Book Review - Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor by Seth Klarman (Initial Thoughts)

Just started this book, which I found to have favorable reviews on the goodreads.com website.

One paragraph which resonated with me:

Investors must try to understand the institutional investment mentality for two reasons. First, institutions dominate financial market trading; investors who are ignorant of institutional behavior are likely to be periodically trampled. Second, ample investment opportunities may exist in the securities that are excluded from consideration by most institutional investors. Picking through the crumbs left by the investment elephants can be rewarding.



This is in line with what I understand from Peter Lynch's One Up on Wall Street, which says 

Look for opportunities that haven’t yet been discovered and certified by Wall Street—companies that are “off the radar scope."

Disclaimer: The ideas expressed in this blog should not be construed as an enticement to buy or sell the securities, commodities or assets mentioned. The accuracy or completeness of the information provided cannot be guaranteed. Readers should carry out independent verification of information provided. No warranty whatsoever is given and no liability whatsoever is accepted for any loss howsoever arising whether directly or indirectly as a result of actions taken based on ideas and information found in this blog.

Book review: One Up on Wall Street by Peter Lynch

Finished reading the book in two weeks. Here are some key lessons I haved gathered from the book:

1. An amateur investor can pick tomorrow’s big winners by paying attention to new developments at the workplace, the mall, the auto showrooms, the restaurants, or anywhere a promising new enterprise makes its debut.

2. When you sell in desperation, you always sell cheap.

3. Under the current system, a stock isn’t truly attractive until a number of large institutions have recognized its suitability and an equal number of respected Wall Street analysts (the researchers who track the various industries and companies) have put it on the recommended list.

4. If a stock is down but the fundamentals are positive, it’s best to hold on and even better to buy more.)

5. The true contrarian waits for things to cool down and buys stocks that nobody cares about, and especially those that make Wall Street yawn.

6. Pick the right stocks and the market will take care of itself. That’s not to say there isn’t such a thing as an overvalued market, but there’s no point worrying about it. The way you’ll know when the market is overvalued is when you can’t find a single company that’s reasonably priced or that meets your other criteria for investment.

7. Don’t overestimate the skill and wisdom of professionals. 

8. Take advantage of what you already know. Look for opportunities that haven’t yet been discovered and certified by Wall Street—companies that are “off the radar scope.” 

9. Invest in companies, not in the stock market. 

10. If a company must acquire something, I’d prefer it to be a related business, but acquisitions in general make me nervous. There’s a strong tendency for companies that are flush with cash and feeling powerful to overpay for acquisitions, expect too much from them, and then mismanage them. I’d rather see a vigorous buyback of shares, which is the purest synergy of all.

11. Some people automatically sell the “winners”—stocks that go up—and hold on to their “losers”—stocks that go down—which is about as sensible as pulling out the flowers and watering the weeds. Others automatically sell their losers and hold on to their winners, which doesn’t work out much better. Both strategies fail because they’re tied to the current movement of the stock price as an indicator of the company’s fundamental value.

12. None of us is immune to the panic that we feel when a normal stock drops in price, but that panic is restrained somewhat by our understanding that the normal stock cannot go lower than zero. If you’ve shorted something that’s going up, you begin to realize that there’s nothing to stop it from going to infinity, because there’s no ceiling on a stock price. Infinity is where a shorted stock always appears to be heading.

13. Asset value, by itself, has no power to produce rising stock prices. What does cause stocks to rise in value are two things that are rather closely interrelated. One is an increase in a stock’s earning power. The other, and usually the more important, is the consensus of investment opinion as to the future course of that earning power. The reason these are so closely related is the strong tendency of the financial community to conclude that because a particular company has been increasing per-share earnings at a brilliant rate year after year, this trend will continue for a long time in the future. Plus or minus the temporary influence of the business cycle, this line of reasoning is often quite correct, although occasionally it can be quite wrong.

