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.
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