-liked attitude towards the stock market. I feel at ease knowing that the market will always be around and there are always chances that I can buy these companies cheap. Hence I am not in a hurry to buy which often result in buying at high price. It also allows me to ditch attempting to buy at the absolute bottom, because with a long term view and investment horizon ahead of me, I am not worried about buying at the cheapest price to earn a profit but instead, I may just buy at the cheap range and chances are the stock price will be higher 5 years down the road.

There are no shortage of examples on how having a long term view allows your companies to grow and compound your wealth. Refer to Uncle 8888’s blog on how he has got 10-bagger in the form of Keppel Corp over a decade. Go to Motley Fools Singapore to look at their articles showing how companies like Raffles Medical Group, Vicom, Osim, Super Group delivered returns in excess of 500% to 1000% over past 5 or 6 years.

Earning such return over the long term sitting on your shares while enjoying life with your loved ones, excelling at your career; or earn pocket money through hectic buy/sell transactions while feeling mentally drained trying to guess whether the share price has reached its peak/bottom? Lets make a wise choice fellow investors.


P.S. If you have experience why it is so hard to have a long term mentality, or know of any miraculous ways to drill the concept into human brains followed by manifesting the mindset in investing behaviour, do let me know.




12 comments:

  1. CSCCC,

    I have a gentle suggestion. An old facilitator's trick when we conduct workshops.

    Write down in a letter addressed to yourself your reasons for your convictions in FCT and Riverstone Holdings today (record their closing prices today).

    Open up this letter in 5 years' time 08 May 2019.

    See if there's any differences between what you BELIEVE and your actual EXPERIENCE.

    CW is sharing his experience. (That's the source of his conviction)

    Motley Fool Singapore I not so sure. It's more data-mining. And everyone knows we can drill-up statistics to fit whatever thesis we had in mind in the first place ;)

    Sometimes, the person we need to convince is not others.

    ReplyDelete
    Replies
    1. Hi SMOL,
      Already doing that..
      The problem is that many people do not even attempt to develop that conviction but instead buy with false conviction that it should rise within a mth so he can profit from it. Its a totally wrong mindset to begin with

      Delete
  2. Some typo in first paragraph?
    I think the length of time is not Impt even in value investing. It's whether your investment thesis is still sound yr after yr while holding the company. If it's not sound, then you shouldn't have any hesitation selling, even if it's for 5 days. If you're fixated on holding something long term, then it's as gd as those who are fixated on holding for the short term, because the focus is on time.

    ReplyDelete
    Replies
    1. Ya typo. Thanks for pointing out!
      U are right.. first and foremost thing to consider is whether ur investment argument still holds.. time is secondary and is premised within the context that company still meets ur investment rules or checklists.

      But again. Problem is ppl wholeheartedly buy with blinded belief that they will and can sell it within short term for a profit.

      But I didnt include this in or else it will be too long a post.. this article is about the mindset. What sort of mental attitude and psychological made up u have before buying into a company..

      Delete
  3. My late father-in-law held on to a few stocks e.g. IPC, Koh Brothers to his death at 90+ and never ever recover beyond his purchase price.

    ReplyDelete
    Replies
    1. Did he not monitor the company performance due to lack of knowledge or blind faith that buy and hold will always work out?

      Enter w the intention to hold for long term. Supplement that with constant monitoring of business performance and investment thesis. This delivers highest odds of success. Thats why I think ur experience w kepcorp and sembcorp is good example..

      Delete
  4. Sometime it is so much easier to write about investing than actually doing it and proving it.. Right?

    ReplyDelete
    Replies
    1. In investing, to write well one has to think clearly and logically. And to have good thinking one has to have experience and results to share (good or bad).

      Thats why sometimes I am apprehensive to write. Hope to have more actions experience to share.

      Delete
    2. I am refering to those cleverly written data mining investment articles written on hindsight.

      We share real life investing experience and that is different.
      .

      Delete
  5. Personally think that to have a real impact for true long term investment (like holding it for 5-10 years or more) is when we are investing a sizeable capital in it, for small retail investors (like myself), too long holding might not make sense. Hence, I am looking at mid-term investment and not really long term. ;-)

    ReplyDelete
    Replies
    1. Sizeable capital makes one rich from few multi bagger stocks. But it also depends in how diversified u are..

      But if u have small capital, u will get rich too. Just whether u mind getting wealthy later in life :)

      Delete
  6. i have a few stock holdings with very little or no daily volume and l am not really bothered with it.

    It is important to personalize one's stock investing strategy. Once it becomes a winning strategy then stick to it and care not the noises who are telling you that you are actually trading and not investing; let the winners run; cut losses; blah blah blah ...

    When one has just started with stock investing then it's okay to make losses as this is how one can learn from it. But, even seasoned stock investors still making mistakes along the way as we are human after all.

    ReplyDelete

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