Disclaimer: The ideas expressed in this blog should not be construed as an enticement to buy or sell the securities, commodities or assets mentioned. The accuracy or completeness of the information provided cannot be guaranteed. Readers should carry out independent verification of information provided. No warranty whatsoever is given and no liability whatsoever is accepted for any loss howsoever arising whether directly or indirectly as a result of actions taken based on ideas and information found in this blog.

Book review: One Up on Wall Street by Peter Lynch (P/E ratio)

I have been reading Peter Lynch's One Up on Wall Street. It is a very interesting and down to earth book on investment.

Today I read that price to earning ratio (p/e) can be thought of as the number of years it will take the company to earn back the amount of your initial investment, assuming that the company's earnings stay constant. Eg, if P/E is 10, this means the original investment will be earned back in ten years.

Since different industries and companies with different growth rates have different p/e ratio ranges, it is not meaningful to compare across the board, let alone to buy any and all stocks on the basis of low p/e ratios alone. Instead, it is more meaningful to compare the P/E ratio of the company with its peers to see if it is high, low or average compared to the industry. Also, it is more meaningful to compare the P/E ratio of the company with its historical values to get a sense of its normal values, to see if it is in line with what others have paid for the earnings in the past.


Disclaimer: The ideas expressed in this blog should not be construed as an enticement to buy or sell the securities, commodities or assets mentioned. The accuracy or completeness of the information provided cannot be guaranteed. Readers should carry out independent verification of information provided. No warranty whatsoever is given and no liability whatsoever is accepted for any loss howsoever arising whether directly or indirectly as a result of actions taken based on ideas and information found in this blog.

Book review - The Intelligent Investor by Benjamin Graham (Part I)

I started my stock investing journey on April 2011, and one of the first books I read on the topic is "The Intelligent Investor" by Benjamin Graham. At that time, I felt the need to learn from the best and Warren Buffett being an obvious choice, I read up on his investing philosophy (value investing) and got to know about Benjamin Graham.

After two years into my investing journey, I decided to re-read the book. And I find that I have a greater appreciation of the book after having real life, hands on experience in studying companies, choosing stocks, and buying/selling. Nothing beats trading with your hard earned $.

"The Intelligent Investor" is a classic investment book and I am sure that many people will agree with me that it is a must read for people who are intending to or who are already into stocks as an investment medium.

I have re-read about a quarter of the book and so far I have highlighted the following five points for sharing:-


1. To invest successfully over a lifetime does not require a high IQ, unusual business insights or inside information - what is needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework. By developing your discipline and courage, you can refuse to let other people's mood swings govern your financial destiny. It means being patient, disciplined and eager to learn, you must also be able to harness your emotions and think for yourself.

- Agree. Emotions are a no-no in investment. You must develop your own investment philosophy which is unique and tailored according to your risk appetite, your commitments and your temperament.


2. A stock is not just a ticker symbol - it is an ownership interest in an actual business, with an underlying value that does not depend on its share price. The market swings between unsustainable optimism (making stocks too expensive) and unjustified pessimism (making stocks too cheap). An intelligent investor is one who sells to optimists and buys from pessimists.  

- Agree. Always look for value or bargains in businesses, while considering the broad economic climate, before buying a stock. You must be happy to be part of the business, and do not mind holding on to it (in case market trends downwards).


3. Future value of every investment is a function of its present price - higher the price, lower the returns. Benjamin Graham emphasizes on Margin of Safety - never overpaying, no matter how exciting an investment seems to be. This is because the chance of being wrong is always there (never know how Mr. Market behaves the next minute). 

- Somewhat agree. It's a cross between buying at a bargain and riding the wave. I do agree on the margin of safety - it is important to avoid overpaying for a stock, as I know from my early stock buys in 2011 (such as ECS, Keppel Land, NOL...). Always know what you are buying.


4. The intelligent investor realizes that stocks become more risky as their prices rise, and less risky as their prices fall. He dreads a bulls market which makes stocks more costly to buy, and welcomes a bear market since it puts stocks back on sale. Even though investors know they are supposed to buy low and sell high, in practice they often end up getting it backwards.

