I have been investing in the stock market for slightly more than a decade now. Over the past ten years, I have changed from a speculator to a deep value investor, to a turnaround investor, to a dividend investor, to a growth investor and finally to what I am today.
Throughout the years, I have experimented with many strategies of investing and have made many mistakes in my investments. From all these, I was finally able to compile 5 Golden Rules that I follow in my investment. Here are the first 3 of my Golden Rules To Investing.
Golden Rule 1: Focus On The Fundamentals
Many investors like to start out their investment process by looking at the valuation or price of a stock. I find that it can actually be damaging to your research if you looked at the price or valuation of a stock first. This is because our brain will set the first impression on the stock. If you saw that the company is currently just trading at 4 times its earnings, you might already peg the image of “undervalued stock” in your mind. And this first impression might hurt you from thinking objectively about the company when you are researching on it. You might always feel that the company is still worth a look even when it has bad economics or bad management, just because it is trading so cheaply. Instead, I found that it is extremely useful to just focus on the business of the company when you look at a stock.
The flow might go like this. A friend might hint you to take a look at a company. You then just go to the company’s website and download the annual reports about the company or just search news about the company. In this way, you can more objectively make an assessment on the quality of the business and not worry about its valuation.
Golden Rule 2: Valuation Is Only A Guide
Some investors might treat valuation as a law. However, valuation is only as good as the assumptions of the valuer. It is important for us to understand that. Just because your valuation model estimated the intrinsic value of a company to be $5.00 per share, it does not mean that the company have to be worth $5.00 per share. It is merely an estimation.
Therefore, we should only use valuation as a guide, not a law.
Golden Rule 3: Cheap Rubbish Is Still Rubbish
I invested in a company that had a price to earnings ratio of 1.0 times. Yes, the company was trading at just 1.0 times its earnings when the time I invested into it. And it turned out to be one of my biggest investment mistakes in my career. I hated myself for making that investment. Till today, I always reminded myself that if it is a company with management that I do not believe in, it is better to stay far away no matter how cheap it might be trading at. Cheap rubbish is still rubbish.
To find out ALL about my 5 Golden Rules To Investing, join me in Singapore on 28th September 2017, 7 pm. We are holding our first investment workshop in Singapore. We will talk more about the details on how to apply these 5 Golden Rules, on 5 listed companies that I owned which fitted nicely with my 5 Golden Rules.
I would also be sharing with you on my personal portfolio. We will discuss more on how I analyse some of them and why I made the decision to invest in them.
p.s. It is just a sharing session for our readers, we guarantee there will be no up-selling agenda to the event. Hope to see you there.