Month: January 2012

I recently read a book called “The Best Investment Advice I Ever Received”. It has a collection of advice from top company CEOs and well-known personalities including Warren Buffett, Robert Kiyosaki, Suze Orman and Jim Rogers. This blog post will look at some of the advice that I like. They are as follows:

• Have a long-term investor’s attitude towards stocks and market fluctuations
• Invest with a margin of safety added in
• Don’t trust anyone who’s glamorous, flashy and claims to have a secret formula for making money
• If it’s too good to be true, it isn’t true
• Invest in companies that are in good markets, have a great culture, people and values and is constantly reinventing itself
• Save, save a lot and save often
• If you live for today, you have less for tomorrow
• Dividend yield and earnings growth are two fundamental factors that drive long-term stock market returns
• You accumulate wealth by acquiring equities
• Ask the right question to get the right answer
• Don’t short stocks
• There is always something to worry about. The question is whether the market has already worried about it.
• Stay away from businesses you don’t understand and if the fundamentals are not there, don’t invest
• Know your investment goals, invest regularly and avoid market timing
• Investing is having sound judgement and common sense
• Buy low, sell high (this is very basic to making money but many fail to follow this)
• Listen to the market as it tells you things
• Don’t trust the experts as they can be wrong too
• There’s a fundamental relation between a profitable company and a company with great service. Look at the customer loyalty, the types of repeat business, the way staffs are trained and turnover rate of staff.
• Baruch once said, “Whatever men attempt they seem driven to overdo. When hopes are soaring, I always repeat to myself ‘two plus two still equals four and no one ever invented a way of getting something for nothing’. When the outlook is steeped in pessimism I always remind myself ‘two plus two still equals four and you can’t keep mankind down for long.'” (Means going against the grain when things get euphoric or excessively pessimistic.)
• Another quote by Baruch – “Sell to the sleeping point” (If you lie awake at nights worrying about your investments, you own too much or are taking too much risk. When you go to sleep at night and not wake up wondering how the markets did, you are adequately invested.)
• Livermore said, “An investor has to guard against many things – most of all against himself”
• Learn to control your emotions as you need to grind it out to win over the long run
• Ask a few basic questions before investing in a company: Can you explain the company’s business model in a single sentence? Do they have clear goals and strategies that don’t change from year to year? Do they stay close to their consumers or customers they serve? Do they have a track record for executing with excellence, managing cash and costs for long-term growth and delivering on the commitments they make to investors? Do they develop leaders for the long-term?
• Have a formula, an investment plan and follow it
• Don’t live beyond your means
• Educate yourself about investments and you have to do your own homework
• Don’t get greedy. If you want to try to shoot the moon, take 5 to 10 percent for your play money and run it yourself. You are not risking too much of your net worth so you can be greedy and have some fun with it.
• Follow the path of your own experience. Your experience is your best teacher.
• Diversify your portfolio
• Avoiding losers is every bit as important as finding winners. You can lose more money in a matter or minutes than you can make in a matter of years.
• You cannot be successful in the long run without being successful most of the time in the short run. Don’t justify bad decisions with the notion that you are in it for the long haul.
• Invest with a competent successful management
• Start investing as early as possible
• Cash is a potent weapon. Don’t be fully invested and keep some cash in the bank to take opportunities of falling equity prices. (Cash in the bank generates meagre returns but once deployed during a crash/correction diligently,  will make up for the “lost returns” and generate much more profits than being fully invested.)
• The worst thing to do is to dwell on your mistakes and do nothing. If you’re wrong, act quickly to accept it and get out of the investment.
• The three most important characteristics to consider when selecting a stock are price, price and price. Paying the wrong price is equivalent to buying a bad company.
• The most important virtue of a value investor is patience
• It’s better to have 50 percent of something than 100 percent of nothing. Don’t be greedy.
• Trust yourself more than you trust others. Nobody is going to care about your money than you do.
• Losing money is the best way to see what you’re made of.  Remaining resilient once you lose money teaches you about yourself and the market.
• Don’t be complacent. The market knows more than you do.
• Invest in businesses you are passionate about
• The four most dangerous words in the world of investing are: “This time is different”
• Stay focused on the key investment principles of diversification, buying quality investments and maintaining a long-term perspective to reach your long-term goals
• It’s those who come to the market early, ahead of the crowd, who realize the greatest profit
• When there’s nothing to do, do nothing
• To know how much risk you can assume, ask yourself, “How much money can you stand to lose?”

It’s always worthwhile to read the wise words of Warren Buffett to keep us centered on what works and what doesn’t, especially during a lull period in the stock market.

“We will continue to ignore political and economic forecasts, which are an expensive distraction for many investors and businessmen. Thirty years ago, no one could have foreseen the huge expansion of the Vietnam War, wage and price controls, two oil shocks, the resignation of a president, the dissolution of the Soviet Union, a one-day drop in the Dow of 508 points, or treasury bill yields fluctuating between 2.8% and 17.4%. But, surprise – none of these blockbuster events made the slightest dent in Ben Graham’s investment principles. Nor did they render unsound the negotiated purchases of fine businesses at sensible prices. Imagine the cost to us, then, if we had let a fear of unknowns cause us to defer or alter the deployment of capital. Indeed, we have usually made our best purchases when apprehensions about some macro event were at a peak. Fear is the foe of the faddist, but the friend of the fundamentalist.”

– Warren Buffett, 1994 Berkshire Hathaway Shareholder Letter

I came across Qian Hu’s online Q&A with management and one of the questions on staff motivation and company culture caught my eye. The reply summarizes succinctly why people still work for a company regardless of monetary benefits. The question and the subsequent answer are reproduced below:

Dear David Tan, you wrote:

Hi David,

Happy new Year!

People stay in a company for reasons other than competitive remuneration. For example, it might be because they like the corporate culture of the company. A company without office politics, management treating employees like family members, transparent and fair treatment of staff might be more important than stock options.

Stock options are expenses to the company and dilutes existing shareholders’ shareholdings. When Qian Hu was listed, we used to have stock options. But now we no longer have them. I think some companies’ stock options are self-serving and not fair to shareholders.

Kenny the fish

Source: http://qianhu.listedcompany.com/qa_20120116.html