- Agree. The best moment to buy is when market starts to turn around. Prices of stocks look high now.


5. The art of successful investment lies first in the choice of those industries that are most likely to grow in the future and then in identifying the most promising companies in these industries. The search for a stock to buy is not worth the investor's efforts unless he could hope to add 5% before tax to the average annual return from the stock portion of his portfolio. It is important to measure your investing success by how much you keep after inflation and not just by what you make.  

- In theory yes, but difficult to put into practice. I need to work on the 5% increase to portfolio stocks, and not spend too much time on those 1-2% ones.

You can read the reviews from others and/or get the book from Amazon here:-
The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition)

Disclaimer: The ideas expressed in this blog should not be construed as an enticement to buy or sell the securities, commodities or assets mentioned. The accuracy or completeness of the information provided cannot be guaranteed. Readers should carry out independent verification of information provided. No warranty whatsoever is given and no liability whatsoever is accepted for any loss howsoever arising whether directly or indirectly as a result of actions taken based on ideas and information found in this blog.

Book Review: How to Make Money in Stocks by William J. O'Neil

William O'Neil's philosophy revolves around the following

C Current Quarterly Earnings per Share: The Higher, the Better 

A Annual Earnings Increases: Look for Significant Growth 

N New Products, New Management, New Highs: Buying at the Right Time 

S Supply and Demand: Shares Outstanding Plus Big Volume Demand 

L Leader or Laggard: Which Is Your Stock? 

I Institutional Sponsorship: Follow the Leaders 

M Market Direction: How to Determine It

The goal of the strategy is to discover leading stocks before they make major price advances. The system matches fundamental and technical analysis, and identifies companies with strong fundamentals, . It encourages buying their stock when they emerge from price consolidation periods and before they advance dramatically in price.

What To Do:-
1) You should buy stocks when they’re on the way up in price, not on the way down. And when you buy more, you do it only after the stock has risen from your purchase price, not after it has fallen below it.
(I agree. Even though a stock may look cheap, the fall may not have ended. Don't catch a falling knife!)

2) You buy stocks when they’re nearer to their highs for the year, not when they’ve sunk so low that they look cheap. You buy higher-priced stocks rather than the lowest-priced stocks.
(This bit would be the technical analysis portion, where volume and price action comes into play.)

3) You pay far less attention to a company’s book value, dividends, or PE ratio—which for the last 100 years have had little predictive value in spotting America’s most successful companies—and focus instead on more important proven factors such as profit growth, price and volume action, and whether the company is the number one profit leader in its field with a superior product.
(Same as Point 2) above. It's relevant if you are trading based on price and volume action.)

4) You learn to always sell stocks quickly when you have a small loss rather than waiting and hoping they’ll come back.
(True for all cases. Ok, maybe not for the hard core value investor. Learn the 8% cut loss rule, especially when you are on CFD.)

5) You also have to acquaint yourself with charts—an invaluable tool most professionals wouldn’t do without but amateurs tend to dismiss as complicated or irrelevant.

(This (TA) I've got to learn. It seems so so hard.)


6) Today it’s not enough for you to just work and earn a salary. To do the things you want to do, go the places you want to go, and have the things you want to have in your life, you absolutely must save and invest intelligently.
(I agree. Start early!)

7) It is the unique combination of your finding stocks with big increases in sales, earnings and return on equity plus strong chart patterns revealing institutional buying that together will materially improve your stock selection and timing.
(Very true.)

8) A stock’s chart must always be checked to determine whether the stock is in a proper position to buy, or whether it is the stock of a sound, leading company but is too far extended in price above a solid basing area and thus should temporarily be avoided.

What NOT To Do:
1) You don’t subscribe to a bunch of market newsletters or advisory services, and you don’t let yourself be influenced by recommendations from analysts, who, after all, are just expressing personal opinions that can frequently be wrong.
(I agree. Always do your known research. Analysts may have their own hidden agenda!)

This book has 4 stars based on 228 reviews on Amazon.

You can read the reviews from others and/or get the book from Amazon here:-

How to Make Money in Stocks by William J. O'Neil

Disclaimer: The ideas expressed in this blog should not be construed as an enticement to buy or sell the securities, commodities or assets mentioned. The accuracy or completeness of the information provided cannot be guaranteed. Readers should carry out independent verification of information provided. No warranty whatsoever is given and no liability whatsoever is accepted for any loss howsoever arising whether directly or indirectly as a result of actions taken based on ideas and information found in this blog.

Book Review: Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School by Andrew Hallam

I read the book Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School by Andrew Hallam a couple of months ago.

It was a rather interesting read, sentiments shared by 92 other customers on the Amazon website, with an average rating of 4.5 stars.

You can build financial security by using the nine rules outlined in this book: 

1. Spend like a millionaire (or less) if you want to become rich. 

(I agree. Many books/websites on financial management advocate spending within your means, or delayed gratification i.e. to use the money on income generation, instead of shopping or buying a flashy new car for example.) 

2. Start investing as early as possible—after paying off credit card debt and any other high-interest loans. 

(I agree. Rules of compounding work miracles. The earlier you start, the better it is, cos it allows more time for $ to grow.) 

3. Invest in low-cost index funds instead of actively managed funds. Nobody can consistently pick “winning” actively managed funds ahead of time. 

(Hmm, this one I am not sure as I do not have experience in buying funds. However, if you are a 'lazy, busy or risk adverse' investor, you should look at exchange traded funds instead of doing your own stock picking, since studies have shown that exchange traded funds grow despite downturns or market fluctuations, given a sufficient timeframe of 5-10 years.)

4. Understand stock market history and psychology so you don’t fall victim to the craziness that infects every investing generation (often more than once). 

(I agree. Read as widely and as much as you can. Do research into the companies that you are investing in - know what you are buying and not jump into the next (over)hyped stock.)

5. Learn to build a complete, balanced portfolio with stock and bond index funds that will easily beat most of the pros. 

(I agree. It is important to know your investment philosophy and your appetite for risk. I have a mix of insurance, REITs and growth stocks, and depending on the market conditions, I balance my portfolio accordingly. I am interested to know more about bonds and gold/silver investment. Still learning though.) 

6. Create indexed accounts no matter where you live. 

(I am not too sure what this means. Need to find out more.)

7. Learn to fight an adviser’s sales rhetoric. 

(I agree. You need to be responsible for your $ and do your own thorough research, instead of relying on another person's advice.)

8. Avoid investment schemes and scams that tickle your greed button. 

(Same as Point 7 above. If something looks too good to be true, it probably is.)

9. If you must buy common stocks, do it with a small percentage of your portfolio and pick a mentor such as Warren Buffett.

(I think that value investing knowledge armed with some technical analysis works best. Value investing to know if the company is doing well, and technical analysis to know the best entry points.)

You can read the reviews from others and/or get the book from Amazon here:-
Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School

Kindle version is also available: Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School

Disclaimer: The ideas expressed in this blog should not be construed as an enticement to buy or sell the securities, commodities or assets mentioned. The accuracy or completeness of the information provided cannot be guaranteed. Readers should carry out independent verification of information provided. No warranty whatsoever is given and no liability whatsoever is accepted for any loss howsoever arising whether directly or indirectly as a result of actions taken based on ideas and information found in this blog.

Book Review: Come Into My Trading Room: A Complete Guide to Trading by Alexander Elder

I have been reading constantly in order to improve on my trading/investing knowledge since my first trade about 2 years ago.

Recently, I came across my notes on the book Come Into My Trading Room: A Complete Guide to Trading by Alexander Elder.

This book is more for the day/intra-day trader, who looks at market signals/TA, timings of entries/exits etc. Not so much for the value investor.

Here are some excerpts from the book which I highlighted:-

1) To succeed in trading you need several innate traits without which you shouldn’t even start. They include discipline, risk tolerance, and facility with numbers.

2) A good signal jumps at you from the chart and grabs you by the face—you can’t miss it! It pays to wait for such signals instead of forcing trades when the market offers you none. Amateurs look for challenges; professionals look for easy trades. Losers get high from the action; the pros look for the best odds.

3) Bullish fundamentals must be confirmed by rising technical indicators; otherwise they are suspect. Bearish fundamentals must be confirmed by falling technical indicators. When fundamentals and technicals are in gear, a savvy trader can have a field day.

4) Win or lose, you have to gain knowledge from a trade in order to be a better trader tomorrow. Scan your fundamental information, read technical signals, implement your rules of money management and risk control.

5) A professional waits for familiar patterns to emerge from the market. Technical analysis tools will work for you only if you have the discipline to wait for patterns to emerge. Professionals trade only when markets offer them special advantages.

6) Most company news is released on a regular schedule. If you trade a certain stock, you should know well in advance when that company releases its earnings and be prepared for any market reaction to the news. Lighten up on your position if unsure about the impact of a coming announcement.

7) Rallies top out after enough wealthy bulls take their profits, while the money from new bulls is not enough to replace what was taken out.

8) Three essential pieces of information—the direction of price movement, its extent, and volume. Price represents the consensus of value among market participants. Volume reflects their level of commitment, financial as well as emotional. Price reflects what people think, and volume what they feel.

One important thing to note: this book has a 4.5 star rating based on 136 customers review on the Amazon website. This means that quite a number of people have read the book and found it to be useful.

You can read the reviews from others and/or get the book from Amazon here:-
Come Into My Trading Room: A Complete Guide to Trading


Disclaimer: The ideas expressed in this blog should not be construed as an enticement to buy or sell the securities, commodities or assets mentioned. The accuracy or completeness of the information provided cannot be guaranteed. Readers should carry out independent verification of information provided. No warranty whatsoever is given and no liability whatsoever is accepted for any loss howsoever arising whether directly or indirectly as a result of actions taken based on ideas and information found in this blog.

How I got started and my investment approach

I started to learn investing in the stock market more than a year ago. It has been a roller coaster ride so far, having been through the US rating downgrade by S&P in 2011 as well as the on-going European debt crisis, and the (possible) US fiscal cliff next year. Certainly not been easy for a novice share investor like me.

However, as the Chinese says "There is opportunity in danger". I believe that so long as one's fundamentals are intact, it is ok to take calculated risks. Of course, one of the most important mind set, I feel, is the need to be not greedy.

What got me started on investment was the book Rich Dad's Guide to Investing by Robert Kiyosaki. Now I regret having not started earlier when I was in my twenties, to allow more time for my investment to compound. In any case, better late than never! The book truly opened up my thinking and I started learning about investing. Having read a number of investment books while trying not to lose my money, from value investing books on the philosophies of Warren Buffett and Benjamin Graham, to growth investing books by William O' Neil, I now adopt a hybrid approach, that is:

To identify good companies and good yield stocks as part of my on-going research, and to monitor the market in order to buy these stocks when they are being offered at a good price.

I am still learning, and being human, emotions come into play. I make mistakes now and then, but treat them as good learning experiences, and believe that practice makes perfect (so long as I learn from these mistakes).

You can read the reviews from others and/or get the book that inspired me (Rich Dad's Guide to Investing by Robert Kiyosaki) from Amazon here:-
Rich Dad's Guide to Investing: What the Rich Invest in, That the Poor and the Middle Class Do Not!

Disclaimer: The ideas expressed in this blog should not be construed as an enticement to buy or sell the securities, commodities or assets mentioned. The accuracy or completeness of the information provided cannot be guaranteed. Readers should carry out independent verification of information provided. No warranty whatsoever is given and no liability whatsoever is accepted for any loss howsoever arising whether directly or indirectly as a result of actions taken based on ideas and information found in this blog.